The supermarket industry is highly competitive.
Harris Teeter competes with local, regional and national food chains along with independent merchants. In addition to the more traditional food stores,
Harris Teeter also competes with discount retailers (including supercenters that carry a full line of food items), many of which are larger in terms of
assets and sales. In the past several years, considerable consolidation of competitors has taken place in the supermarket industry, and this trend is
expected to continue. Additionally, some discount supercenter operators, such as Wal-Mart, are continuing to expand and offer more items typically
found in supermarket formats. As a result, Harris Teeter is likely to compete with more, larger food chains in its markets. Principal competitive
factors include store location, price, service, convenience, cleanliness, product quality and product variety. No one customer or group of customers
has a material effect upon the business of Harris Teeter.
As of October 3, 2004, Harris Teeter employed
approximately 7,500 full-time and 7,800 part-time individuals, none of whom were represented by a union. Harris Teeter considers its employee relations
to be good.
American & Efird, Inc.
A&E is a leading manufacturer and distributor of
sewing thread, produced from natural and synthetic fibers, for worldwide industrial and consumer markets. Manufacturers of apparel, automotive
materials, home furnishings, medical supplies and footwear rely on A&E industrial sewing thread to manufacture their products. The company sells
primarily industrial sewing thread products through A&E’s employed sales representatives, commissioned agents and distributors. A&E also
distributes sewing supplies and yarn manufactured by other companies. A&E sales constituted 10% of the Company’s consolidated sales in fiscal
2004 (11% in both 2003 and 2002).
Over 65% of A&E’s sales are industrial
thread for use in apparel products. The apparel market is made up of many categories servicing both genders and diverse age groups, including
jeanswear, underwear, menswear, womenswear, outerwear, intimate apparel, workwear and childrenswear. A&E also manufactures industrial thread for
use in a wide variety of non-apparel products including home furnishings, automotive, footwear, upholstered furniture, sporting goods, caps and hats,
gloves, leather products, medical products and tea bag strings.
Headquartered in Mt. Holly, North Carolina, the
company operated eight modern manufacturing facilities in North Carolina as of the fiscal year ended October 3, 2004. The manufacturing facilities have
been designed for flexibility and efficiency to accommodate changing customer product demands. In addition to the manufacturing facilities, A&E
operates seven distribution centers in the United States.
A&E also has wholly-owned operations in Canada,
China, Colombia, Costa Rica, El Salvador, England, Guatemala, Honduras, Hong Kong, Italy, Mexico, Malaysia, the Netherlands, Nicaragua, Poland,
Portugal and Turkey; majority-owned joint ventures in China, Dominican Republic and Haiti; minority interest in ventures with ongoing operations in
Bangladesh, Mauritius, South Africa and Sri Lanka; and a 50% ownership interest in a joint venture in China. A&E’s consolidated assets in
these foreign operations total approximately $124 million. Management expects to continue to expand foreign production and distribution operations,
through acquisitions, joint ventures or new start-up operations.
The domestic order backlog, believed to be firm, as
of October 3, 2004 was approximately $9,491,000 versus $7,656,000 at the end of the preceding fiscal year. The majority of the order backlog is
expected to be filled within three weeks of the fiscal year end. The international order backlog as of the end of fiscal year 2004 was approximately
$961,000 versus $2,117,000 at the end of the preceding fiscal year. As of October 3, 2004, A&E had approximately 7,700 domestic and 5,800
international active customer accounts. In fiscal 2004, no single customer accounted for more than 6% of A&E’s total net sales, and the ten
largest customers accounted for 21% of A&E’s total net sales.
A&E purchases cotton from farmers and domestic
cotton merchants. There is presently a sufficient supply of cotton worldwide and in the domestic market. Synthetic fibers are bought from the principal
American synthetic fiber producers for domestic operations and from principal Asian synthetic fiber producers for operations in China. There is
currently an adequate supply of synthetic fiber for A&E’s global operations.
A&E has four patents issued as of the end of
fiscal 2004. There are no material licenses, franchises or concessions held by A&E. Research and development expenditures were $397,000, $435,000,
and $490,000 in fiscal 2004, 2003 and 2002, respectively, none of which were sponsored by customers. Two full-time employees are currently engaged in
this activity.
2
The industrial sewing thread industry is highly
competitive. A&E is one of the world’s largest manufacturers of industrial sewing threads and also manufactures and distributes consumer
sewing thread. A&E’s principal North American competition includes Coats American, Inc. and imports sold primarily through distributors.
Globally, A&E competes with Coats plc as well as regional producers and merchants in various foreign markets served by A&E. The key competitive
factors are quality, service and price. In the consumer thread market, A&E competes with a number of large, well-established companies, including
Coats plc.
A&E and its consolidated subsidiaries employed
approximately 2,900 individuals worldwide as of October 3, 2004. None of the domestic employees and an insignificant number of employees of foreign
operations are represented by a union. A&E considers its employee relations to be good.
Available Information
The Company’s Internet address is
www.ruddickcorp.com. The Company makes available, free of charge, on or through its website, our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, and beneficial ownership reports on Forms 3, 4, and 5 as soon as reasonably practicable after electronically filing such material
with, or furnishing it to, the Securities and Exchange Commission.
The executive office of the Company is located in a
leased space of a downtown office tower at 301 S. Tryon Street, Suite 1800, Charlotte, North Carolina, 28202.
Harris Teeter owns its principal offices near
Charlotte, North Carolina, a 517,000 square foot distribution facility east of Charlotte, a 913,000 square foot distribution facility in Greensboro,
North Carolina, and a 90,500 square foot dairy processing plant in High Point, North Carolina. Both distribution facilities contain dry grocery
warehousing space and refrigerated storage for perishable goods. In addition, the Greensboro facility has frozen goods storage and a single pick
facility for health and beauty care and other general merchandise. The Company believes its facilities are adequate for its current operations and
expected growth for the foreseeable future. Harris Teeter operates its retail stores primarily from leased properties. As of October 3, 2004, Harris
Teeter held title to the land and buildings of 4% of its supermarkets. The remaining supermarkets are either leased in their entirety or the building
is owned and operated under a land lease. In addition, Harris Teeter holds interest in properties that are under development for store sites and in
future years the proportion of ownership development is expected to increase. Harris Teeter’s supermarkets range in size from approximately 16,000
square feet to 70,000 square feet, with an average size of approximately 42,000 square feet. The following table sets forth selected statistics with
respect to Harris Teeter stores for each of the last three fiscal years:
|
|
|
|
2004
|
|
2003
|
|
2002
|
Stores Open
at Period End |
|
|
|
|
138 |
|
|
|
140 |
|
|
|
143 |
|
Average
Weekly Net Sales Per Store* |
|
|
|
$ |
352,392 |
|
|
$ |
334,561 |
|
|
$ |
320,262 |
|
Average
Square Footage Per Store at Period End |
|
|
|
|
41,971 |
|
|
|
41,328 |
|
|
|
40,774 |
|
Average
Square Footage Per New Store Opened
During Period |
|
|
|
|
47,594 |
|
|
|
40,128 |
|
|
|
38,408 |
|
Total Square
Footage at Period End |
|
|
|
|
5,792,034 |
|
|
|
5,785,946 |
|
|
|
5,830,698 |
|
* |
|
Computed on the basis of aggregate sales of stores open for a
full year. |
A&E’s principal offices, eight domestic
manufacturing plants and one distribution center are all owned by A&E and are all located in North Carolina. Domestic manufacturing and related
warehouse facilities have an aggregate of 1,854,884 square feet of floor space. A&E has the capacity to produce annually approximately 36,960,000
pounds of industrial sewing thread and has a dyeing capacity of approximately 33,650,000 pounds per year. Capacities are based on 168 hours of
operations per week. In addition, A&E leases six distribution centers scattered throughout its domestic markets with an aggregate of 191,330 square
feet of floor space.
