-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QmA9uC+Bi5B6iA/M49P3gakxEU+exhW2V/C6tvEHWGDOmMCJT6JuPmIeA0LjC/E6 5YrbzAy4iI88fhR5pvIZdQ== 0000950137-05-006087.txt : 20050517 0000950137-05-006087.hdr.sgml : 20050517 20050516184812 ACCESSION NUMBER: 0000950137-05-006087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050402 FILED AS OF DATE: 20050517 DATE AS OF CHANGE: 20050516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUE VALUE CO CENTRAL INDEX KEY: 0000025095 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 362099896 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-18397 FILM NUMBER: 05836667 BUSINESS ADDRESS: STREET 1: 8600 WEST BRYN MAWR AVE CITY: CHICAGO STATE: IL ZIP: 60631-3505 BUSINESS PHONE: 7736955000 MAIL ADDRESS: STREET 1: 8600 W. BRYN MAWR AVENUE CITY: CHICAGO STATE: IL ZIP: 60631-3505 FORMER COMPANY: FORMER CONFORMED NAME: TRUSERV CORP DATE OF NAME CHANGE: 19970707 FORMER COMPANY: FORMER CONFORMED NAME: COTTER & CO DATE OF NAME CHANGE: 19920703 10-Q 1 c95221e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 2, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO___________ COMMISSION FILE NUMBER 2-20910 TRUE VALUE COMPANY (Exact name of registrant as specified in its charter) DELAWARE 36-2099896 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8600 WEST BRYN MAWR AVENUE, CHICAGO, ILLINOIS 60631-3505 (Address of principal executive offices) (Zip Code) (773) 695-5000 (Registrant's telephone number, including area code) TRUSERV CORPORATION (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 2005. Class A common stock, $100 Par Value 319,620 Class B common stock, $100 Par Value 1,202,420 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. ($ in thousands - except per share information) TRUE VALUE COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) ASSETS
April 2, December 31, 2005 2004 -------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 6,265 $ 7,222 Accounts and notes receivable, net of allowance for doubtful accounts of $3,620 and $3,835 294,400 200,958 Inventories 306,881 264,235 Prepaid expenses 12,972 15,070 Property held for sale, net 6,208 -- -------- -------- Total current assets 626,726 487,485 Properties, net of accumulated depreciation of $257,957 and $267,932 63,302 70,448 Goodwill 91,474 91,474 Other assets 6,241 6,112 -------- -------- Total assets $787,743 $655,519 ======== ========
See Notes to Condensed Consolidated Financial Statements. 2 LIABILITIES AND MEMBERS' EQUITY
April 2, December 31, 2005 2004 --------- ------------ CURRENT LIABILITIES: Accounts payable $ 303,329 $ 230,046 Drafts payable 34,971 56,209 Accrued expenses 73,299 70,405 Current maturities of long-term debt, notes and capital lease obligations 115,024 31,109 Patronage dividend payable in cash 680 12,669 --------- --------- Total current liabilities 527,303 400,438 --------- --------- LONG-TERM LIABILITIES AND DEFERRED CREDITS: Long-term debt including notes and capital lease obligations, less current maturities 141,922 139,192 Deferred gain on sale leaseback 46,529 47,230 Other long-term liabilities 21,746 18,837 Redeemable non-qualified Class B non-voting common stock, $100 par value; 213,942 and 216,261 shares issued and fully paid 21,394 21,626 --------- --------- Total long-term liabilities and deferred credits 231,591 226,885 --------- --------- Total liabilities and deferred credits 758,894 627,323 --------- --------- Commitments and contingencies -- -- MEMBERS' EQUITY: Redeemable Class A voting common stock, $100 par value; 750,000 shares authorized; 293,820 and 296,820 shares issued and fully paid; 26,700 and 22,920 shares issued (net of subscriptions receivable of $1,624 and $1,484) 30,428 30,490 Redeemable qualified Class B non-voting common stock and paid-in capital, $100 par value; 4,000,000 shares authorized; 995,053 and 1,008,882 shares issued and fully paid 100,804 102,187 Loss allocation (19,066) (19,420) Deferred patronage (24,111) (24,298) Accumulated deficit (57,303) (58,860) Accumulated other comprehensive loss (1,903) (1,903) --------- --------- Total members' equity 28,849 28,196 --------- --------- Total liabilities and members' equity $ 787,743 $ 655,519 ========= =========
See Notes to Condensed Consolidated Financial Statements. 3 TRUE VALUE COMPANY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the quarter ended April 2, April 3, 2005 2004 --------- --------- Net revenue $ 503,581 $ 499,362 Cost of revenue 451,609 449,519 --------- --------- Gross margin 51,972 49,843 Operating expenses: Logistics and manufacturing expenses 16,425 15,742 Selling, general and adminstrative expenses 29,333 29,001 Other (income) / expense, net 267 (498) --------- --------- Operating income: 5,947 5,598 Interest expense to members 1,335 1,401 Third-party interest expense 1,989 2,022 --------- --------- Net margin before income taxes 2,623 2,175 Income tax expense 8 51 --------- --------- Net margin $ 2,615 $ 2,124 ========= =========
See Notes to Condensed Consolidated Financial Statements. 4 TRUE VALUE COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the quarter ended April 2, April 3, 2005 2004 -------- -------- Operating activities: Net margin $ 2,615 $ 2,124 Adjustments to reconcile net margin to net cash and cash equivalents used for operating activities: Depreciation and amortization 3,327 4,595 Provision / (benefit) for losses on accounts and notes receivable (226) 352 (Gain) / loss on sale of assets 931 (3) Provision for inventory reserves 2,770 2,873 Amortization of deferred gain on sale leaseback (700) (699) Net change in working capital components and other assets (58,757) (39,194) -------- -------- Net cash and cash equivalents used for operating activities (50,040) (29,952) -------- -------- Investing activities: Additions to properties (2,669) (1,704) Proceeds from sale of properties 13 90 -------- -------- Net cash and cash equivalents used for investing activities (2,656) (1,614) -------- -------- Financing activities: Payment of patronage dividend (11,915) (8,401) Payment of notes, long-term debt and lease obligations (276) (157) Decrease in drafts payable (21,238) (13,152) Increase in revolving credit facilities, net 85,200 50,200 Proceeds from common stock and stock subscriptions receivable 424 3 Purchase of common stock (456) -- -------- -------- Net cash and cash equivalents provided by financing activities 51,739 28,493 -------- -------- Net decrease in cash and cash equivalents (957) (3,073) Cash and cash equivalents at beginning of period 7,222 9,234 -------- -------- Cash and cash equivalents at end of period $ 6,265 $ 6,161 ======== ========
See Notes to Condensed Consolidated Financial Statements. 5 TRUE VALUE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ($ IN THOUSANDS) NOTE 1 - GENERAL The condensed consolidated balance sheet at April 2, 2005, the condensed consolidated statement of operations for the quarters ended April 2, 2005 and April 3, 2004, and the condensed consolidated statement of cash flows for the quarters ended April 2, 2005 and April 3, 2004 are unaudited and, in the opinion of the management of True Value, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of financial position at the balance sheet dates and results of operations and cash flows for the respective interim periods. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2004 included in True Value's 2004 Annual Report on Form 10-K. NOTE 2 - RECLASSIFICATIONS Certain reclassifications have been made to the prior year's condensed consolidated financial statements to conform to the current year's presentation. These reclassifications had no effect on Net margin for any period or on Total members' equity at the balance sheet dates. NOTE 3 - ESTIMATED PATRONAGE DIVIDENDS Participation in the earnings or losses of a cooperative is based on member patronage purchases and reflected by the payment of patronage dividends. If financial and operating conditions permit, patronage dividends are declared and paid by True Value after the close of each fiscal year. True Value's By-Laws and Internal Revenue Service regulations require that the payment of at least 20% of patronage dividends be in cash. Commencing with the 2004 patronage dividend that was paid in 2005, the board of directors authorized retaining 5% of net patronage source income, as a reasonable reserve, to reduce the Accumulated deficit account. The estimated cash portion of the patronage dividend for the quarter ended April 2, 2005 was $644. The cash portion of the patronage dividend was 30% of the quarter's estimated patronage dividend of $2,146, which was patronage income less the 5% retained as a reasonable reserve. The estimated cash portion of the patronage dividend for the corresponding period for 2004 was $603, which was 30% of the quarter's estimated patronage dividend. Consistent with the prior year, to the extent True Value declares a patronage dividend for 2005, it intends to issue in 2006 the non-cash portion of the dividend in the form of Redeemable qualified Class B common stock and Promissory (subordinated) notes. For those members who have Loss allocation accounts, the value of the Redeemable qualified Class B common stock will be offset against those accounts. The non-cash portion of the estimated patronage dividend remained in the Accumulated deficit account. To the extent True Value declares a patronage dividend, it is allowed a deduction in that amount to determine taxable income. Based on the estimated patronage dividend, the U.S. federal effective income tax rate for 2005 is 0%. 6 NOTE 4 - INVENTORIES
