-----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, I0jHLrnz2lfszzZt2bv+5FVLzMyrsdWXUGwBTJ5K0vjx1Gkd/ihr+2rEB80bh823 eoUQ6SYNSWaXh8yrIobWLg== 0000950137-05-009613.txt : 20050804 0000950137-05-009613.hdr.sgml : 20050804 20050804152754 ACCESSION NUMBER: 0000950137-05-009613 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050702 FILED AS OF DATE: 20050804 DATE AS OF CHANGE: 20050804 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: 05999264 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 c97375e10vq.txt QUARTERLY REPORT 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 JULY 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) Not applicable (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 July 30, 2005. Class A common stock, $100 Par Value 318,960 Class B common stock, $100 Par Value 1,185,052
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. ($ in thousands - except per share information) TRUE VALUE COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) ASSETS
July 2, December 31, 2005 2004 --------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 8,772 $ 7,222 Accounts and notes receivable, net of allowance for doubtful accounts of $3,212 and $3,835 276,484 200,958 Inventories 296,867 264,235 Prepaid expenses 12,970 15,070 --------- ------------ Total current assets 595,093 487,485 Properties, net of accumulated depreciation of $253,902 and $267,932 63,707 70,448 Goodwill 91,474 91,474 Other assets 10,122 6,112 --------- ------------ Total assets $ 760,396 $ 655,519 ========= ============
See Notes to Condensed Consolidated Financial Statements. 2 LIABILITIES AND MEMBERS' EQUITY
July 2, December 31, 2005 2004 --------- ------------ CURRENT LIABILITIES: Accounts payable $ 272,795 $ 230,046 Drafts payable 46,842 56,209 Accrued expenses 74,739 70,405 Current maturities of long-term debt, notes and capital lease obligations 85,454 31,109 Patronage dividend payable in cash 6,128 12,669 --------- ------------ Total current liabilities 485,958 400,438 --------- ------------ LONG-TERM LIABILITIES AND DEFERRED CREDITS: Long-term debt including notes and capital lease obligations, less current maturities 142,536 139,192 Deferred gain on sale leaseback 45,837 47,230 Other long-term liabilities 22,520 18,837 Redeemable non-qualified Class B non-voting common stock, $100 par value; 211,218 and 216,261 shares issued and fully paid 21,122 21,626 --------- ------------ Total long-term liabilities and deferred credits 232,015 226,885 --------- ------------ Total liabilities and deferred credits 717,973 627,323 --------- ------------ Commitments and contingencies - - MEMBERS' EQUITY: Redeemable Class A voting common stock, $100 par value; 750,000 shares authorized; 293,400 and 296,820 shares issued and fully paid; 26,940 and 22,920 shares issued (net of subscriptions receivable of $1,465 and $1,484) 30,569 30,490 Redeemable qualified Class B non-voting common stock and paid-in capital, $100 par value; 4,000,000 shares authorized; 981,318 and 1,008,882 shares issued and fully paid 99,431 102,187 Loss allocation (18,731) (19,420) Deferred patronage (23,924) (24,298) Accumulated deficit (43,019) (58,860) Accumulated other comprehensive loss (1,903) (1,903) --------- ------------ Total members' equity 42,423 28,196 --------- ------------ Total liabilities and members' equity $ 760,396 $ 655,519 ========= ============
See Notes to Condensed Consolidated Financial Statements. 3 TRUE VALUE COMPANY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the quarter ended For the first two quarters ended July 2, July 3, July 2, July 3, 2005 2004 2005 2004 --------- ----------- ---------- ---------- Net revenue $ 551,580 $ 575,345 $1,055,161 $1,074,707 Cost of revenue 487,516 513,687 939,125 963,206 --------- ----------- ---------- ---------- Gross margin 64,064 61,658 116,036 111,501 Operating expenses: Logistics and manufacturing expenses 17,750 16,235 34,175 31,977 Selling, general and adminstrative expenses 23,645 25,788 52,978 54,789 Other income, net (662) (565) (395) (1,063) --------- ----------- ---------- ---------- Operating income 23,331 20,200 29,278 25,798 Interest expense to members 1,350 1,350 2,685 2,751 Third-party interest expense 2,513 1,876 4,502 3,898 --------- ----------- ---------- ---------- Net margin before income taxes 19,468 16,974 22,091 19,149 Income tax expense 23 59 31 110 --------- ----------- ---------- ---------- Net margin $ 19,445 $ 16,915 $ 22,060 $ 19,039 ========= =========== ========== ==========