3
Through consolidated subsidiaries, A&E also owns
six international manufacturing and/or distribution facilities with an aggregate of 748,924 square feet of floor space. A&E also leases another 26
international manufacturing and/or distribution facilities with an aggregate of 584,491 square feet of floor space. The foreign consolidated
subsidiaries engaged in manufacturing have a sewing thread dyeing capacity of approximately 22,370,000 pounds per year. Capacities are based on 168
hours of operations per week. In addition to its consolidated subsidiaries, A&E also has minority interests in various joint ventures and a 50%
ownership interest in a joint venture in China.
| Item 3. |
|
Legal Proceedings |
The Company and its subsidiaries are involved in
various matters from time to time in connection with their operations, including various lawsuits and patent and environmental matters. These matters
considered in the aggregate have not had, nor does the Company expect them to have, a material effect on the Company’s results of operations,
financial position or cash flows.
| Item 4. |
|
Submission of Matters to a Vote of Security
Holders |
Not applicable.
| Item 4A. |
|
Executive Officers of the Registrant |
The following list contains the name, age, positions
and offices held and period served in such positions or offices for each of the executive officers of the Registrant.
|
|
Thomas W. Dickson, age 49, is the President and Chief
Executive Officer of the Company and has been the President and principal executive officer of the Company since February 1997. Prior to that time, and
beginning in February 1996, he served as Executive Vice President of the Company. He also served as A&E’s President from February 1994 to
February 1996 and Executive Vice President from 1991 to 1994. |
|
|
John B. Woodlief, age 54, is the Vice President —
Finance and Chief Financial Officer of the Company and has been the Vice President — Finance and principal financial officer of the Company since
November 1999. Prior to that time, he served as a partner in PricewaterhouseCoopers since 1998 and a partner in Price Waterhouse from 1985 to 1998. He
served as Managing Partner of the Charlotte, North Carolina office of Price Waterhouse and PricewaterhouseCoopers from January of 1997. He joined Price
Waterhouse in 1972. |
|
|
Frederick J. Morganthall, II, age 53, was elected
President of Harris Teeter on October 30, 1997. Prior to that time, and beginning in October 1996, he served as Executive Vice President of Harris
Teeter. He was also Harris Teeter’s Senior Vice President of Operations from October 1995 to October 1996, Vice President of Operations from April
1994 to October 1995 and Vice President of Sales and Distribution from October 1992 to April 1994. |
|
|
Fred A. Jackson, age 54, has been President of A&E
since August 1996. Prior to that time, and beginning in January 1996, he served as Executive Vice President of A&E. He was also A&E’s
Senior Vice President — Industrial Thread Sales from October 1993 to January 1996. |
The executive officers of the Company and its
subsidiaries are elected annually by their respective Boards of Directors. Thomas W. Dickson is the son of R. Stuart Dickson and the nephew of Alan T.
Dickson, each of whom are directors of the Company. No other executive officer has a family relationship as close as first cousin with any other
executive officer or director or nominee for director.
4
PART II
| Item 5. |
|
Market for Registrant’s Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity Securities |
Information regarding the principal market for the
Company’s common stock (the “Common Stock”), number of shareholders of record, market price information per share of Common Stock and
dividends declared per share of Common Stock for each quarterly period in fiscal 2004 and 2003 is set forth below. The Common Stock is listed on the
New York Stock Exchange. As of November 23, 2004, there were 5,522 holders of record of Common Stock.
Quarterly Information
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Per
Share |
|
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
Market Price
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
17.99 |
|
|
|
20.48 |
|
|
|
22.27 |
|
|
|
22.45 |
|
Low |
|
|
|
|
15.50 |
|
|
|
17.66 |
|
|
|
19.52 |
|
|
|
18.56 |
|
|
Fiscal
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Per
Share |
|
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
Market Price
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
16.06 |
|
|
|
14.30 |
|
|
|
16.00 |
|
|
|
17.22 |
|
Low |
|
|
|
|
13.40 |
|
|
|
11.95 |
|
|
|
12.30 |
|
|
|
15.49 |
|
Information regarding restrictions on the ability of
the Company to pay cash dividends is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Capital Resources and Liquidity” in Item 7 hereof.
Issuer Purchases of Equity Securities
The following table summarizes the Company’s
purchases of its common stock during the quarter ended October 3, 2004.
Period
|
|
|
|
Total Number
of Shares
Purchased
|
|
Average
Price Paid
per Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
|
|
Maximum Number
of Shares that May
Yet Be Purchased
Under
the Plans or
Programs
|
June 28, 2004
to July 27, 2004 |
|
|
|
|
–0– |
|
|
|
n.a. |
|
|
|
–0– |
|
|
|
3,467,069 |
|
July 28, 2004
to August 27, 2004 |
|
|
|
|
–0– |
|
|
|
n.a. |
|
|
|
–0– |
|
|
|
3,467,069 |
|
August 28,
2004 to October 3, 2004 |
|
|
|
|
–0– |
|
|
|
n.a. |
|
|
|
–0– |
|
|
|
3,467,069 |
|
Total |
|
|
|
|
–0– |
|
|
|
n.a. |
|
|
|
–0– |
|
|
|
3,467,069 |
|
(1) |
|
In February 1996, the Company announced that it had adopted a
stock buyback program, authorizing, at management’s discretion, the Company to purchase and retire up to 4,639,989 shares, 10% of the
then-outstanding shares of the Company’s common stock, for the purpose of preventing dilution as a result of the operation of the Company’s
stock option plans. The stock purchases are effected from time to time, and it is not expected that the Company will purchase a material number of
shares in any quarterly or annual fiscal period. As of October 3, 2004, the Company had purchased 1,172,920 shares under this authorization. No shares
were purchased under this authorization during the quarter ended October 3, 2004. The stock purchase plan has no set expiration or termination
date. |
For information regarding the Company’s equity
compensation plans, see Item 12 hereof.