April 2, December 31, 2005 2004 --------- ------------ Manufacturing inventories: Raw materials $ 2,568 $ 1,666 Work-in-process and finished goods 27,573 22,492 Manufacturing inventory reserves (1,529) (1,112) --------- --------- 28,612 23,046 --------- --------- Merchandise inventories: Warehouse inventory 286,884 250,273 Merchandise inventory reserves (8,615) (9,084) --------- --------- 278,269 241,189 --------- --------- Total $ 306,881 $ 264,235 ========= =========
Inventories are stated at the lower of cost, determined on the first-in, first-out basis, or market. The cost of inventory also includes indirect costs incurred to bring inventory to its existing location for resale. The amount of indirect costs included in ending inventory at April 2, 2005 and December 31, 2004 was $20,550 and $17,373, respectively. NOTE 5 - DEBT On August 29, 2003, True Value entered into a four-year $275,000 Bank Facility (the "Bank Facility"). Availability under the Bank Facility is limited to the lesser of $275,000 or the collateral value of eligible assets (the "borrowing base"), less outstanding borrowings, letters of credit and reserves. The reserve amounts, if any, are set at the discretion of the lenders. True Value's availability at April 2, 2005 was $53,296. The interest rate charged for Bank Facility borrowings is variable at either the London Interbank Offering Rate ("LIBOR") or prime plus, in either case, an additional amount of interest determined based on a performance-based pricing grid. True Value has the option to select LIBOR or prime as the base rate. The performance grid is based upon True Value's fixed charge coverage ratio, measured quarterly. Beginning with the first measurement period in 2004, True Value performed at a level that resulted in a 0.25% reduction in pricing. As of April 2, 2005 and April 3, 2004, this interest rate was 4.93% and 3.42%, respectively. The unused commitment fee is 0.375%. Letters of credit issued under the Bank Facility have a fee based on the performance pricing grid and this fee was 2.0% as of April 2, 2005 and April 3, 2004, respectively. Fees paid for acquiring the Bank Facility totaled $3,752 and these fees are being amortized by True Value over the four-year term. The Bank Facility has no financial covenants unless daily average excess availability for the last 60 days of each quarter drops below $35,000. If the average is below $35,000, True Value is subject to a fixed charge coverage ratio of 1.1 to 1. As of April 2, 2005, True Value's average excess availability for the last 60 days was greater than $35,000 and True Value was therefore not subject to the fixed charge coverage ratio test. Additionally, True Value is required to maintain $15,000 of excess availability at all times. Management believes it is in compliance with this requirement and is in compliance with all terms and conditions of the Bank Facility. At April 2, 2005, True Value had Current maturities of long-term debt, notes and capital lease obligations of $115,024. Only $31,524 of this amount has required payments during the next 12 months and the remaining $83,500 is the current portion of the Bank Facility, which reflects the seasonality of True Value's business as explained below. The required payments consist of $5,592 of subordinated installment notes, $23,330 of subordinated promissory notes, $1,663 of accrued stock redemption liability and $939 of capital leases. Historically, a minimum of 50% of the subordinated promissory notes have been renewed, extending the maturity for an additional three years. In 2004, this renewal rate was approximately 70%. The current and long-term portions of the Bank Facility do not have any required payments until 2007. At April 2, 2005, True Value had $173,500 in revolving credit loans, of 7 which $83,500 is included in Current maturities of long-term debt, notes and capital lease obligations, and $90,000 is included in Long-term debt, notes and capital lease obligations, less current maturities. Based on management's projection of seasonal working capital needs, the amount classified as Long-term debt, notes and capital lease obligations, less current maturities represents the estimated lowest level of borrowings during the next 12 months. NOTE 6 - PROPERTY HELD FOR SALE In the first quarter of 2005, True Value recorded an impairment charge of $942 to write down its East Butler, Pennsylvania facility to fair value. This facility was classified as held for sale as of April 2, 2005 and was included in True Value's Hardware segment as presented below in Note 7 - Segment Information. The $942 impairment charge was included in Other (income) / expense, net in the Condensed Consolidated Statement of Operations and was determined based on a signed non-binding letter of intent for the sale of this facility. The value of this facility included in Property held for sale, net in the Condensed Consolidated Balance Sheet was comprised of the following:
April 2, 2005 ------- Land and land improvements $ 1,420 Building and building improvements 17,735 ------- Total 19,155 Accumulated depreciation (12,947) ------- Property held for sale, net $ 6,208 =======
On April 20, 2005, True Value sold its 640,000 square foot East Butler, Pennsylvania facility to a third party for a purchase price of $6,188. Pursuant to the Purchase and Sale Agreement, True Value leased back approximately 100,000 square feet of warehouse space through the end of 2005 and approximately 15,000 square feet of office space through the end of 2006. NOTE 7 - SEGMENT INFORMATION True Value is principally engaged as a wholesaler of hardware and related products and is a manufacturer of paint products. True Value identifies segments based on management responsibility and the nature of the business activities of each of its components. True Value measures segment earnings as operating earnings, including an allocation for interest expense and income taxes. Information regarding the identified segments and the related reconciliation to consolidated information are as follows:
For the quarter ended April 2, 2005 -------------------------------------------- Consolidated Hardware Paint Totals ----------- ----------- ------------ Net sales to external customers $ 481,361 $ 22,220 $ 503,581 Interest expense 2,682 642 3,324 Depreciation and amortization 2,981 346 3,327 Segment net margin 1,040 1,575 2,615 Identifiable segment assets 731,188 56,555 787,743
8
For the quarter ended April 3, 2004 --------------------------------------------- Consolidated Hardware Paint Totals ----------- ----------- ------------ Net sales to external customers $ 476,595 $ 22,767 $ 499,362 Interest expense 2,885 538 3,423 Depreciation and amortization 4,251 344 4,595 Segment net margin / (loss) (1,708) 3,832 2,124 Identifiable segment assets 744,168 59,369 803,537
NOTE 8 - BENEFITS Pension Plans The components of net periodic pension cost for True Value administered pension plans were as follows for the quarter ended April 2, 2005 and April 3, 2004:
2005 2004 ------- ------- Components of net periodic pension cost: Service cost $ 1,500 $ 1,400 Interest cost 1,100 1,100 Expected return on assets (1,200) (1,100) Amortization of prior service cost -- 100 Amortization of actuarial loss 300 300 Settlement loss 600 500 ------- ------- Net pension cost $ 2,300 $ 2,300 ======= =======
Contributions True Value expects to contribute approximately $7,700 to its qualified pension plan and $325 to its supplemental retirement plan in 2005. As of April 2, 2005, True Value had not made a contribution to its qualified plan and had contributed $74 to its supplemental retirement plan. NOTE 9 - PLANT CLOSURE In the first quarter of 2005, True Value announced that it will close its Chicago paint manufacturing facility in November 2005 and move its operations to the Cary, Illinois paint manufacturing facility. The decision was made as a result of declining operations at the under-utilized facility in Chicago. NOTE 10 - COMMITMENTS AND CONTINGENCIES ACTIVE LEGAL MATTER: FLEGLES ACTION On February 12, 2003, a former True Value member, Flegles Inc. ("Flegles"), filed suit against True Value in the Circuit Court of Carlisle County, Kentucky. The complaint alleges that True Value is liable to Flegles for the role True Value played with respect to Flegles' construction of a new retail store facility in Bardwell, Kentucky that has allegedly incurred financial losses. Flegles sought $2,400 in compensatory damages and also an award of punitive damages. On July 30, 2004, a jury found True Value liable to Flegles for certain losses incurred by Flegles and awarded Flegles $1,300 in compensatory damages. The jury did not award any punitive damages. As True Value believes that the verdict was rendered in error, it pursued post-trial motions before the Circuit Court, including a request that the verdict be set aside or that True Value be awarded a new trial. Such relief was denied by 9 the Circuit Court and True Value is now pursuing an appeal for such relief in the Kentucky Appellate Court. True Value posted with the court a bond in an amount necessary to prevent Flegles from enforcing its judgment during the appeal. True Value intends to continue to vigorously defend this case and does not believe that the ultimate resolution will have a material effect of results from operations or financial position. NOTE 11 - SUBSEQUENT EVENT True Value amended its Bank Facility on May 6, 2005 primarily to lower the rates charged on this debt, extend the term of the Bank Facility for one year to August of 2008, and ease limitations on certain expenditures. The interest on the Bank Facility is variable at either LIBOR or prime plus, in either case, an additional amount of interest determined based on a performance-based pricing grid. The performance grid is based upon True Value's fixed charge coverage ratio. This performance-based pricing grid was amended to (1) lower the interest rate that is added to LIBOR or prime borrowings and (2) decrease the fixed charge ratio needed to achieve improved pricing. Effective in May 2005, True Value will achieve a 0.75% improvement in the rate charged on its bank debt as a result of this amendment. The amendment also eased certain restrictive language, primarily increasing the spending limitations on capital expenditures, leases, and various distributions to members. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ($ in thousands) OVERVIEW In the first quarter of 2005, True Value's Net revenue increased $4,219, or 0.8%, compared to the first quarter of last year. The primary reason for this increase was the timing of True Value's Spring Market, which was held in early March 2005 compared to late March 2004, resulting in an increase in direct ship Market orders being delivered during the first quarter. This favorability is expected to reverse in the second quarter of 2005. For the year 2005, management expects a net decline in member store count of approximately 2%. In the first quarter of 2005, True Value's member store count declined at an annualized rate of 1.4% as the member store count dropped by 21 to 6,004 from 6,025; terminations of 95 slightly outpaced new store signings of 74. In regards to the level of patronage from True Value members in the first quarter of 2005, approximately one quarter of True Value's member stores accounted for less than 5% of True Value's Net revenue and approximately 80% of the first quarter terminations were members in that quartile. True Value continued to implement its line review program, a multi-year process that comprehensively reviews product assortment, vendor pricing and merchandising programs. The line review program generated $226 of recognized savings from the net effect of reduced merchandise acquisition costs, reduced vendor rebate programs and increased transition funds from vendors. True Value also reduced pricing to members on these line review products by $1,061. Through April 2, 2005, the line review program has also generated vendor transition funds of $10,937, of which $7,683 remains unrecognized and will benefit future periods; these funds will continue to be used to offset costs of vendor conversions and as a reduction in product acquisition cost over the life of the related vendor agreements. True Value achieved a Net margin of $2,615 in the first quarter this year compared to a Net margin of $2,124 for the same period last year. Based on these first quarter results, management expects a modest profit improvement in 2005. As spring is the busiest season for True Value's members, it is the busiest season for True Value and requires the highest use of working capital. Since year-end and consistent with prior years' first quarter trends, True Value's Accounts receivable and Inventory balances have risen, as have Accounts payable and bank borrowings. True Value's debt increased to $256,946 from $170,301 at year-end to support this seasonal need and is up 5.6% compared to a debt balance of $243,319 at the end of the first quarter last year. The increase in debt compared to the same period last year was due to True Value lifting its moratorium on stock redemptions in July 2004. Approximately 15% of the debt at quarter-end is related to the 2004 lifting of the moratorium on stock redemptions. Adjusted for this effect, debt related to core operations has declined approximately 10% since the first quarter of last year. Management expects a modest increase in its debt balance at year-end 2005 compared to year-end 2004. QUARTER ENDED APRIL 2, 2005 COMPARED TO QUARTER ENDED APRIL 3, 2004 RESULTS OF OPERATIONS: Net Revenue and Gross Margin 10 A reconciliation of Net revenue and Gross margin for the quarter ending April 2, 2005 and April 3, 2004 follows:
GROSS NET % OF NET GROSS MARGIN % REVENUE REVENUE MARGIN OF REVENUE --------- -------- --------- ---------- ($ IN THOUSANDS) Quarter ended April 3, 2004 results $ 499,362 100.0% $ 49,843 10.0% --------- ----- --------- ---- Same store sales: Warehouse and relay revenue 219 0.0% 2,892 Vendor direct revenue 7,054 1.4% 89 Paint revenue (525) (0.1%) (973) --------- ----- --------- Net same store sales 6,748 1.3% 2,008 --------- ----- --------- Change in participating members: Terminated members: Warehouse and relay revenue (6,382) (1.3%) (1,039) Vendor direct revenue (4,004) (0.8%) (28) Paint revenue (443) (0.1%) (183) --------- ----- --------- Net terminated members (10,829) (2.2%) (1,250) --------- ----- --------- New members: Warehouse and relay revenue 4,727 1.0% 706 Vendor direct revenue 4,173 0.8% 18 Paint revenue 422 0.1% 116 --------- ----- --------- Net new members 9,322 1.9% 840 --------- ----- --------- Net change in participating members (1,507) (0.3%) (410) --------- ----- --------- Other revenue and cost of revenue (1,022) (0.2%) (3,773) Accounting change (EITF 02-16) -- 0.0% 4,304 --------- ----- --------- Total change 4,219 0.8% 2,129 --------- ----- --------- Quarter ended April 2, 2005 results $ 503,581 100.8% $ 51,972 10.3% ========= ===== ========= ====
Net revenue for the quarter ended April 2, 2005 totaled $503,581, an increase of $4,219, or 0.8%, as compared to the same period last year. The net revenue increase in the same store sales category was partially offset by declines in the participating member store sales and other revenue categories. True Value's same store sales increased $6,748, or 1.3%. The same store sales category was favorably impacted by the timing of True Value's Spring Market. The Spring Market was held in early March 2005 compared to late March 2004, which drove higher direct sales in the first quarter of 2005. Partially offsetting the increase in same store sales was a 2.1% net decline in the number of participating member retail outlets compared to the end of the first quarter last year, resulting in a revenue reduction of $1,507, or 0.3%. The first quarter 2005 net decline in revenue resulting from the change in participating member stores is an improvement relative to the net decline experienced in 2004 of $7,785, or 1.8%. The remaining revenue reduction in the other revenue category of $1,022 was primarily due to the elimination of TrueValue.com internet sales, which was discontinued in August 2004. Gross margin for the quarter ended April 2, 2005 increased by $2,129, or 4.3%, over the same period last year. Increases in gross margin were driven by the favorable impact under accounting rule EITF 02-16 of $4,304 as discussed below. True Value also absorbed approximately $1,811 of inflationary merchandise acquisition cost increases in excess of price increases passed on to the membership. Paint margins declined due to lower volume and increased production costs. 11 The net decline in participating member stores lowered gross margin by $410. This reduction is less than the first quarter of 2004 when gross margin declined $1,212 from net declines in participating member stores. Margin from the other revenue and cost of revenue category, which consists mainly of advertising, transportation, freight-in, vendor rebates, cash discounts and other costs incurred to prepare goods for resale, decreased by $3,773. This decrease was predominantly related to a decline in vendor rebates and cash discounts of approximately $2,873 due to changes resulting from the line review program, which also reduced product acquisition cost as discussed above. The effect of Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16"), favorably impacted gross margin by $4,304 compared to last year. On January 1, 2003, True Value adopted EITF 02-16, which addresses the accounting and income statement classification for consideration given by a vendor to a retailer in connection with the sale of the vendor's products or for the promotion of sales of the vendor's products. The EITF concluded that such consideration received from vendors should be reflected as a decrease in prices paid for inventory and recognized in cost of sales as the related inventory is sold, unless specific criteria are met qualifying the consideration for treatment as reimbursement of specific, identifiable incremental costs. The EITF became effective for arrangements with vendors initiated on or after January 1, 2003. Most of True Value's arrangements with vendors in 2003 were initiated before January 1, 2003 and thus were recorded according to accounting policies in effect prior to adoption of EITF 02-16 and recognized as a current period benefit. However, most arrangements with vendors for 2004 were initiated in the, fourth quarter of 2003, and the application of EITF 02-16 negatively impacted Gross margin in the first quarter of 2004 as these vendor funds were deferred into inventory and recognized when the product was sold.