See Notes to Condensed Consolidated Financial Statements. 4 TRUE VALUE COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the first two quarters ended July 2, July 3, 2005 2004 ---------- -------- Operating activities: Net margin $ 22,060 $ 19,039 Adjustments to reconcile net margin to net cash and cash equivalents from operating activities: Depreciation and amortization 7,078 8,967 Benefit for losses on accounts and notes receivable (269) (457) (Gain) / loss on sale of assets 918 (75) Provision for inventory reserves 3,571 6,465 Amortization of deferred gain on sale leaseback (1,393) (1,375) Net change in working capital components and other assets (64,185) (14,408) ---------- -------- Net cash and cash equivalents provided by / (used for) operating activities (32,220) 18,156 ---------- -------- Investing activities: Additions to properties (6,711) (5,935) Proceeds from sale of properties 6,340 240 ---------- -------- Net cash and cash equivalents used for investing activities (371) (5,695) ---------- -------- Financing activities: Payment of patronage dividend (11,930) (8,437) Payment of notes, long-term debt and lease obligations (555) (327) Decrease in drafts payable (9,367) (4,052) Increase / (decrease) in revolving credit facilities, net 55,800 (900) Proceeds from common stock and stock subscriptions receivable 1,096 438 Purchase of common stock (903) - ---------- -------- Net cash and cash equivalents provided by / (used for) financing activities 34,141 (13,278) ---------- -------- Net increase / (decrease) in cash and cash equivalents 1,550 (817) Cash and cash equivalents at beginning of period 7,222 9,234 ---------- -------- Cash and cash equivalents at end of period $ 8,772 $ 8,417 ========== ========
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 July 2, 2005, the condensed consolidated statement of operations for the quarters and the first two quarters ended July 2, 2005 and July 3, 2004, and the condensed consolidated statement of cash flows for the first two quarters ended July 2, 2005 and July 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 first two quarters ended July 2, 2005 was $6,116 or 30% of the first two quarters' estimated patronage dividend of $20,387, 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 $5,645, which was 30% of the 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 2005 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
July 2, December 31, 2005 2004 --------- ------------ Manufacturing inventories: Raw materials $ 2,829 $ 1,666 Work-in-process and finished goods 26,509 22,492 Manufacturing inventory reserves (1,613) (1,112) --------- ------------ 27,725 23,046 --------- ------------ Merchandise inventories: Warehouse inventory 277,410 250,273 Merchandise inventory reserves (8,268) (9,084) --------- ------------ 269,142 241,189 --------- ------------ Total $ 296,867 $ 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 July 2, 2005 and December 31, 2004 was $20,102 and $17,373, respectively. NOTE 5 - DEBT On August 29, 2003, True Value entered into a four-year $275,000 revolving credit 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 July 2, 2005 was $115,300. True Value amended its Bank Facility on May 6, 2005 primarily to lower the interest rates charged on this debt, extend the term of the Bank Facility for one year to August of 2008, and ease certain restrictive language, which had the primary effect of increasing the spending limitations on capital expenditures, leases and various distributions to members. The interest rate charged for the 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. The performance-based pricing grid was amended in May 2005 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 achieved a 0.75% improvement in the pricing charged on its bank debt as a result of this amendment. As of July 2, 2005 and July 3, 2004, this interest rate was 4.92% and 3.45%, 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 1.5% and 2.0% as of July 2, 2005 and July 3, 2004, respectively. Fees paid for acquiring the Bank Facility totaled $3,752 and these fees are being amortized by True Value over the remaining term of the agreement. 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 to 1. This fixed charge coverage ratio increases to 1.1 to 1 beginning with the second half of 2006. As of July 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. 