5
| Item 6. |
|
Selected Financial Data (dollars in thousands, except per
share data) |
|
|
|
|
2004(1)
|
|
2003(1)
|
|
2002(1)
|
|
2001(2)
|
|
2000
|
Net
sales |
|
|
|
$ |
2,868,597 |
|
|
$ |
2,724,739 |
|
|
$ |
2,644,198 |
|
|
$ |
2,743,290 |
|
|
$ |
2,692,091 |
|
Total
operating profit |
|
|
|
|
112,414 |
|
|
|
102,112 |
|
|
|
93,802 |
|
|
|
48,702 |
|
|
|
99,446 |
|
Net income
(loss) |
|
|
|
|
64,659 |
|
|
|
59,882 |
|
|
|
51,983 |
|
|
|
(727 |
) |
|
|
51,002 |
|
Net income
(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
1.39 |
|
|
|
1.29 |
|
|
|
1.12 |
|
|
|
(0.02 |
) |
|
|
1.10 |
|
Diluted |
|
|
|
|
1.38 |
|
|
|
1.29 |
|
|
|
1.12 |
|
|
|
(0.02 |
) |
|
|
1.10 |
|
Dividend per
share |
|
|
|
|
0.40 |
|
|
|
0.36 |
|
|
|
0.36 |
|
|
|
0.36 |
|
|
|
0.36 |
|
Total
assets |
|
|
|
|
1,111,992 |
|
|
|
1,065,022 |
|
|
|
1,039,271 |
|
|
|
940,064 |
|
|
|
1,020,684 |
|
Long-term
debt —
including current portion |
|
|
|
|
166,287 |
|
|
|
189,095 |
|
|
|
185,892 |
|
|
|
157,113 |
|
|
|
227,940 |
|
Shareholders’ equity |
|
|
|
|
549,710 |
|
|
|
495,265 |
|
|
|
457,688 |
|
|
|
445,353 |
|
|
|
473,005 |
|
Book value
per share |
|
|
|
|
11.76 |
|
|
|
10.71 |
|
|
|
9.85 |
|
|
|
9.61 |
|
|
|
10.23 |
|
Note: The Company’s fiscal year ends on the Sunday nearest to September 30.
Fiscal year 2004 includes the 53 weeks ended October 3, 2004. Fiscal years 2003, 2002, 2001 and 2000 include the 52 weeks ended September 28, 2003,
September 29, 2002, September 30, 2001 and October 1, 2000.
| (1) |
|
Reference is made to Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Results of Operations — Exit and Impairment Costs” which describes
certain exit and impairment costs as follows: |
• |
|
Fiscal 2004 — Net pre-tax charges of $384,000 ($238,000
after tax benefits) related to severance costs paid in connection with the closing of a manufacturing plant. |
• |
|
Fiscal 2003 — Net pre-tax charges of $580,000 ($360,000
after income tax benefits, or $0.01 per diluted share) related to asset impairments. |
• |
|
Fiscal 2002 — Net pre-tax charges of $7,113,000 ($4,394,000
after income tax benefits, or $0.09 per diluted share) related to asset impairments and other exit costs. |
| (2) |
|
During fiscal 2001 the Company recorded pre-tax charges of $45.0
million ($27.4 million after tax benefits, or $0.59 per diluted share) for impairment and exit costs related to the sale of 26 Harris Teeter stores. In
the third quarter of fiscal 2001, the Company also recorded a pre-tax charge of $2.1 million ($1.3 million after tax benefits, or $0.03 per diluted
share) primarily for the impairment of an A&E spinning facility which was closed in fiscal 2001. Results for fiscal 2001 also included a $20.0
million tax charge ($0.43 per diluted share) reflecting the terms of settlement with the IRS for income tax exposure related to the disallowance of
deductions for a corporate owned life insurance program. |
6
| Item 7. |
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Overview
The Company operates primarily in two business
segments: retail grocery (including the real estate and store development activities of the company) — Harris Teeter, and industrial thread
(textile primarily) — American & Efird. Harris Teeter operates a regional chain of supermarkets. American & Efird primarily manufactures
sewing thread for the apparel and other markets. The Company evaluates performance of its two businesses utilizing various measures which are based on
operating profit.
During fiscal 2004, the market environment that
Harris Teeter operated in continued to be highly competitive, characterized by competition from other supermarkets as well as other retailers such as
discount retailers, supercenters, club and warehouse stores and drug stores. Generally, the markets in the southeastern United States continued to
experience new store opening activity and aggressive feature pricing by competitors. In response, Harris Teeter continued to differentiate itself with
its product assortment and variety, and focus on customer service, while driving customer traffic through the use of its Very Important Customer
(“VIC”) loyalty card program. These efforts have resulted in overall gains in market share within our primary markets.
Business conditions for A&E’s customers in
the U.S. textile and apparel industry in general remained extremely challenging in fiscal 2004 due to the continued rise in imports that has forced
many of A&E’s U.S. customers to close their plants or shift their production out of the United States. Additionally, A&E continues to face
highly competitive pricing in its markets. A&E management expects business conditions to remain challenging during the next fiscal year, especially
with the unknown future impacts that may result from the expiration of apparel import quotas in 2005. A&E continues to proactively address these
challenges by managing production schedules, growing its non-apparel thread and yarn business and expanding its presence in foreign
markets.
Results of Operations
Exit and Impairment Costs
The results of operations for fiscal years 2004,
2003 and 2002 included certain exit and impairment charges associated with the Company’s strategic initiatives to improve future operations. A
summary of these events is as follows:
• |
|
Fiscal 2004: During the first half of fiscal 2004 the Company
recorded pre-tax charges of $384,000 ($238,000 after tax benefits) related to severance costs paid in connection with the closing of A&E’s
thread yarn spinning plant in Maiden, North Carolina. |
• |
|
Fiscal 2003: In the fourth quarter of fiscal 2003 a $580,000
pre-tax charge ($360,000 after tax benefits, or $0.01 per diluted share) was recorded for the planned closing of A&E’s thread yarn spinning
plant in Maiden, North Carolina, which occurred in the first quarter of fiscal 2004. |
• |
|
Fiscal 2002: In the third quarter of fiscal 2002, the Company
realized $710,000 ($431,000 after income taxes, or $0.01 per diluted share) of credits related to favorable experience of actual charges incurred
compared to costs originally estimated and recorded in fiscal 2001 for the sale of 26 Harris Teeter stores. Additionally, the Company recorded in
fiscal 2002 $7.8 million of pre-tax exit and impairment charges ($4.8 million after tax benefits, or $0.10 per diluted share), related to the
consolidation of two industrial thread dyeing and finishing operations at A&E. |
7
Consolidated Overview
The following table sets forth the operating profit
components by each of the Company’s business segments and for the holding company (“Corporate”) for the 53 weeks ended October 3, 2004
(fiscal 2004), 52 weeks ended September 28, 2003 (fiscal 2003) and 52 weeks ended September 29, 2002 (fiscal 2002). The table also sets forth each of
the segment’s net sales as a percent to total net sales, the net income components as a percent to total net sales and the percentage increase or
decrease of such components over the prior year (in thousands):
|
|
|
|
Fiscal 2004
|
|
Fiscal 2003
|
|
Fiscal 2002
|
|
% Inc. (Dec.)