2005 2004 $ Expense Increase ------- ------- ------------------ Logistics and manufacturing expenses $16,425 $15,742 $683
Logistics and manufacturing expenses increased by $683, or 4.3%, as compared to the same period last year. This increase in expense relates to manufacturing and was primarily due to higher advertising expenses for manufactured paint products.
2005 2004 $ Expense Increase ------- ------- ------------------ Selling, general and administrative expenses $29,333 $29,001 $332
Selling, general and administrative ("SG&A") expenses increased by $332, or 1.1%, as compared to the first quarter of 2004. SG&A expenses, although comparable, include higher outside services of $902 primarily related to legal matters.
2005 2004 $ (Decrease) ------- ------- ------------ Other (income) / expense, net $267 $(498) $(765)
Other (income) / expense, net was an expense of $267 for the first quarter of 2005 compared to $498 of income for the first quarter of 2004. This change was predominantly due to the $942 impairment charge on the East Butler, Pennsylvania facility, which was based on a signed non-binding letter of intent for the sale of this facility. This facility was sold on April 20, 2005 (See Note 6 to the Financial Statements in Item 1, "Property Held for Sale"). 12
2005 2004 $ Increase ------- ------- ---------- Net margin $2,615 $2,124 $491
The first quarter 2005 Net margin of $2,615 increased from a Net margin of $2,124 for the same period a year ago. The primary reason for the increase in 2005 was the impact under accounting rule EITF 02-16, partially offset by the initial effects of the line review program and net impact of inflationary price increases partially absorbed by True Value. In addition, the $942 impairment charge on the East Butler, Pennsylvania facility unfavorably impacted the first quarter 2005 Net margin. LIQUIDITY AND CAPITAL RESOURCES: The information provided below, which should be read in conjunction with the information in True Value's Annual Report on Form 10-K for the year ended December 31, 2004, describes True Value's debt, credit facilities, guarantees and future commitments, in order to facilitate a review of True Value's liquidity. True Value used cash for operating activities for the quarter ended April 2, 2005 and April 3, 2004 of $50,040 and $29,952, respectively. True Value's major working capital components individually move in the same direction with the seasonality of the business. The spring and early fall are the most active periods for True Value and require the highest levels of working capital. The low point for Accounts receivable, Inventory and Accounts payable is at the end of the calendar year. The increase in Accounts receivable from fiscal year-end is partially matched by the increase in Accounts payable. The cash needed to meet the future payments for Accounts payable will be provided by the increase in cash generated from collections on Accounts receivable and from the future sale of inventory. The unfavorable change in cash used for operating activities was primarily in the working capital components and was mainly due to the timing of collections on vendor receivables. Inventory as of April 2, 2005 was $306,881, up $42,646 since the beginning of the year. This first quarter increase in inventory compares to an inventory increase of $58,244 in the first quarter of 2004. The higher 2004 increase was due to True Value increasing the 2004 first quarter inventory level in conjunction with programs to improve fill rates and increase imports. Inventory, as compared to the same period last year, was down $28,088 as a result of True Value stabilizing its fill rates and more closely managing overall inventory levels. True Value used cash for investing activities of $2,656 for the quarter ended April 2, 2005, as compared to $1,614 for the same period last year. This use of cash is mainly due to additions to properties owned using cash of $2,669, which is up from $1,704 in the same period last year. These capital expenditures are comprised of various building improvements and purchases of additional equipment and technology at True Value's distribution centers and at its corporate headquarters. True Value generated cash from its financing activities for the quarter ended April 2, 2005 and April 3, 2004 of $51,739 and $28,493, respectively. This cash was generated from increased borrowings from the Bank Facility in the amount of $85,200 and $50,200 in the first quarter of 2005 and 2004, respectively. The cash generated from the increased Bank Facility borrowings in the first quarter of 2005 and 2004 was used to fund True Value's seasonal need for operating activities and its investing activities, as well as for payments of drafts payable and patronage dividends. Under the terms of the Bank Facility, pricing is determined by a performance grid based upon a fixed charge coverage ratio, measured quarterly. Based on this performance pricing grid, True Value achieved .25% of improved variable pricing. Effective May 1, 2004 and through April 2005, True Value's variable interest rate became, at True Value's option, LIBOR plus 2.0% or the prime rate and letters of credit carry fees of 2.0%. The unused commitment fee is 0.375%. As of April 2, 2005, the weighted average interest rate was 4.93%. True Value's availability at April 2, 2005 and April 3, 2004 was $53,296 and $79,033, respectively, reflective of True Value's seasonal borrowings in advance of its spring selling season. The decline in year-over-year availability is due to debt issued by True Value upon lifting the moratorium on stock redemptions in July 2004; approximately $38,000 in debt was issued due to the lifting of the moratorium. True Value's availability at April 30, 2005 and May 1, 2004 was $97,368 and $73,396, respectively. In the quarter ended April 2, 2005, True Value had a net decrease in cash and cash equivalents of $957. At April 2, 2005, True Value's working capital was $99,423, as compared to $87,047 at December 31, 2004. The current ratio of 1.19 at April 2, 2005 was essentially unchanged from 1.22 at December 31, 2004. 13 True Value believes that its cash from operations and existing credit facilities will provide sufficient liquidity to meet its working capital needs, planned capital expenditures and debt obligations that are due to be repaid in 2005. The Bank Facility should provide sufficient liquidity for future needs until it expires in 2008. CASH REQUIREMENTS: Below is the current schedule of the expected cash outflows necessary to meet financial commitments existing as of April 2, 2005 and thereafter:
2006 & 2008 & 2005 2007 2009 Thereafter Total -------- -------- -------- ---------- -------- ($ in thousands) Bank Facility (1) $ -- $ -- $173,500 $ -- $173,500 Installment (subordinated) notes (2) 5,592 11,184 5,936 -- 22,712 Promissory (subordinated) notes (3) 23,330 31,555 -- -- 54,885 Interest on promissory & installment (subordinated) notes 5,484 4,566 345 -- 10,395 Accrued stock redemption liability (2) 1,663 979 978 692 4,312 Capital lease obligations 939 1,290 -- -- 2,229 Operating lease obligations 23,065 54,226 48,425 218,344 344,060 Purchase obligations (4) 80,021 -- -- -- 80,021 Redeemable non-qualified Class B non-voting common stock -- -- -- 21,262 21,262 -------- -------- -------- -------- -------- Total $140,094 $103,800 $229,184 $240,298 $713,376 ======== ======== ======== ======== ========
(1) Borrowings under the Bank Facility fluctuate with the seasonal needs of the business. There are no required payments until the maturity of the Bank Facility in August 2008. Interest on the Bank Facility is variable at either LIBOR or prime plus, in either case, an additional amount of interest determined based on a performance-based pricing grid. (2) In accordance with True Value's By-Laws, True Value satisfies stock redemption liability in cash and by issuing subordinated installment notes. As of April 2, 2005, True Value had shareholders that discontinued their purchasing activities with True Value and requested that their stock be redeemed but who had not completed the redemption procedures. True Value classified this $4,312 of stock redemption liability as $1,663 in Current maturities of long-term debt, notes and capital lease obligations, $1,957 in Long-term debt including notes and capital lease obligations, less current maturities and $692 in Other long-term liabilities representing True Value's redemption obligations to former members that management anticipates may not complete the redemption procedures for over a year. (3) The amounts shown are scheduled payments; however, historically a minimum of 50% of the promissory (subordinated) notes have been renewed, extending the maturity for an additional three years. In 2004, this renewal rate was approximately 70%. (4) Purchase obligations represent commitments under open purchase orders, are typically short-term and fluctuate with the seasonality of True Value's business. Also, purchase obligations are part of a cycle where they are continuously converted into inventory and new purchase obligations are created. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ($ in thousands) True Value's operations are subject to certain market risks, primarily interest rate risk and credit risk. Interest rate risk pertains to True Value's variable rate debt, which had approximately $173,500 outstanding at April 2, 2005. 