7 At July 2, 2005, True Value had Current maturities of long-term debt, notes and capital lease obligations of $85,454. Only $31,354 of this amount has required payments during the next 12 months and the remaining $54,100 is the current portion of the Bank Facility, which reflects the seasonality of True Value's business. The required payments consist of $5,871 of subordinated installment notes, $23,304 of subordinated promissory notes, $1,230 of accrued stock redemption liability and $949 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 2008. At July 2, 2005, True Value had $144,100 in revolving credit loans, of which $54,100 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 - ASSET SALE 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. In the first quarter of 2005, True Value recorded an impairment charge of $942 to write down to fair value this facility that was classified as held for sale. 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 under an operating lease. 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 net margin 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 July 2, 2005 ----------------------------------- Consolidated Hardware Paint Totals ----------------------------------- Net sales to external customers $ 520,257 $ 31,323 $ 551,580 Interest expense 3,125 738 3,863 Depreciation and amortization 2,922 829 3,751 Segment net margin 18,734 711 19,445
For the quarter ended July 3, 2004 ----------------------------------- Consolidated Hardware Paint Totals ----------------------------------- Net sales to external customers $ 542,617 $ 32,728 $ 575,345 Interest expense 2,673 553 3,226 Depreciation and amortization 4,027 344 4,371 Segment net margin 13,875 3,040 16,915
8
For the first two quarters ended July 2, 2005 --------------------------------------------- Consolidated Hardware Paint Totals --------------------------------------------- Net sales to external customers $ 1,001,618 $ 53,543 $ 1,055,161 Interest expense 5,807 1,380 7,187 Depreciation and amortization 5,903 1,175 7,078 Segment net margin 19,774 2,286 22,060 Identifiable segment assets 704,460 55,936 760,396
For the first two quarters ended July 3, 2004 --------------------------------------------- Consolidated Hardware Paint Totals --------------------------------------------- Net sales to external customers $ 1,019,212 $ 55,495 $ 1,074,707 Interest expense 5,558 1,091 6,649 Depreciation and amortization 8,279 688 8,967 Segment net margin 12,167 6,872 19,039 Identifiable segment assets 672,093 59,494 731,587
NOTE 8 - BENEFITS Pension Plans The components of net periodic pension cost for True Value administered pension plans were as follows for the quarters and the first two quarters ended July 2, 2005 and July 3, 2004:
For the quarter ended For the first two quarters ended July 2, July 3, July 2, July 3, 2005 2004 2005 2004 ------- ------- ------- ------- Components of net periodic pension cost: Service cost $ 1,500 $ 1,500 $ 3,000 $ 2,900 Interest cost 1,200 1,000 2,300 2,100 Expected return on assets (1,200) (1,100) (2,400) (2,200) Amortization of prior service cost - (200) - (100) Amortization of actuarial loss 300 400 600 700 Settlement loss 700 1,200 1,300 1,700 ------- ------- ------- ------- Net pension cost $ 2,500 $ 2,800 $ 4,800 $ 5,100 ======= ======= ======= =======
Contributions True Value expects to contribute approximately $7,300 to its qualified pension plan and $300 to its supplemental retirement plan in 2005. As of July 2, 2005, True Value had contributed $1,850 to its qualified pension plan and $148 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 ("Blackhawk") and move its operations to the Cary, Illinois paint manufacturing facility. The move of the operations is expected to occur in December 2005. The decision was made as a result of declining operations at the under-utilized facility in Chicago. 9 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 $1,300 in compensatory damages. The jury did not award any punitive damages. As True Value believes that the verdict was rendered in error, it pursued post-trial motions before the Circuit Court, including a request that the verdict be set aside or that True Value be awarded a new trial. Such relief was denied by the Circuit Court and True Value is now pursuing an appeal for such relief in the Kentucky Appellate Court. True Value posted with the court a bond in an amount necessary to prevent Flegles from enforcing its judgment during the appeal. True Value intends to continue to vigorously defend this case. NOTE 11 - SUBSEQUENT EVENT On July 