|
|
|
|
|
|
|
|
% to
Total
|
|
|
|
% to
Total
|
|
|
|
% to
Total
|
|
04 vs
03
|
|
03 vs
02
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harris
Teeter |
|
|
|
$ |
2,572,367 |
|
|
|
89.7 |
|
|
$ |
2,431,632 |
|
|
|
89.2 |
|
|
$ |
2,349,650 |
|
|
|
88.9 |
|
|
|
5.8 |
|
|
|
3.5 |
|
American
& Efird |
|
|
|
|
296,230 |
|
|
|
10.3 |
|
|
|
293,107 |
|
|
|
10.8 |
|
|
|
294,548 |
|
|
|
11.1 |
|
|
|
1.1 |
|
|
|
(0.5 |
) |
Total |
|
|
|
$ |
2,868,597 |
|
|
|
100.0 |
|
|
$ |
2,724,739 |
|
|
|
100.0 |
|
|
$ |
2,644,198 |
|
|
|
100.0 |
|
|
|
5.3 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
% to
Net
Sales |
|
|
|
|
|
|
|
% to
Net
Sales |
|
|
|
|
|
|
|
% to
Net
Sales |
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harris
Teeter |
|
|
|
$ |
755,921 |
|
|
|
26.35 |
|
|
$ |
703,178 |
|
|
|
25.81 |
|
|
$ |
677,668 |
|
|
|
25.63 |
|
|
|
7.5 |
|
|
|
3.8 |
|
American
& Efird |
|
|
|
|
77,580 |
|
|
|
2.71 |
|
|
|
73,888 |
|
|
|
2.71 |
|
|
|
77,151 |
|
|
|
2.92 |
|
|
|
5.0 |
|
|
|
(4.2 |
) |
Total |
|
|
|
|
833,501 |
|
|
|
29.06 |
|
|
|
777,066 |
|
|
|
28.52 |
|
|
|
754,819 |
|
|
|
28.55 |
|
|
|
7.3 |
|
|
|
2.9 |
|
|
SG&A
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harris
Teeter |
|
|
|
|
651,515 |
|
|
|
22.71 |
|
|
|
609,556 |
|
|
|
22.37 |
|
|
|
589,605 |
|
|
|
22.30 |
|
|
|
6.9 |
|
|
|
3.4 |
|
American
& Efird |
|
|
|
|
64,123 |
|
|
|
2.24 |
|
|
|
59,684 |
|
|
|
2.19 |
|
|
|
56,833 |
|
|
|
2.15 |
|
|
|
7.4 |
|
|
|
5.0 |
|
Corporate |
|
|
|
|
5,065 |
|
|
|
0.18 |
|
|
|
5,134 |
|
|
|
0.19 |
|
|
|
7,466 |
|
|
|
0.28 |
|
|
|
(1.3 |
) |
|
|
(31.2 |
) |
Total |
|
|
|
|
720,703 |
|
|
|
25.13 |
|
|
|
674,374 |
|
|
|
24.75 |
|
|
|
653,904 |
|
|
|
24.73 |
|
|
|
6.9 |
|
|
|
3.1 |
|
|
Exit &
Impairment Chgs. (Credits)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harris
Teeter |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(710 |
) |
|
|
(0.03 |
) |
|
|
n.a. |
|
|
|
n.a. |
|
American
& Efird |
|
|
|
|
384 |
|
|
|
0.01 |
|
|
|
580 |
|
|
|
0.02 |
|
|
|
7,823 |
|
|
|
0.30 |
|
|
|
n.a. |
|
|
|
n.a. |
|
Total |
|
|
|
|
384 |
|
|
|
0.01 |
|
|
|
580 |
|
|
|
0.02 |
|
|
|
7,113 |
|
|
|
0.27 |
|
|
|
n.a. |
|
|
|
n.a. |
|
|
Operating
Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harris
Teeter |
|
|
|
|
104,406 |
|
|
|
3.64 |
|
|
|
93,622 |
|
|
|
3.44 |
|
|
|
88,773 |
|
|
|
3.36 |
|
|
|
11.5 |
|
|
|
5.5 |
|
American
& Efird |
|
|
|
|
13,073 |
|
|
|
0.46 |
|
|
|
13,624 |
|
|
|
0.50 |
|
|
|
12,495 |
|
|
|
0.47 |
|
|
|
(4.0 |
) |
|
|
9.0 |
|
Corporate |
|
|
|
|
(5,065 |
) |
|
|
(0.18 |
) |
|
|
(5,134 |
) |
|
|
(0.19 |
) |
|
|
(7,466 |
) |
|
|
(0.28 |
) |
|
|
1.3 |
|
|
|
31.2 |
|
Total |
|
|
|
|
112,414 |
|
|
|
3.92 |
|
|
|
102,112 |
|
|
|
3.75 |
|
|
|
93,802 |
|
|
|
3.55 |
|
|
|
10.1 |
|
|
|
8.9 |
|
|
Other Exp.