14 A 50 basis point movement in interest rates would result in an approximate $868 annualized increase or decrease in interest expense and cash flows based on the outstanding balance at April 2, 2005. For the most part, True Value manages interest rate risk through a combination of variable and fixed-rate debt instruments with varying maturities. As required by the Bank Facility, True Value has purchased interest rate caps that limit its risk on $25,000 of variable rate debt for the entire term of the Bank Facility to a maximum underlying LIBOR rate of 3.5%, approximately 0.5% increase over current LIBOR. For accounting purposes, the interest rate caps do not qualify for hedge accounting. The favorable change in fair market value of $167 is reflected in the Condensed Consolidated Statement of Operations. Credit risk pertains primarily to True Value's trade receivables. True Value extends credit to its members as part of its day-to-day operations. True Value's management believes that, as no specific receivable or group of receivables comprises a significant percentage of total trade accounts, its risk in respect to trade receivables is limited. Additionally, True Value's management believes that its allowance for doubtful accounts is adequate with respect to member credit risks. True Value performs no speculative hedging activities. True Value does not have any interest in variable interest entities and all related party transactions (i.e., transactions with members) are at arm's length. ITEM 4. CONTROLS AND PROCEDURES. True Value's Chief Executive Officer and Chief Financial Officer have evaluated and concluded that as of April 2, 2005, True Value's disclosure controls and procedures (as defined in Rule 13a-15(e)) are effective. There has been no change in True Value's internal control over financial reporting identified in connection with reaching the conclusion described above that occurred during True Value's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, True Value's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. True Value is party, from time to time, to various legal proceedings. Current material legal proceedings have been disclosed in True Value's Annual Report on Form 10-K for the fiscal year ending December 31, 2004, and no material developments to such proceedings have occurred in the quarter covered by this Form 10-Q. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. ($ in thousands) USE OF PROCEEDS True Value uses the proceeds from the offering of the Class A common stock for general working capital, including the purchase of merchandise for resale to its members. ISSUER PURCHASES OF EQUITY SECURITIES The number of shares of True Value's Class A common stock redeemed and the average price paid per share for each month in the quarter ended April 2, 2005 are as follows: 15
Average Total Number Approximate $ Total Number Price Paid of Shares Value that May of Shares per Share as part of Yet Be Purchased Redeemed (1) before offsets Announced Plan under Plan ------------ -------------- -------------- ---------------- CLASS A COMMON STOCK January 1 - January 29, 2005 3,660 $ 100 -- $ -- January 30 - February 26, 2005 3,120 100 -- -- February 27 - April 2, 2005 6,060 100 -- -- -------- -------- -------- Total 12,840 -- $ -- ======== ======== ========
(1) In accordance with True Value's By-Laws, True Value redeems former members' equity investments in Class A common stock and Redeemable non-qualified Class B common stock in cash at the time of redemption and equity investments of Redeemable qualified Class B common stock are paid with a subordinated installment note. The subordinated installment notes are payable in five equal annual installments and pay interest annually at a fixed rate. The interest rate on subordinated installment notes created during the year is determined annually on the first business day of the year based on the five-year U.S. Treasury bill rate plus 1.0%. For notes issued in 2004, the rate was 4.36% and for notes issued in 2005, the rate is 4.64%. In accordance with True Value's By-Laws, True Value first reduces its aggregate stock redemption obligation payable in both cash or subordinated installment notes by its right to legally offset any amounts the former members may owe True Value, including Accounts and notes receivable, Loss allocation and/or Accumulated deficit. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At True Value's Annual Meeting of Stockholders held on March 6, 2005, the election results were as follows: 1. Election of directors for a term of one year:
VOTES VOTES FOR WITHHELD ------- -------- Bryan R. Ableidinger 145,020 8,280 Laurence L. Anderson 144,660 8,640 Michael S. Glode 145,440 7,860 Thomas S. Hanemann 144,480 8,820 Judith S. Harrison 144,900 8,400 Kenneth A. Niefeld 145,620 7,680 David Y. Schwartz 144,840 8,460 Gilbert L. Wachsman 144,780 8,520 Brian A. Webb 145,440 7,860 Charles W. Welch 145,320 7,980
16 2. Approval of proxy authorization to vote on other business:
FOR AGAINST ABSTAIN ------- ------- ------- 137,220 7,320 8,760
ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS. Exhibit 4-A Third Amendment to Loan and Security Agreement Exhibit 31-A Section 302 Certification (Chief Executive Officer) Exhibit 31-B Section 302 Certification (Chief Financial Officer) Exhibit 32-A Section 906 Certification (Chief Executive Officer and Chief Financial Officer) SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. TRUE VALUE COMPANY Date: May 16, 2005 By: /s/ DAVID A. SHADDUCK ----------------------------- David A. Shadduck Senior Vice President and Chief Financial Officer 17 EX-4.A 2 c95221exv4wa.txt THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT EXHIBIT 4-A EXECUTION COPY THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Third Amendment") is made as of the 6th day of May, 2005 by and among True Value Company, a Delaware corporation (f/k/a TruServ Corporation and herein "True Value" or "TruServ"), TruServ Acceptance Company, an Illinois corporation ("TruServ Acceptance"), TruServ Logistics Company, an Illinois corporation ("TruServ Logistics"), General Paint & Manufacturing Company ("General Paint") and True Value.com Corporation, a Delaware corporation ("True Value.com") and Congress Financial Corporation (Central), Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services, Inc., and LaSalle Business Credit, LLC as Co-Documentation Agents ("Co-Documentation Agents"), the lenders who are signatories hereto ("Lenders"), and Fleet Capital Corporation, a Rhode Island corporation ("FCC"), as agent for Lenders hereunder (FCC, in such capacity, being "Agent"). True Value, TruServ Acceptance, TruServ Logistics, General Paint and True Value.com are sometimes hereinafter referred to individually as a "Borrower" and collectively as "Borrowers." WITNESSETH: WHEREAS, Borrowers, Bank of America, N.A., as Syndication Agent (Bank of America, N.A. has assigned all of its interests to FCC), Co-Documentation Agents, Agent and Lenders entered into a certain Loan and Security Agreement dated as of August 29, 2003, as amended by a certain First Amendment to Loan and Security Agreement by and among Borrowers, Bank of America, N.A., as Syndication Agent, Co-Documentation Agents, Agent and Lenders dated as of March 19, 2004 and by a certain Second Amendment to Loan and Security Agreement by and among Borrowers, Syndication Agent, Co-Documentation Agents, Agents and Lenders dated as of October 26, 2004 (said Loan and Security Agreement, as so amended, is hereinafter referred to as the "Loan Agreement"); and WHEREAS, Borrowers desire to amend and modify certain provisions of the Loan Agreement and, subject to the terms hereof, Agent and Lenders are willing to agree to such amendments and modifications; NOW THEREFORE, in consideration of the premises, the mutual covenants and agreements herein contained, and any extension of credit heretofore, now or hereafter made by Agent and Lenders to Borrowers, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms used herein without definition shall have the meaning given to them in the Loan Agreement. 2. Added Definitions. Appendix A of the Loan Agreement is hereby amended to insert the following new definitions of "Blackhawk Capital Expenditures," "Blackhawk Facility," "Third Amendment," and "Third Amendment Effective Date" in their appropriate alphabetical order: "Blackhawk Capital Expenditures - Capital Expenditures up to an amount not to exceed $6,000,000 incurred between the Third Amendment Effective Date and the first anniversary thereof in connection with the consolidation of Borrowers' paint manufacturing facilities, provided that at all times during such period the Borrowers are using commercially reasonable efforts to sell such property to an independent third party or have consummated such sale. Blackhawk Facility - the real Property and buildings and fixtures located thereon commonly known as 823 W. Blackhawk St., Chicago, Illinois 60622. Third Amendment - that certain Third Amendment to Loan and Security Agreement dated as of May __, 2005 by and among Agent, Borrowers, Co-Documentation Agents and the Lenders party thereto. Third Amendment Effective Date - shall have the meaning contained in Section 12 of the Third Amendment." 3. Amended Definitions. The definitions of "Applicable Margin" and "Restricted Investment" and "Restricted Subsidiary" contained in Appendix A to the Loan Agreement are hereby deleted and the following are inserted in their stead: "Applicable Margin - from the Third Amendment Effective Date to, but not including, the first Adjustment Date (as hereinafter defined) the percentages set forth below with respect to the Base Rate Revolving Portion, the LIBOR Revolving Portion, and the Unused Line Fee: Base Rate Revolving Portion 0% LIBOR Revolving Portion 1.50% Unused Line Fee 0.375%