28, 2005, an arbitration panel denied True Value's claims against Ernst & Young LLP ("E&Y") in their entirety. The decision of the arbitration panel also requires True Value to reimburse E&Y for its attorneys' fees and expenses related to this matter, which have yet to be ascertained. True Value believes that such amount may be material to its financial statements and results of operations. As True Value previously disclosed, the arbitration is subject to confidentiality requirements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ($ in thousands) OVERVIEW In the second quarter of 2005, True Value's Net revenue decreased by $23,765, or 4.1%, compared to the second quarter of 2004, while Net revenue for the first two quarters of this year decreased by $19,546, or 1.8%, compared to the first two quarters of last year. The primary reasons for the quarter decrease in revenue were the timing of the Spring Market, the timing of a national multimedia advertising event and the late arrival of spring weather across much of the country, which effectively shortened the selling season. A national multimedia advertising event that was held in April 2004 was not repeated in April 2005, reducing the related circular and product sales for the second quarter of 2005. The elimination of this event allows for an additional event to be held in October 2005. The timing of the Spring Market, which was held in early March 2005 compared to late March 2004, resulted in an increase in direct ship Market orders being delivered and revenue recognized during the first quarter of 2005 versus the second quarter of 2004. On a year-to-date basis, the decrease in revenue was primarily impacted by an unfavorable change in the number of participating members. In the second quarter of 2005, True Value's member store count declined by 78 to 5,926 from 6,004; terminations of 133 outpaced new store signings of 55. In the first two quarters of 2005, the member store count dropped by 99 to 5,926 from 6,025, as terminations of 228 outpaced new store signings of 129. In regards to the level of patronage from True Value members in the first two quarters of 2005, approximately one quarter of True Value's member stores accounted for less than 5% of True Value's Net revenue and approximately 77% of the terminations were members in that quartile. True Value continued to perform and launch vendor line reviews. Line reviews in the second quarter and the first two quarters of 2005 generated approximately $2,300 and $1,500, respectively, of recognized savings from the net effects of reduced merchandise acquisition costs, reduced vendor rebate programs, increased amortization of transition funds from vendors and reduced pricing to members on these line review products. 10 True Value achieved a Net margin of $19,445 in the second quarter this year compared to a Net margin of $16,915 for the same period last year, bringing the Net margin in the first two quarters of 2005 to $22,060 compared to a Net margin of $19,039 in 2004. Since year-end 2004 and consistent with prior years' first half trends, True Value's Accounts receivable and Inventory balances have seasonally risen, as have Accounts payable and bank borrowings. True Value's debt increased to $227,990 from $170,301 at year-end to support the seasonal needs of the business and is slightly lower compared to a debt balance of $230,570 at the end of the second quarter last year. True Value decreased its year-over-year debt despite lifting its moratorium on stock redemptions in July 2004 that resulted in the creation of additional debt. Approximately 17% of the debt at quarter-end is related to the 2004 lifting of the moratorium on stock redemptions. Management expects a modest increase in its debt balance at year-end 2005 compared to year-end 2004. QUARTER ENDED JULY 2, 2005 COMPARED TO QUARTER ENDED JULY 3, 2004 RESULTS OF OPERATIONS: Net Revenue and Gross Margin A reconciliation of Net revenue and Gross margin for the quarters ended July 2, 2005 and July 3, 2004 follows:
GROSS NET % OF NET GROSS MARGIN % REVENUE REVENUE MARGIN OF REVENUE --------- -------- -------- ---------- ($ IN THOUSANDS) Quarter ended July 3, 2004 results $ 575,345 100.0% $ 61,658 10.7% --------- ----- -------- ---- Same store sales: Warehouse and relay revenue 2,069 0.3% 7,246 Vendor direct revenue (14,456) (2.5%) (236) Paint revenue (1,200) (0.2%) (1,382) --------- ----- -------- Net same store sales (13,587) (2.4%) 5,628 --------- ----- -------- Change in participating members: Terminated members: Warehouse and relay revenue (9,710) (1.7%) (1,579) Vendor direct revenue (4,505) (0.8%) (30) Paint revenue (814) (0.1%) (310) --------- ----- -------- Net terminated members (15,029) (2.6%) (1,919) --------- ----- -------- New members: Warehouse and relay revenue 4,840 0.9% 875 Vendor direct revenue 4,057 0.7% 25 Paint revenue 609 0.1% 160 --------- ----- -------- Net new members 9,506 1.7% 1,060 --------- ----- -------- Net change in participating members (5,523) (0.9%) (859) --------- ----- -------- Other revenue and cost of revenue (4,655) (0.8%) (2,363) --------- ----- -------- Total change (23,765) (4.1%) 2,406 --------- ----- -------- Quarter ended July 2, 2005 results $ 551,580 95.9% $ 64,064 11.6% ========= ===== ======== ====
11 Net revenue for the quarter ended July 2, 2005 totaled $551,580, a decrease of $23,765, or 4.1%, as compared to the same period last year. True Value's same store sales decreased by $13,587, or 2.4%. The same store sales category was negatively 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 sales in the first quarter of 2005 compared to the second quarter of 2004. Also contributing to the reduction in same store sales was the timing of a national multimedia advertising event. An April 2004 event was not repeated in 2005 and was replaced by an event scheduled for October 2005, which is expected to shift product revenue from the second quarter to the fourth quarter. In addition, the late arrival of spring weather, which effectively shortened the selling season, contributed to the decline in the same store sales category. True Value experienced a 2.8% net decline in the number of participating member retail outlets compared to the end of the second quarter last year, resulting in a revenue reduction of $5,523, or 0.9%. The remaining revenue reduction in the other revenue category of $4,655, or 0.8%, was primarily due to the timing of a national multimedia advertising event as described in the prior paragraph, which resulted in lower advertising revenue in the second quarter of 2005. The other revenue category was also unfavorable compared to last year due to the elimination of TrueValue.com internet sales, which was discontinued in August 2004 and generated approximately $800 of revenue in the second quarter of 2004. Gross margin for the quarter ended July 2, 2005 increased by $2,406, or 3.9%, over the same period last year. The increase in gross margin was driven principally by favorable results from vendor line review activities that accounted for a net benefit of approximately $2,300. In addition, increased margin on advertising activities of $1,579 were offset by reduced margins on paint of $1,533. Advertising margins increased primarily due to lower subsidy of regional advertising, along with lower television production costs in the first half of 2005 compared to 2004. Paint margins declined due to lower volume, increased production costs and charges related to the initial outsourcing of the brush manufacturing line and the Blackhawk facility closure. Additionally, in the second quarter of 2005, True Value enhanced its methodology of its inventory reserve calculation. The impact of the change in estimate was approximately $900 increase in gross margin.
2005 2004 $ Expense Increase ---- ---- ------------------ Logistics and manufacturing expenses $17,750 $16,235 $1,515
Logistics and manufacturing expenses increased by $1,515, or 9.3%, as compared to the same period last year. This increase in expense mainly relates to higher logistics labor primarily due to wage increases and higher safety incentive expense, partially offset by lower outbound volume. In addition, manufacturing expenses increased primarily due to higher advertising expenses for manufactured paint products.
2005 2004 $ Expense (Decrease) ---- ---- -------------------- Selling, general and administrative expenses $23,645 $25,788 $(2,143)
Selling, general and administrative ("SG&A") expenses decreased by $2,143, or 8.3%, as compared to the second quarter of 2004. SG&A expenses decreased primarily due to lower incentive plan expenses of $1,936 as a result of lower achievement of performance targets in 2005 versus 2004.
2005 2004 $ Expense Increase ---- ---- ------------------ Third-party interest expense $2,513 $1,876 $637
Third party interest expense increased by $637, or 34.0%, as compared to the same period last year. This increase in expense is primarily due to higher interest rates.