(Inc.), net |
|
|
|
|
11,250 |
|
|
|
0.39 |
|
|
|
10,020 |
|
|
|
0.37 |
|
|
|
12,210 |
|
|
|
0.46 |
|
|
|
12.3 |
|
|
|
(17.9 |
) |
Income Tax
Expense |
|
|
|
|
36,505 |
|
|
|
1.27 |
|
|
|
32,210 |
|
|
|
1.18 |
|
|
|
29,609 |
|
|
|
1.12 |
|
|
|
13.3 |
|
|
|
8.8 |
|
Net
Income |
|
|
|
$ |
64,659 |
|
|
|
2.26 |
|
|
$ |
59,882 |
|
|
|
2.20 |
|
|
$ |
51,983 |
|
|
|
1.97 |
|
|
|
8.0 |
|
|
|
15.2 |
|
Consolidated sales increased 5.3%
in fiscal 2004 as compared to fiscal 2003 due primarily to sales increases in the Harris Teeter supermarket subsidiary resulting from strong comparable
store sales increases and the additional week of operations. The 3.0% increase in consolidated sales in fiscal 2003 as compared to fiscal 2002 resulted
primarily from sales increases in the Harris Teeter subsidiary resulting from new store sales and comparable store sales increases. The fiscal 2003 net
increase was offset to some extent by sales declines at the Company’s A&E textile subsidiary resulting from weak business conditions during
fiscal 2003. Over the past several years, A&E has pursued a global expansion strategy. Foreign sales for fiscal 2004 represented 5.5% of the
consolidated sales of the Company, compared to 5.6% for fiscal 2003 and 5.2% for fiscal 2002. Refer to the discussion of segment operations under the
captions “Harris Teeter, Retail Grocery Segment” and “American & Efird, Industrial Thread Segment” for a further analysis of
the segment operating results.
8
Gross profit as a percent to sales increased for
fiscal 2004 as a result of improved gross profit margins at both subsidiaries, with Harris Teeter realizing benefits from its effective promotional
strategies and increased penetration of its private label programs and with A&E benefiting from production efficiencies gained from prior plant
consolidations. Gross profit as a percent to sales decreased slightly for fiscal 2003 as compared to fiscal 2002 resulting primarily from lower gross
profit realization at the A&E subsidiary due to weaker manufacturing running schedules in the United States, plus the continued pressure resulting
from price competition and rising raw materials costs. The 2003 decrease in gross profit as a percent to sales realized by A&E was offset, in part,
by improvements at the Harris Teeter subsidiary as a result of its effective promotional initiatives. Refer to the discussion of segment operations
under the captions “Harris Teeter, Retail Grocery Segment” and “American & Efird, Industrial Thread Segment” for a further
analysis of the segment operating results.
Selling, general & administrative
(“SG&A”) expenses as a percent to sales in fiscal 2004 increased as a result of operating costs increases at both subsidiaries. SG&A
expenses as a percent to sales in fiscal 2003 was relatively consistent with fiscal 2002. Fixed costs leverage created by sales increases at Harris
Teeter and cost reductions at Corporate offset expense margin increases at A&E. Refer to the discussion of segment operations under the caption
“Harris Teeter, Retail Grocery Segment” and “American & Efird, Industrial Thread Segment” for a further analysis of the segment
operating results. Fiscal 2002 SG&A expense at Corporate included adjustments for the lowering of rates used to discount benefit
liabilities.
Consolidated operating profit increased in fiscal
2004 and 2003 as a result of the sales and cost elements described above and the previously discussed exit and impairment costs recorded in prior
years.
Included in Other Expense (Income), net is interest
expense, interest income, investment gains and losses, and minority interest. Fiscal 2003 includes the recognition of $1.5 million of investment gains
associated with liquidating proceeds received in the fourth quarter. Net interest expense has declined over the prior two years as a result of
additional interest income earned on surplus cash and temporary investments.
The effective income tax rate was 36.1% in fiscal
2004 as compared to 35.0% in fiscal 2003 and 36.3% in fiscal 2002. The lower rate in fiscal 2003 resulted from the favorable settlement with the IRS of
matters relating to prior years and certain tax savings associated with non-taxable life insurance proceeds.
Net income after income taxes in fiscal 2004 was
$64.7 million, or $1.38 per diluted share, as compared to $59.9 million, or $1.29 per diluted share in fiscal 2003 and $52.0 million, or $1.12 per
diluted share in fiscal 2002. As discussed in the “Exit and Impairment Costs” section above, fiscal 2004 included a pre-tax exit and
impairment charge of $384,000 ($238,000 after income tax benefits), fiscal 2003 included a pre-tax exit and impairment charge of $580,000 ($360,000
after income tax benefits, or $0.01 per diluted share), and fiscal 2002 included net pre-tax exit and impairment charges of $7,113,000 ($4,394,000
after income tax benefits, or $0.09 per diluted share).
Harris Teeter, Retail Grocery Segment
The following table sets forth the consolidated
operating profit components for the Company’s Harris Teeter supermarket subsidiary for the 53 weeks ended October 3, 2004 (fiscal 2004), 52 weeks
ended September 28, 2003 (fiscal 2003), and 52 weeks ended September 29, 2002 (fiscal 2002). The table also sets forth the percent to sales and the
percentage increase or decrease over the prior year (in thousands):
|
|
|
|
Fiscal 2004
|
|
Fiscal 2003
|
|
Fiscal 2002
|
|
% Inc. (Dec.)
|
|
|
|
|
|
|
|
% to
Sales
|
|
|
|
% to
Sales
|
|
|
|
% to
Sales
|
|
04 vs
03
|
|
03 vs
02
|
Net
Sales |
|
|
|
$ |
2,572,367 |
|
|
|
100.00 |
|
|
$ |
2,431,632 |
|
|
|
100.00 |
|
|
$ |
2,349,650 |
|
|
|
100.00 |
|
|
|
5.8 |
|
|
|
3.5 |
|
Cost of
Sales |
|
|
|
|
1,816,446 |
|
|
|
70.61 |
|
|
|
1,728,454 |
|
|
|
71.08 |
|
|
|
1,671,982 |
|
|
|
71.16 |
|
|
|
5.1 |
|
|
|
3.4 |
|
Gross
Profit |
|
|
|
|
755,921 |
|
|
|
29.39 |
|
|
|
703,178 |
|
|
|
28.92 |
|
|
|
677,668 |
|
|
|
28.84 |
|
|
|
7.5 |
|
|
|
3.8 |
|
SG&A
Expenses |
|
|
|
|
651,515 |
|
|
|
25.33 |
|
|
|
609,556 |
|
|
|
25.07 |
|
|
|
589,605 |
|
|
|
25.09 |
|
|
|
6.9 |
|
|
|
3.4 |
|
Exit &
Impairment
Chgs. (Credits) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(710 |
) |
|
|
(0.03 |
) |
|
|
n.a. |
|
|
|
n.a. |
|
Operating
Profit |
|
|
|
$ |
104,406 |
|
|
|
4.06 |
|
|
$ |
93,622 |
|
|
|
3.85 |
|
|
$ |
88,773 |
|
|
|
3.78 |
|
|
|
11.5 |
|
|
|
5.5 |
|
9
Sales increased 5.8% in fiscal 2004 as compared to
fiscal 2003 as a result of strong comparable store sales increases and the additional week of operations. The additional week in fiscal 2004 accounted
for approximately 2.0% of the total sales increase for the fiscal year. The 3.5% increase in sales in fiscal 2003 as compared to fiscal 2002 was driven
by new store sales and comparable store sales increases. During fiscal 2004 the company opened 7 new stores (two of which were replacements) and closed
9 stores. During fiscal 2003 the company opened 4 new stores and closed 7 stores. During fiscal 2002 the company opened 12 new stores and closed 6
stores. The company did not open any replacement stores in either 2003 or 2002. Comparable store sales (see definition below) increased 2.97% ($71.3
million) for fiscal 2004 as compared to an increase of 0.98% ($22.0 million) for fiscal 2003 and a decrease of 0.15% ($3.2 million) for fiscal 2002.