The percentages set forth above will be adjusted on the first day of the month following delivery by Borrowers to Agent of the financial statements required to be delivered pursuant to subsection 8.1.3(ii) of the Agreement for TruServ's fiscal quarters ending closest to the last day of March, June, September and December within the Term hereof, commencing with the fiscal quarter ending in March, 2005 (each such date an "Adjustment Date"), effective prospectively, by reference to the applicable "Financial Measurement" (as defined below) for the Applicable Margin Period most recently ending in accordance with the following: 2
Base Rate Revolving LIBOR Revolving Unused Line Financial Measurement Portion Portion Fee - --------------------- ------------------- --------------- ----------- > or = to 1.75 to 1 0% 1.50% 0.375% <1.75 to 1, but > or = to 1.25 to 1 0.25% 1.75% 0.375% <1.25 to 1 0.50% 2.0% 0.375%
provided that, (i) if TruServ's audited financial statements for any fiscal year delivered pursuant to subsection 8.1.3(i) of the Agreement reflect a Financial Measurement that yields a higher Applicable Margin than that yielded by the monthly financial statements previously delivered pursuant to subsection 8.1.3(ii) of the Agreement for the last month of such fiscal year, the Applicable Margin shall be readjusted retroactively for the period that was incorrectly calculated and (ii) if Borrowers fail to deliver the financial statements required to be delivered pursuant to subsection 8.1.3(i) or subsection 8.1.3(ii) of the Agreement on or before the due date thereof, the Applicable Margin shall automatically adjust to the highest Applicable Margin set forth above, effective prospectively from such due date until the earlier of the date on which the applicable financial statements are delivered or the next Adjustment Date. For purposes hereof, "Financial Measurement" shall mean the Fixed Charge Coverage Ratio. * * * Restricted Investment -any investment made in cash or by delivery of Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) investments by a Borrower, to the extent existing on the Closing Date, in one or more Subsidiaries of such Borrower; (ii) Property to be used in the ordinary course of business; (iii) Current Assets arising from the sale of goods and services in the ordinary course of business of any Borrower or any of its Subsidiaries; (iv) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America; provided that such obligations mature within one year from the date of acquisition thereof; (v) investments in certificates of deposit maturing within one year from the date of acquisition and fully insured by the Federal Deposit Insurance Corporation; 3 (vi) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than 270 days from the date of creation thereof; (vii) investments in money market, mutual or similar funds having assets in excess of $100,000,000 and the investments of which are limited to investment grade securities; (viii) loans and advances permitted under subsection 8.2.2 of the Agreement; (ix) investments in Cash Equivalents; (x) investments consisting of Equity Interests, instruments or notes received in settlement of debts in the ordinary course of business; (xi) investments existing on the date hereof and listed on Exhibit 8.2.12 hereto; (xii) investments in TruServ Specialty Company LLC not to exceed an aggregate amount of $1,500,000 at any one time, or, so long as Borrowers are in compliance with subsection 8.1.12, in any greater amount; (xiii) TruServ Equity Interests acquired prior to the Closing Date or after the Closing Date if such purchase or acquisition was permitted by the terms hereof; (xiv) investments consisting of any escrow, holdback or similar arrangement in connection with any sale, lease or transfer or other disposition of any asset not prohibited hereunder; (xv) investments in a Subsidiary of a Borrower organized under the laws of the territory of Hong Kong (the "Hong Kong Subsidiary") so long as the amount of any such investment does not exceed $100,000 at any point in time (it being understood that notwithstanding any other provision of this Agreement or any other Loan Document that so long as the limitations of this Section have been complied with, the Hong Kong Subsidiary shall not be a Borrower, Guarantor or Restricted Subsidiary hereunder, and the Borrowers shall not be required to pledge the Equity Interests in such Hong Kong Subsidiary; (xvi) investments in other Persons or assets so long as the amount of any such investment does not exceed $500,000 and Agent has given prior written approval of any such investment; (xvii) investments in real Property adjacent to Borrowers' facility in Cary, Illinois so long as the amount of any such investment does not exceed $400,000; and 4 (xviii) investments otherwise expressly permitted or required pursuant to the Agreement. * * * Restricted Subsidiary - (i) any Subsidiary of TruServ (other than TruServ Specialty Company LLC, Advocate Services, Inc., Advocate Retail Services, Inc. and Servistar Paint Company) that is incorporated under the laws of the United States of America, any state thereof or the District of Columbia unless any such Subsidiary has no on-going business operations and has liabilities and assets (determined separately) of less than $50,000, (ii) if Borrowers are not in compliance with subsection 8.1.12 of the Agreement, TruServ Specialty Company LLC, and (iii) Advocate Services, Inc., Advocate Retail Services, Inc. and Servistar Paint Company, in each case, if (x) such Subsidiary has assets in excess of $50,000, (y) appropriate documents filed to effect the dissolution of any such Subsidiary cease to be on file with the Secretary of the Commonwealth of Pennsylvania and (z) such dissolution is no longer being pursued by appropriate action." 4. Term. Section 4.1 of the Loan Agreement is hereby deleted and the following is inserted in its stead: "SECTION 4. TERM AND TERMINATION 4.1 Term of Agreement. Subject to the right of Lenders to cease making Loans (other than Agent Loans pursuant to subsection 1.1.5) to Borrowers during the continuance of any Default or Event of Default, this Agreement shall be in effect through and including August 28, 2008 (the "Term"), unless terminated as provided in Section 4.2 hereof." 5. Distributions. Subsection 8.2.7 of the Loan Agreement is hereby deleted and the following is inserts in its stead: "8.2.7 Distributions. Declare or make, or permit any Subsidiary of any Borrower to declare or make, any Distributions, except for: (i) Distributions by any Subsidiary of a Borrower to a Borrower; (ii) Distributions paid solely in Equity Interests of a Borrower or any of its Subsidiaries; (iii) annual Distributions in the form of cash patronage dividends to its Members in an amount not to exceed 20% of the amount of the patronage source income included in the net margin as set forth in TruServ's Consolidated financial statements for the preceding fiscal year or such greater percentage as required by applicable tax law or IRS regulations; (iv) so long as (x) no Default or Event of Default exists at the time of or would be caused by the making of such Distributions and (y) after giving effect 5 to any such Distribution, Availability on an average basis for the 60 days immediately prior to the date of the proposed Distribution and on the date of the proposed Distribution exceeds $15,000,000, TruServ may make annual Distributions in the form of cash patronage dividends which, when aggregated with Distributions made within such fiscal year as permitted pursuant to clause (iii) of this subsection 8.2.7, do not exceed 33% of the patronage source income included in the net margin as set forth in TruServ's consolidated financial statement for the preceding fiscal year; (v) so long as (x) no Default or Event of Default exists at the time or would be caused by the making of such Distribution and (y) the Fixed Charge Ratio for the most recently ended twelve-month period determined on a pro forma basis after giving effect to any such Distribution, and any Restricted Subordinated Debt Payment made that does not violate subsection 10.1.15 in the same month as the contemplated Distributions, exceeds (x) 1.00 for any twelve month period ending on or prior to August 31, 2006, (y) 1.05 for any twelve month period ending September 30, October 31 and November 30, 2006 and (z) 1.10 for twelve month fiscal periods ending on or after December 31, 2006, TruServ may make Distributions (in cash or otherwise) in the form of patronage cash dividends; (vi) Distributions by TruServ in the form of patronage dividends payable in the form of Member Notes; (vii) So long as no Default or Event of Default exists at the time or would be caused by the making of such Distribution, TruServ may make Distributions in amounts equal to or less than the remaining amount of the Deferred Redemption Reserve; and (viii) Distributions (in cash or otherwise) in the form of redemption or acquisition of Equity Interests of its Members and amortization payments on its Member equity accounts in the ordinary course of business and in accordance with and as required by membership agreements." 