2005 2004 $ Increase ---- ---- ---------- Net margin $19,445 $16,915 $2,530
12 The second quarter 2005 Net margin of $19,445 increased from a Net margin of $16,915 for the same period a year ago. The primary reason for the increase in 2005 was higher gross margins as discussed above. See "Results of Operations - - Net Revenue and Gross Margin." FIRST TWO QUARTERS ENDED JULY 2, 2005 COMPARED TO FIRST TWO QUARTERS ENDED JULY 3, 2004 RESULTS OF OPERATIONS: Net Revenue and Gross Margin A reconciliation of Net revenue and Gross margin for the first two quarters ended July 2, 2005 and July 3, 2004 follows:
GROSS NET % OF NET GROSS MARGIN % REVENUE REVENUE MARGIN OF REVENUE ----------- -------- --------- ---------- ($ IN THOUSANDS) First two quarters ended July 3, 2004 results $ 1,074,707 100.0% $ 111,501 10.4% ----------- ----- --------- ---- Same store sales: Warehouse and relay revenue 4,228 0.4% 10,295 Vendor direct revenue (5,632) (0.6%) (134) Paint revenue (1,378) (0.1%) (2,229) ----------- ----- --------- Net same store sales (2,782) (0.3%) 7,932 ----------- ----- --------- Change in participating members: Terminated members: Warehouse and relay revenue (17,956) (1.7%) (2,786) Vendor direct revenue (9,652) (0.9%) (66) Paint revenue (1,441) (0.1%) (574) ----------- ----- --------- Net terminated members (29,049) (2.7%) (3,426) ----------- ----- --------- New members: Warehouse and relay revenue 9,491 0.9% 1,590 Vendor direct revenue 7,603 0.7% 38 Paint revenue 867 0.1% 230 ----------- ----- --------- Net new members 17,961 1.7% 1,858 ----------- ----- --------- Net change in participating members (11,088) (1.0%) (1,568) ----------- ----- --------- Other revenue and cost of revenue (5,676) (0.5%) (6,133) Accounting change (EITF 02-16) - 0.0% 4,304 ----------- ----- --------- Total change (19,546) (1.8%) 4,535 ----------- ----- --------- First two quarters ended July 2, 2005 results $ 1,055,161 98.2% $ 116,036 11.0% =========== ===== ========= ====
Net revenue for the first two quarters ended July 2, 2005 totaled $1,055,161, a decrease of $19,546, or 1.8%, as compared to the same period last year. A 2.8% net decline in the number of participating member retail outlets compared to the end of the first two quarters last year resulted in a revenue reduction of $11,088, or 1.0%. Also, the other revenue category decreased by $5,676 compared to the same period last year primarily due to the timing of a national multimedia advertising event, which also impacted same store sales. An April 2004 event was not repeated in 2005 and was replaced by an event scheduled for October 2005, which is expected to shift product and 13 advertising revenue from the second quarter to the fourth quarter. The other revenue category was also unfavorable compared to last year due to the elimination of TrueValue.com internet sales, which was discontinued in August 2004 and generated approximately $1,500 of revenue during the first two quarters of 2004. True Value's same store sales also decreased by $2,782, or 0.3%, and was additionally impacted by the late arrival of spring weather across most of the country, which effectively shortened the selling season. Gross margin for the first two quarters ended July 2, 2005 increased by $4,535, or 4.1%, over the same period last year. The increased gross margin in 2005 was driven by the negative impact of $4,304 to 2004 gross margin from the application of EITF 02-16, which did not reoccur in 2005, as discussed below. Also, advertising margins increased by $2,281 primarily due to lower subsidy of regional advertising along with lower television production cost in the first half of 2005 compared to 2004. Partially offsetting these favorable impacts to gross margin was a decline in paint margins of $2,572 due to lower volume, increased production costs and charges related to the initial outsourcing of the brush manufacturing line and the Blackhawk facility closure. Additionally, in the second quarter of 2005, True Value enhanced its methodology of its inventory reserve calculation. The impact of the change in estimate was approximately $900 increase in gross margin. 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 two quarters 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 $34,175 $31,977 $2,198
Logistics and manufacturing expenses increased by $2,198 or 6.9%, as compared to the same period last year. This increase in expense primarily relates to manufacturing and was mainly due to higher advertising expenses for manufactured paint products. In addition, logistics operating expenses were higher primarily due to wage increases, higher safety incentive expense and increased staffing to support True Value's import and vendor compliance initiatives.
2005 2004 $ Expense (Decrease) ---- ---- -------------------- Selling, general and administrative expenses $52,978 $54,789 $(1,811)
SG&A expenses decreased by $1,811, or 3.3%, as compared to the first two quarters of 2004. SG&A expenses decreased primarily due to lower incentive plan expenses of $1,551 as a result of lower achievement of performance targets in 2005 versus 2004.