Comparable store sales continue to be negatively impacted by the company’s strategy of opening additional stores in its core markets that have
proximity to several existing stores. Management expects these close proximity stores, and any similar new additions in the foreseeable future, to have
a strategic benefit of enabling Harris Teeter to capture sales and expand market share as the markets it serves continue to grow.
Harris Teeter considers its reporting of comparable
store sales growth to be effective in determining core sales growth in times of changes in the number of stores in operation, their locations and their
sizes. While there is no standard industry definition of “comparable store sales,” Harris Teeter has been consistently applying the following
definition. A new store must be in operation for 14 months before it enters into the calculation of comparable store sales. A closed store is removed
from the calculation in the month in which its closure is announced. A new store opening within an approximate two-mile radius of an existing store
with the intention of closing the existing store is included as a replacement store in the comparable store sales measurement as if it were the same
store, but only if, in fact, the existing store is concurrently closed. Expansions of the size of existing comparable stores are included in the
calculations of comparable store sales. Comparable store sales for fiscal 2004 was computed on a 53-week basis by adding an additional week of sales to
the fiscal 2003 period.
Gross profit as a percent to sales for fiscal
2004 and 2003 continued to improve as a result of Harris Teeter’s effective retail pricing and promotional spending programs and the increased
penetration of its private label programs. Improvements have also been realized from the continued emphasis that the company places on productivity
efforts, including waste control.
SG&A expenses as a percent to sales for fiscal
2004 as compared to fiscal 2003 increased primarily as a result of costs associated with closing underperforming stores, increased bankcard fees, and
employee pension and incentive benefits. SG&A expenses for fiscal 2004 included a $1.7 million charge (0.07% to sales) related to leasehold
improvements that were written off in the third quarter associated with a lease that was terminated and renegotiated with the landlord. Sales increases
during fiscal 2003 provided the leverage to offset increased fringe benefit costs driven largely by increased pension expense and, to a lesser extent,
the shift in sales to more labor intensive departments, such as pharmacy and freshly prepared foods.
The improvements in operating profit as a percent to
sales for fiscal 2004 and 2003 resulted from the sales and cost elements described above. The company continues to concentrate on its core markets,
which management believes have greater potential for improved returns on investment in the foreseeable future. The company had 138 stores in operation
at October 3, 2004, compared to 140 stores at September 28, 2003 and 143 stores at September 29, 2002. The company currently plans to open eleven new
stores in fiscal 2005. On a routine basis Harris Teeter periodically reviews its business strategy and evaluates its existing store operations, and may
from time to time close or divest older or under-performing stores. It is presently anticipated that store closings related to replacement properties
and lease expirations for fiscal 2005 will be less than that experienced in fiscal 2004.
10
American & Efird, Industrial Thread Segment
The following table sets forth the consolidated
operating profit components for the Company’s American & Efird textile subsidiary for the 53 weeks ended October 3, 2004 (fiscal 2004), 52
weeks ended September 28, 2003 (fiscal 2003) and 52 weeks ended September 29, 2002 (fiscal 2002). The table also sets forth the percent to sales and
the percentage increase or decrease over the prior year (in thousands):
|
|
|
|
Fiscal 2004
|
|
Fiscal 2003
|
|
Fiscal 2002
|
|
% Inc. (Dec.)
|
|
|
|
|
|
|
|
% to
Sales
|
|
|
|
% to
Sales
|
|
|
|
% to
Sales
|
|
04 vs
03
|
|
03 vs
02
|
Net
Sales |
|
|
|
$ |
296,230 |
|
|
|
100.00 |
|
|
$ |
293,107 |
|
|
|
100.00 |
|
|
$ |
294,548 |
|
|
|
100.00 |
|
|
|
1.1 |
|
|
|
(0.5 |
) |
Cost of
Sales |
|
|
|
|
218,650 |
|
|
|
73.81 |
|
|
|
219,219 |
|
|
|
74.79 |
|
|
|
217,397 |
|
|
|
73.81 |
|
|
|
(0.3 |
) |
|
|
0.8 |
|
Gross
Profit |
|
|
|
|
77,580 |
|
|
|
26.19 |
|
|
|
73,888 |
|
|
|
25.21 |
|
|
|
77,151 |
|
|
|
26.19 |
|
|
|
5.0 |
|
|
|
(4.2 |
) |
SG&A
Expenses |
|
|
|
|
64,123 |
|
|
|
21.65 |
|
|
|
59,684 |
|
|
|
20.36 |
|
|
|
56,833 |
|
|
|
19.29 |
|
|
|
7.4 |
|
|
|
5.0 |
|
Exit &
Impairment
Chgs.(Credits) |
|
|
|
|
384 |
|
|
|
0.13 |
|
|
|
580 |
|
|
|
0.20 |
|
|
|
7,823 |
|
|
|
2.66 |
|
|
|
n.a. |
|
|
|
n.a. |
|
Operating
Profit |
|
|
|
$ |
13,073 |
|
|
|
4.41 |
|
|
$ |
13,624 |
|
|
|
4.65 |
|
|
$ |
12,495 |
|
|
|
4.24 |
|
|
|
(4.0 |
) |
|
|
9.0 |
|
Sales increased 1.1% in fiscal
2004 as compared to fiscal 2003 primarily as a result of improved foreign sales and the additional week of operations. For fiscal 2004, U.S. sales
declined by 1.8% and foreign sales increased by 3.7% as the company continues its global expansion strategy. The 0.5% sales decrease in fiscal 2003 as
compared to fiscal 2002 resulted from a 10.1% decline in U.S. sales offset by a 10.5% increase in foreign sales. The U.S. sales decline represents a
continuation of the trend of customers shifting buying and production out of the United States.
Foreign sales for fiscal 2004 accounted for
approximately 53% of total A&E sales as compared to approximately 52% in fiscal 2003 and approximately 47% in fiscal 2002. Foreign sales have
become an increasing proportion of total A&E sales over recent years as a result of the shifting global production of its customers and
A&E’s strategy of increasing its presence in such global markets. Management recognizes that a major challenge facing A&E is the
geographic shift of its customer base and, as a result, the company will continue to pursue its global expansion by way of joint ventures and other
investments.