6. Capital Expenditures. Subsection 8.2.8 of the Loan Agreement is hereby deleted and the following is inserted in its stead: "8.2.8 Capital Expenditures. At the time when the Fixed Charge Coverage Ratio for the most recently ended twelve month period is less than 1.00 to 1.00, make any Capital Expenditures (including, without limitation, by way of capitalized leases but, subject to the last sentence of this subsection 8.2.8, excluding Blackhawk Capital Expenditures) which, in the aggregate, as to Borrowers and all of their Restricted Subsidiaries, exceed $20,000,000 during any fiscal year of Borrowers, except that 50% of the unused portion of the Capital Expenditure allowance for any fiscal year may be carried over to the immediately succeeding fiscal year only, to be used in such succeeding fiscal year after all of the Capital Expenditure allowance for that year has been used. The foregoing notwithstanding, in the event that the Blackhawk Facility is not sold to an independent third party on or prior to the first anniversary of the Third 6 Amendment Effective Date, then from and after such date, Blackhawk Capital Expenditures shall be included within tested Capital Expenditures for purposes of determining compliance with this subsection 8.2.8, including for periods from the first anniversary date of the Third Amendment Effective Date." 7. Restricted Subsidiaries. Subsection 8.2.13 of the Loan Agreement is hereby deleted and the following is inserted in its stead: "8.2.13 Restricted Subsidiaries and Joint Ventures. Create, acquire or otherwise suffer to exist, or permit any Restricted Subsidiary of any Borrower to create, acquire or otherwise suffer to exist, any Restricted Subsidiary or joint venture arrangement not in existence as of the date hereof, except for Restricted Subsidiaries that comply with subsection 8.1.8 hereof." 8. Leases. Section 8.2.18 of the Loan Agreement is hereby deleted and the following is inserted in its stead: "8.2.18 Leases. (a) Except for leases entered into in connection with a sale and leaseback transaction in which the proceeds of the sale are used to repay the Revolving Credit Loans, leases that are listed on Exhibit 7.1.22 (as amended by the Third Amendment) and extensions, renewals and replacements thereof (collectively "Excluded Leases"), become, or permit any of their Restricted Subsidiaries to become, a lessee under any operating lease (other than a lease under which a Borrower or any of its Restricted Subsidiaries is lessor) of Property is the aggregate Rentals payable during any current or future period of twelve (12) consecutive months under the lease in question and all other leases under which Borrowers or any of their Restricted Subsidiaries is then lessee (other than Excluded Leases) would exceed $6,000,000. The term "Rentals" means, as of nay date of determination, all scheduled rental payments. (b) Exhibit 7.1.22 to the Loan Agreement is hereby deleted and replaced with the new Exhibit 7.1.22 attached to this Third Amendment." 9. Financial Covenants. Upon the Third Amendment Effective Date, Exhibit 8.3 of the Loan Agreement is hereby deleted and replaced with the new Exhibit 8.3 attached to this Third Amendment. 10. Payment on Subordinated Debt and Certain Equity Interests. Subsection 10.1.15 is hereby deleted and the following is inserted in its stead: "10.1.15 Payment on Subordinated Debt and Certain Equity Interests. Any Borrower shall make, or shall permit any Subsidiary to make, any Restricted Subordinated Debt Payment, any redemption or acquisition of Equity Interests of its Members or any amortization payments on its Members' equity accounts unless at the time of such payment and after giving effect thereto (x) no Event of Default has occurred and is continuing or would result from such payment and (y) the Fixed Charge Coverage Ratio for the most recently ended twelve-month period determined on a pro forma basis after giving effect to any such payment exceeds (x) 1.00 for any twelve-month period ending on or prior to August 31, 2006, (y) 1.05 for any twelve-month period ending 7 September 30, October 31 and November 30, 2006 and (z) 1.10 for twelve-month fiscal periods ending on or after December 31, 2006." 11. Amendment Fee. In order to induce Agent and Lenders to enter into this Third Amendment, Borrowers agree to pay Agent, for the ratable benefit of Lenders, an amendment fee equal to $62,500. Said amendment fee shall be payable and deemed fully earned and non-refundable on the Third Amendment Effective Date. 12. Third Amendment Effective Date. This Third Amendment shall become effective when (i) Borrowers, Agent and each Lender shall have executed and delivered to each other this Third Amendment and (ii) Borrowers shall have paid to Agent, for the ratable benefit of Lenders, the amendment fee referred to in Section 10 of the Third Amendment. The date on which such foregoing condition precedent is satisfied shall be referred to as the "Third Amendment Effective Date." 13. Execution in Counterparts. This Third Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 14. Continuing Effect. Except as otherwise specifically set out herein, the provisions of the Loan Agreement shall remain in full force and effect. 15. Successors and Assigns. This Third Amendment shall be binding upon and inure to the benefit of the successors and assigns of each Borrower, Agent and each Lender permitted under Section 11.9 of the Loan Agreement. 16. Governing Law. This Third Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. (SIGNATURE PAGE FOLLOWS) 8 (SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT) IN WITNESS WHEREOF, this Third Amendment has been duly executed as of the day and year specified at the beginning hereof. TRUE VALUE COMPANY, as a Borrower By: /s/ BARBARA L. WAGNER ----------------------------------- Name: Barbara L. Wagner Title: Vice President and Treasurer TRUSERV ACCEPTANCE COMPANY, as a Borrower By: /s/ BARBARA L. WAGNER ----------------------------------- Name: Barbara L. Wagner Title: Vice President and Treasurer TRUSERV LOGISTICS COMPANY, as a Borrower By: /s/ BARBARA L. WAGNER ----------------------------------- Name: Barbara L. Wagner Title: Vice President and Treasurer GENERAL PAINT & MANUFACTURING COMPANY, as a Borrower By: /s/ BARBARA L. WAGNER ----------------------------------- Name: Barbara L. Wagner Title: Vice President and Treasurer (SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT) TRUE VALUE.COM CORPORATION, as a Borrower By: /s/ BARBARA L. WAGNER ----------------------------------- Name: Barbara L. Wagner Title: Vice President and Treasurer (SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT) FLEET CAPITAL CORPORATION, as Agent and as a Lender By: /s/ DEBRA A. RATHBERGER --------------------------------------- Name: Debra A. Rathberger --------------------------------- Title: Senior Vice President -------------------------------- (SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT) WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL) (FORMERLY KNOWN AS CONGRESS FINANCIAL CORPORATION (CENTRAL)), as Co-Documentation Agent and as a Lender By: /s/ ANTHONY VIZGIRDA -------------------------------------- Name: Anthony Vizgirda -------------------------------- Title: Vice President ------------------------------- (SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT) MERRILL LYNCH CAPITAL, a Division of Merrill Lynch Business Financial Services, Inc., as Co-Documentation Agent and as a Lender By: /s/ EDWARD SHUSTER ----------------------------------------- Name: Edward Shuster ------------------------------------ Title: Assistant Vice President ----------------------------------- (SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT) LASALLE BUSINESS CREDIT, LLC, as Co-Documentation Agent and as a Lender By: /s/ SUSAN HAMILTON ----------------------------------- Name: Susan Hamilton ------------------------------ Title: Vice President ----------------------------- (SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT) THE CIT GROUP/BUSINESS CREDIT, INC., as a Lender By: /s/ JUAN R. RAMIREZ ---------------------------------- Name: Juan R. Ramirez ----------------------------- Title: Assistant Vice President ---------------------------- (SIGNATURE PAGE TO THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT) M & I MARSHALL & ILSLEY BANK, as a Lender By: /s/ RONALD J. CAREY ----------------------------------- Name: Ronald J. Carey ------------------------------ Title: Vice President ----------------------------- By: /s/ JAMES R. MILLER ----------------------------------- Name: James R. Miller ------------------------------ Title: Vice President ----------------------------- EXHIBIT 