2005 2004 $ (Decrease) ---- ---- ------------ Other income, net $(395) $(1,063) $(668)
Other income, net decreased by $668, or 62.8%, as compared to the first two quarters of 2004. This change was predominantly due to the $942 impairment charge in the first quarter of 2005 on the East Butler, Pennsylvania facility that was sold on April 20, 2005. 14
2005 2004 $ Expense Increase ---- ---- ------------------ Third-party interest expense $4,502 $3,898 $604
Third party interest expense increased by $604, or 15.5%, as compared to the same period last year. This increase in expense is primarily due to higher interest rates.
2005 2004 $ Increase ---- ---- ---------- Net margin $22,060 $19,039 $3,021
The first two quarters of 2005 Net margin of $22,060 increased from a Net margin of $19,039 for the same period a year ago. The primary reason for the increase in 2005 was due to the net effect of two non-reoccurring events. Higher gross margins, which were due to the negative effect in 2004 of EITF 02-16, partially offset by the $942 impairment charge in 2005 on the sale of the East Butler, Pennsylvania facility, as discussed above. 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 first two quarters ended July 2, 2005 of $32,220 while it generated cash of $18,156 during the first two quarters ended July 3, 2004. 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 usually 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 an increase in inventory in order to reduce out-of-stock items and to improve fill rates. Inventory as of July 2, 2005 was $296,867, up $32,632 since the beginning of the year. This first two quarters increase in inventory compares to an inventory decrease of $983 in the first two quarters of 2004. Inventory, as compared to the same period last year, was up $21,125. The unfavorable change in cash used for operating activities was also due to increased vendor transition fund receivables related to line reviews that will be collected according to the terms of the vendor agreements. True Value used cash for investing activities of $371 for the first two quarters ended July 2, 2005 as compared to $5,695 for the same period last year. Investing activities include proceeds from the sale of properties and capital expenditures. Proceeds from the sale of properties in the first two quarters of 2005 were $6,340 compared to $240 in the same period last year. This increase in cash generated in 2005 was principally related to the sale of the East Butler, Pennsylvania facility on April 20, 2005. The use of cash in investing activities is mainly due to additions to properties owned using cash of $6,711, which is up from $5,935 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 its corporate headquarters. True Value generated cash from its financing activities for the first two quarters ended July 2, 2005 of $34,141 while it used cash for financing activities of $13,278 for the first two quarters ended July 3, 2004. The cash in the first two quarters of 2005 was generated from increased borrowings from the Bank Facility in the amount of $55,800 and was used to fund True Value's operating activities, as well as for payments of drafts payable and patronage dividends. In 2004, True Value used cash generated from its operating activities to fund its financing activities. The main use of cash in 2004 for financing activities was the cash payment of patronage dividends and drafts payable. 15 Under the terms of the Bank Facility, the interest rate charged for borrowings is variable at True Value's option at either LIBOR or prime, plus in either case, an additional amount of interest determined by a performance-based pricing grid. The performance grid is based upon True Value's fixed charge coverage ratio, measured quarterly. The performance-based pricing grid was amended in May 2005 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. Based on this performance pricing grid, True Value achieved 0.25% of improved variable pricing effective May 1, 2004 and a 0.75% improvement effective May 11, 2005 through at least October 2005. As of July 2, 2005 and July 3, 2004, this interest rate was 4.92% and 3.45%, 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 1.5% and 2.0% as of July 2, 2005 and July 3, 2004, respectively. True Value's availability at July 2, 2005 and July 3, 2004 was $115,300 and $122,601, respectively. 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 $13,000 of Bank Facility borrowings funded these redemptions. In the first two quarters ended July 2, 2005, True Value had a net increase in cash and cash equivalents of $1,550. At July 2, 2005, True Value's working capital was $109,135 compared to $87,047 at December 31, 2004. The current ratio of 1.22 at July 2, 2005 was unchanged from 1.22 at December 31, 2004. True Value believes that its cash from operations and existing credit facilities will provide sufficient liquidity to meet its working capital needs, planned capital expenditures and debt obligations that are due to be repaid in 2005. CASH REQUIREMENTS: Below is the current schedule of the expected cash outflows necessary to meet financial commitments existing as of July 2, 2005 and thereafter:
2006 & 2008 & 2005 2007 2009 Thereafter Total --------- --------- --------- ---------- --------- ($ in thousands) Bank Facility (1) $ - $ - $ 144,100 $ - $ 144,100 Installment (subordinated) notes (2) 5,871 11,742 6,496 - 24,109 Promissory (subordinated) notes (3) 23,304 31,542 - - 54,846 Interest on promissory & installment (subordinated) notes 2,784 4,625 370 - 7,779 Accrued stock redemption liability (2) 1,230 783 783 701 3,497 Capital lease obligations 949 1,189 2 - 2,140 Operating lease obligations 16,020 58,039 50,500 219,598 344,157 Purchase obligations (4) 107,704 - - - 107,704 Redeemable non-qualified Class B non-voting common stock - - - 21,122 21,122 --------- --------- --------- ---------- --------- Total $ 157,862 $ 107,920 $ 202,251 $ 241,421 $ 709,454 ========= ========= ========= ========== =========
(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 July 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 $3,497 of stock redemption liability as 16 $1,230 in Current maturities of long-term debt, notes and capital lease obligations, $1,566 in Long-term debt including notes and capital lease obligations, less current maturities and $701 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. True Value expects to contribute approximately $5,450 to its qualified pension plan in the third quarter of 2005 to complete its expected funding of the qualified pension plan in 2005. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ($ 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 $144,100 outstanding at July 2, 2005. A 50 basis point movement in interest rates would result in an approximate $721 annualized increase or decrease in interest expense and cash flows based on the outstanding balance at July 2, 2005. True Value manages interest rate risk through a combination of variable and fixed-rate debt instruments with varying maturities. Interest rate hedges to a minimum level of $25,000 are required by the Bank Facility. True Value has purchased interest rate caps that limit its risk on $25,000 of variable rate debt through August 2007 to a maximum underlying LIBOR rate of 3.5%, approximately equal to three-month LIBOR at July 2, 2005. True Value marks to market the interest rate caps and both the 2005 second quarter loss of $133 and year-to-date gain of $34 are reflected as a component of Third-party interest expense. 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 July 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. However, since the end of the quarter, the following material development has occurred to the following previously disclosed legal proceeding: 17 ACTIVE LEGAL MATTER: CLAIMS AGAINST ERNST & YOUNG LLP On July 28, 2005, an arbitration panel denied True Value's claims against Ernst & Young LLP ("E&Y") in their entirety. The decision of the arbitration panel also requires True Value to reimburse E&Y for its attorneys' fees and expenses related to this matter, which have yet to be ascertained. True Value believes that such amount may be material to its financial statements and results of operations. As True Value previously disclosed, the arbitration is subject to confidentiality requirements. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. ($ in thousands - except per share information) 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 second quarter ended July 2, 2005 are as follows:
Average Total Number Approximate $ Total Number Price Paid of Shares as part Value that May of Shares per Share of Announced Yet Be Purchased Redeemed (1) before offsets Plan under Plan ------------ -------------- ----------------- ---------------- CLASS A COMMON STOCK April 3 - April 30, 2005 3,480 $ 100 - $ - May 1 - May 28, 2005 4,260 100 - - May 29 - July 2, 2005 2,280 100 - - ----- -- --- Total 10,020 - $ - ====== == ===
(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. None 18 ITEM 5. OTHER INFORMATION. Effective July 21, 2005, Laurence L. Anderson resigned as Vice Chairman, but not as a director, and the board of directors elected Brian A. Webb as Vice Chairman. ITEM 6. EXHIBITS. 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: August 4, 2005 /s/ David A. Shadduck ----------------------------- David A. Shadduck Senior Vice President and Chief Financial Officer 19 EX-31.A 2 c97375exv31wa.txt SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31-A CERTIFICATION I, Lyle G. Heidemann, 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 /s/ Lyle G. Heidemann ------------------------------------- Lyle G. Heidemann President and Chief Executive Officer Date: August 4, 2005 EX-31.B 3 c97375exv31wb.txt SECTION 302 CERTIFICATION OF 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 /s/ David A. Shadduck ---------------------------- David A. Shadduck Senior Vice President and Chief Financial Officer Date: August 4, 2005 EX-32.A 4 c97375exv32wa.txt SECTION 906 CERTIFICATION OF CEO AND CFO 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 July 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: August 4, 2005 /s/ Lyle G. Heidemann - --------------------------------------- Lyle G. Heidemann 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-----