Gross profit as a percent to sales increased in
fiscal 2004 when compared to fiscal 2003 primarily as a result of the mix of products sold and production efficiencies gained from prior manufacturing
plant closings. The 2004 improvement was offset, in part, by the continued intense price competition and rising raw materials costs. The decline in
gross profit as a percent to sales in fiscal 2003 when compared to fiscal 2002 resulted primarily from weaker manufacturing running schedules in the
United States, price competition and rising raw materials costs. Management continues to focus on optimizing costs and manufacturing capacities at its
domestic and foreign operations.
SG&A expenses as a percent to sales increased in
fiscal 2004 from fiscal 2003 as a result of additional costs associated with the company’s global expansion strategies. The increase in SG&A
expenses as a percent to sales in fiscal 2003 from fiscal 2002 resulted primarily as a result of higher distribution costs.
A&E’s operating profit in the U.S. market
improved in fiscal 2004, while the operating profit for its foreign operations declined primarily as a result of the company’s strategic
initiatives to consolidate operations in the United States and expand in foreign markets. During fiscal 2003, A&E’s operating profit in the
U.S. market experienced a decline as a result of sales declines and challenging economic conditions. The foreign operations of A&E experienced
improvements in operating profitability in fiscal 2003 as a result of added efficiencies from increased sales and production. Foreign operations
contributed approximately 40% of A&E’s operating profit in fiscal 2004 as compared to approximately 45% in fiscal 2003 and approximately 22%
in fiscal 2002.
Outlook
While the performance of Harris Teeter has been
strong, the economic conditions in A&E’s industry continue to be challenging. At Harris Teeter, the consistent execution of productivity
initiatives implemented at under-performing stores, controls over waste, implementation of operating efficiencies that will offset the continued rising
costs for health care, pensions and credit card fees and effective merchandising strategies will dictate the pace at
11
which its margins could improve. Additionally,
promotional costs to drive sales in the presently intense competitive environment could negatively impact operating margins and net income in future
periods. Further, the intense competitive environment for supermarkets is expected to continue in the foreseeable future. For A&E, the continued
increase of apparel imports in the textile and apparel market continues to negatively impact the domestic market. A&E will find it difficult to
generate significant improvements in profitability in the absence of a more favorable economic climate. A&E management remains focused on
generating sales growth in global markets and on managing costs and manufacturing capacities. Ruddick Corporation management remains conservative in
its outlook for fiscal 2005 given the complex factors currently impacting sales and costs at both subsidiaries and the unknown future impacts that will
result from the expiration of apparel import quotas in 2005. Further operating improvement will be dependent on the Company’s ability to offset
rising fuel and benefit costs, including pension costs, with additional operating efficiencies and to effectively execute its global expansion
plans.
Capital Resources and Liquidity
Ruddick Corporation is a holding company which,
through its wholly-owned subsidiaries, Harris Teeter and A&E, is engaged in the primary businesses of regional supermarket operations and
industrial sewing thread manufacturing and distribution, respectively. Ruddick has no material independent operations, nor material assets, other than
the investments in its operating subsidiaries, as well as investments in certain fixed assets, short term cash equivalents and life insurance contracts
to support corporate-wide operations and benefit programs. Ruddick provides a variety of services to its subsidiaries and is dependent upon income and
upstream dividends from its subsidiaries. There are no restrictions on the subsidiary dividends, which have historically been determined as a
percentage of net income of each subsidiary.
The Company seeks to limit long-term debt so that it
constitutes no more than 40% of capital employed, which includes long-term debt, minority interest and shareholders’ equity. As of October 3,
2004, this percentage was 23.0% compared to 27.3% at September 28, 2003. Long-term debt less cash and temporary investments amounted to $59.2 million
as of October 3, 2004 as compared to $67.5 million at September 28, 2003.
The Company’s principal source of liquidity has
been cash generated from operating activities. As of October 3, 2004 the Company had current liquidity (cash, cash equivalents and temporary
investments) of $107.1 million compared to $121.6 million at September 28, 2003. During fiscal 2004, the net cash provided by operating activities was
$135.7 million, compared to $150.4 million during fiscal 2003 and $143.3 during fiscal 2002. Cash flow from income (net income plus non-cash items
included in net income) in fiscal 2004 was $141.7 million as compared to $151.9 million in fiscal 2003 and $143.6 million in fiscal 2002. Investing
activities during fiscal 2004 required net cash of $111.4 million compared to $149.0 million during fiscal 2003 and $77.5 million during fiscal 2002.
The increase in investing activity since fiscal 2002 was primarily due to increased investments in temporary and other investments. The significant
components of financing activities for fiscal 2004 included the payment of dividends of $18.6 million and payment of long-term debt of $31.4
million.
During fiscal 2004, capital expenditures totaled
$92.1 million. Harris Teeter capital expenditures were $83.9 million in fiscal 2004 compared to $64.4 million in fiscal 2003 and $66.6 million in
fiscal 2002. In addition to the capital expenditures, Harris Teeter has recognized opportunities to invest in the development of certain of its new
stores. During fiscal 2004 such development capital spending was $28.7 million, compared to $12.3 million during fiscal 2003 and $2.2 million during
fiscal 2002. A&E’s capital expenditures were $8.1 million during fiscal 2004 compared to $9.2 million in fiscal 2003 and $7.8 million in
fiscal 2002. Total capital expenditures for fiscal 2005 are expected to be approximately $115 million, with Harris Teeter’s program accounting for
over 90% of the total expenditures. In addition, during fiscal 2005 Harris Teeter expects to invest approximately $35 million in the development of
certain of its new stores. Harris Teeter anticipates that its capital for new store growth and store remodels will be applied in its existing markets
in fiscal 2005 as well as the foreseeable future. A&E expects to target further expansion of global operations. For both subsidiaries, these
expenditures are for modernization and expansion. Management expects that internally generated funds, supplemented by available cash balances if
necessary, will be adequate to finance such expenditures.
On May 14, 2002, the Company and three banks
entered into a revolving credit facility for an aggregate amount of up to $100 million. Borrowings and repayments under this revolving credit facility
are of the same nature as short-term credit lines. The credit agreement provided for a maturity of three years, plus two annual
extensions
12
of one year each if then granted by the banks.