8.3 FINANCIAL COVENANTS DEFINITIONS CONSOLIDATED NET INCOME (LOSS) - with respect to any period, the net income (or loss) of Borrowers determined in accordance with GAAP on a Consolidated basis; provided, however, Consolidated Net Income shall not include: (a) the income (or loss) of any Person (other than a subsidiary of a Borrower) in which such Borrower or any of its wholly-owned subsidiaries has an ownership interest unless received in a cash distribution or requiring the payment of cash; (b) the income (or loss) of any Person accrued prior to the date it became a Subsidiary of a Borrower or is merged into or consolidated with a Borrower; (c) all amounts included in determining net income (or loss) in respect of the write-up of assets on or after the Closing Date, including the subsequent amortization or expensing of the written-up portion of the assets; (d) extraordinary gains as defined under GAAP; (e) gains from asset dispositions (other than sales of Inventory and other than such immaterial gains as Agent determines may be included in the determination of Consolidated Net Income (Loss)); (f) losses (not requiring a net expenditure of money) incurred in connection with the disposition of Borrowers' fixed assets located in Butler, Pennsylvania, non-cash losses incurred as a result of the write-off or accelerated amortization of goodwill; (g) any non-cash gain amortization resulting from Borrowers' sale and leaseback transaction; and (h) any revenue realized from any sale where the sales proceeds are paid with notes, instruments or Equity Interests, to the extent such sales proceeds have not been written off as a bad debt expense; and provided, further, that rent expense for any period shall be adjusted to reflect the actual cash rent paid within the applicable period. EBITDA - with respect to any period, the sum of Consolidated Net Income (Loss) before Interest Expense, income taxes, depreciation and amortization (to the extent not already excluded from Consolidated Net Income (Loss)) for such period (but excluding any extraordinary gains for such period), all as determined for Borrowers and their Subsidiaries on a Consolidated basis and in accordance with GAAP. FIXED CHARGE COVERAGE RATIO - with respect to any period, the ratio of (i) EBITDA for such period minus the sum of (a) any provision for income taxes payable in cash and included in the determination of net earnings for such period plus (b) Capital Expenditures (excluding Blackhawk Capital Expenditures unless the Blackhawk Facility has not been sold to an independent third party on or prior to the first anniversary date of the First Amendment Effective Date in which case including Blackhawk Capital Expenditures) during such period, to (ii) Fixed Charges for such period, all as determined for Borrowers and their Subsidiaries on a Consolidated basis and in accordance with GAAP. FIXED CHARGES - with respect to any period, the sum of: (i) scheduled principal payments required to be made during such period in respect of Indebtedness for Money Borrowed (excluding the principal portion of Capitalized Lease Obligations to the extent such amounts are included in the determination of Capital Expenditures and otherwise including such amounts), plus (ii) Retail Store Incentive Program Payments incurred within such period, plus Exhibit 8.3 - Page 1 (iii) Interest Expense for such period, plus (iv) Distributions made by TruServ within such period (net of contributions received from Members within such period), all as determined for Borrowers and their Subsidiaries on a Consolidated basis and in accordance with GAAP; provided that Fixed Charges shall not include interest or principal payments made with respect to Member Notes or Redeemable Subordinated Notes or cash patronage dividends to the extent that such interest or principal payments or Distributions reduce on a dollar-for-dollar basis the Deferred Redemption Reserve, and provided further that with respect to fiscal quarters ending on or prior to the last week of August, 2004, the amounts of scheduled principal payments required to be made within the applicable fiscal period in respect of Indebtedness for Money Borrowed (including the principal portion of Capitalized Lease Obligations) and the amount of Distributions made by TruServ within such period (net of contributions received from Members within such period) shall be computed by (i) multiplying the actual amount of such principal payments or Distributions made within the applicable period by number of months elapsed since September 1, 2003 and the last day of the month in which the applicable fiscal period ends and (ii) dividing the product obtained in clause (ii) above by twelve. By way any of example, assume that between September 1, 2003 and the last day of the fiscal quarter ending in the last week of March 2004, Borrowers make $16,000,000 in scheduled principal payments and $10,000,000 in Distributions. The amount of scheduled principal payments and Distributions to be used in this definition of Fixed Changes and subsequent definition of Fixed Change Coverage Ratio for the twelve month period ending on the last day of the fiscal quarter ending in the last week of March 2004 would then be (x) $9,333,333.33 (7 x $16,000,000) / 12) and (y) $5,833,333.33 (7 x $10,000,000 / 12), respectively. In determining the amount of any scheduled principal payment required to be made during the applicable period in respect of Indebtedness for Money Borrowed, consensual or permitted deferred amounts and repayments of Member Notes made in connection with the transfer and assignment of a Member Note from one Member to another shall be disregarded. INTEREST EXPENSE - with respect to any period, cash interest expense paid for such period, including without limitation the interest portion of Capitalized Lease Obligations, the Letter of Credit and LC Guaranty fees owing for such period and the Unused Line Fee owing for such period, all as determined for Borrowers and their Subsidiaries on a Consolidated basis and in accordance with GAAP. RETAIL STORE INCENTIVE PROGRAM PAYMENTS - amounts paid in cash and capitalized by Borrowers to Members to reimburse Members for expenses, charges or capital expenditures related to store modernization, branch store expansion and conversion costs. COVENANTS 1. AVAILABILITY. At all times maintain Availability of at least $15,000,000. 2. FIXED CHARGE COVERAGE RATIO. If as of the last date of any fiscal quarter, commencing with the fiscal quarter ending March 31, 2005, average Availability for the 60 consecutive day period then ended is less than $35,000,000, then Borrowers shall not permit the Fixed Charge Coverage Ratio for the twelve consecutive months ending on the last day of such fiscal quarter to be less than the amount set forth opposite the last day of the applicable fiscal quarter as set forth in the following schedule: Exhibit 8.3 - Page 2
TWELVE CONSECUTIVE MONTHS ENDING REQUIRED FIXED CHARGE COVERAGE RATIO - -------------------------------- ------------------------------------ March 31, 2005 through June 30, 2006 1.00 to 1 September 30, 2006 1.05 to 1 December 31, 2006 and the last day of each subsequent fiscal quarter 1.10 to 1
3. RETAIL STORE INCENTIVE PROGRAM PAYMENTS. Make Retail Store Incentive Program Payments within any fiscal year which exceed the amount set forth opposite such fiscal year in the following schedule:
FISCAL YEAR MAXIMUM AMOUNT - -------------------------------- -------------- December 31, 2005 $17,000,000 December 31, 2006 and each subsequent fiscal year $20,000,000
Exhibit 8.3 - Page 3 EX-31.A 3 c95221exv31wa.txt SECTION 302 CERTIFICATION (CHIEF EXECUTIVE OFFICER) EXHIBIT 31-A CERTIFICATION I, Thomas S. Hanemann, certify that: 1. I have reviewed this quarterly report on Form 10-Q of True Value Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and c. disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. TRUE VALUE COMPANY By: /s/ THOMAS S. HANEMANN ------------------------------------- Thomas S. Hanemann President and Chief Executive Officer Date: May 16, 2005 EX-31.B 4 c95221exv31wb.txt SECTION 302 CERTIFICATION (CHIEF FINANCIAL OFFICER) EXHIBIT 31-B CERTIFICATION I, David A. Shadduck, certify that: 1. I have reviewed this quarterly report on Form 10-Q of True Value Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and c. disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. TRUE VALUE COMPANY By: /s/ DAVID A. SHADDUCK ------------------------- David A. Shadduck Senior Vice President and Chief Financial Officer Date: May 16, 2005 EX-32.A 5 c95221exv32wa.txt SECTION 302 CERTIFICATION (CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER) EXHIBIT 32-A CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of True Value Company (the "Company") on Form 10-Q for the quarter ended April 2, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. Date: May 16, 2005 /s/ THOMAS S. HANEMANN - ------------------------------------- Thomas S. Hanemann President and Chief Executive Officer /s/ DAVID A. SHADDUCK - ------------------------------------- David A. Shadduck Senior Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to True Value Company and will be retained by True Value Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----