The two annual extensions have been granted, which establishes a maturity date of May 14, 2007. The amount which may be borrowed from time to time and
the interest rate on any outstanding borrowings are each dependent on a leverage factor. The leverage factor is based on a ratio of rent-adjusted
consolidated funded debt divided by earnings before interest, taxes, depreciation, amortization and operating rents, as those terms are defined in the
credit agreement. The more significant of the financial covenants which the Company must meet during the term of the credit agreement include a maximum
leverage ratio, minimum fixed charge coverage ratio and tangible net worth requirements. As of October 3, 2004, the Company was in compliance with all
financial covenants. At October 3, 2004, no debt was outstanding under the revolving credit facility, and no borrowings are needed or anticipated for
the foreseeable future. In addition, the Company has the capacity to borrow up to an aggregate amount of $37.9 million from two major U.S. life
insurance companies utilizing certain insurance assets as collateral.
Covenants in certain of the Company’s long-term
debt agreements limit the total indebtedness that the Company may incur. Management believes that the limit on indebtedness does not significantly
restrict the Company’s liquidity and that such liquidity is adequate to meet foreseeable requirements.
Contractual Obligations and Commercial Commitments
The Company has assumed various financial
obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known
future cash payments that the Company is required to make under existing contractual arrangements, such as debt and lease agreements. The following
table represents the scheduled maturities of the Company’s contractual obligations as of October 3, 2004 (in thousands):
|
|
|
|
Total
|
|
Less than
1 Year
|
|
1–3 Years
|
|
3–5 Years
|
|
More than
5 Years
|
Long-Term
Debt(1) |
|
|
|
$ |
155,225 |
|
|
$ |
8,275 |
|
|
$ |
16,066 |
|
|
$ |
15,197 |
|
|
$ |
115,687 |
|
Operating
Leases(1)(2) |
|
|
|
|
917,015 |
|
|
|
64,887 |
|
|
|
130,137 |
|
|
|
125,574 |
|
|
|
596,417 |
|
Capital Lease
Obligations(1)(2) |
|
|
|
|
11,062 |
|
|
|
373 |
|
|
|
451 |
|
|
|
491 |
|
|
|
9,747 |
|
Purchase
Obligations —
Fixed Assets |
|
|
|
|
50,265 |
|
|
|
50,265 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchase
Obligations —
Inventory |
|
|
|
|
2,835 |
|
|
|
2,835 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchase
Obligations —
Service Contracts |
|
|
|
|
5,833 |
|
|
|
2,663 |
|
|
|
3,131 |
|
|
|
39 |
|
|
|
— |
|
Other(3) |
|
|
|
|
22,174 |
|
|
|
1,705 |
|
|
|
3,343 |
|
|
|
2,971 |
|
|
|
14,155 |
|
Total
Contractual Cash Obligations |
|
|
|
$ |
1,164,409 |
|
|
$ |
131,003 |
|
|
$ |
153,128 |
|
|
$ |
144,272 |
|
|
$ |
736,006 |
|
(1) |
|
For a more detailed description of the obligations refer to the
Notes entitled “Leases” and “Long-Term Debt” of the Notes to Consolidated Financial Statements in Item 8 hereof. |
(2) |
|
Represents the minimum rents payable and includes leases
associated with closed stores. Amounts are not offset by expected sublease income and do not include various contingent liabilities associated with
assigned leases as discussed below. |
(3) |
|
Represents the projected cash payments associated with certain
deferred compensation contracts. The net present value of these obligations is recorded by the Company and included with other long-term liabilities in
the Company’s consolidated balance sheets. |
In connection with the closing of certain store
locations, Harris Teeter has assigned leases to several other merchants with recourse. These leases expire over the next 17 years, and the future
minimum lease payments of approximately $93.5 million, in the aggregate, over that future period have been assumed by these merchants. In the highly
unlikely event, in management’s opinion based on the current operations and credit worthiness of the assignees, that all such contingent
obligations would be payable by Harris Teeter, the approximate aggregate amounts due by year would be as follows: $9.6 million in fiscal 2005 (35
stores), $9.2 million in fiscal 2006 (29 stores), $9.0 million in fiscal 2007 (27 stores), $8.6 million in fiscal 2008 (26 stores), $8.0 million in
fiscal 2009 (25 stores) and $49.1 million in aggregate during all remaining years thereafter.
13
The Company utilizes various standby letters of
credit and bonds as required from time to time by certain programs, most significantly for self-insured programs such as workers compensation and
various casualty insurance. The total of such instruments was approximately $25.4 million as of October 3, 2004.
Off Balance Sheet Arrangements
The Company is not a party to any off-balance sheet
arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, results of
operations or cash flows.
Critical Accounting Policies
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the
reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. Future events and their
effects cannot be determined with absolute certainty. Therefore, management’s determination of estimates and judgments about the carrying values
of assets and liabilities requires the exercise of judgment in the selection and application of assumptions based on various factors including
historical experience, current and expected economic conditions and other factors believed to be reasonable under the circumstances. Actual results
could differ from those estimates. The Company constantly reviews the relevant, significant factors and makes adjustments where the facts and
circumstances dictate.
Management has identified the following accounting
policies as the most critical in the preparation of the Company’s financial statements because they involve the most difficult, subjective or
complex judgments about the effect of matters that are inherently uncertain.
Vendor Rebates, Credits and Promotional Allowances
Consistent with standard practices in the retail
industry, Harris Teeter receives allowances from vendors through a variety of programs and arrangements. Given the highly promotional nature of the
retail supermarket industry, the allowances are generally intended to defray the costs of promotion, advertising and selling the vendor’s
products. Examples of such arrangements include, but are not limited to, promotional, markdown and rebate allowances; cooperative advertising funds;
volume allowances; store opening discounts and support; and slotting, stocking and display allowances. The amount of such allowances may be determined
on the basis of (1) a fixed dollar amount negotiated with the vendor, (2) an amount per unit purchased or as a percentage of total purchases from the
vendor, or (3) amounts based on sales to the customer, number of stores, in-store displays or advertising. The proper recognition and timing of
accounting for these items are significant to the reporting of the results of operations of the Company. The Company applies the authoritative guidance
of SEC Staff Accounting Bulletin No. 101 (“SAB No. 101”) — Revenue Recognition in Financial Statements, Emerging Issues Task
Force Issue No. 02-16 (“EITF 02-16”) — Accounting by a Customer (Including a Reseller) for Certain Considerations Received from a
Vendor, and other authoritative guidance as appropriate. Under SAB No. 101, revenue recognition requires the prerequisite completion of the
earnings process and its realization or assurance of realizability. Vendor rebates, credits and other promotional allowances that relate to Harris
Teeter’s buying and merchandising activities, including lump-sum payments associated with long-term contracts, are recorded as a component of cost
of sales as they are earned, the recognition of which is determined in accordance with the underlying agreement with the vendor, the authoritative
guidance and completion of the earning process. Portions of vendor allowances that are refundable to the vendor, in whole or in part, by the nature of
the provisions of the contract are deferred from recognition until realization is assured.
Harris Teeter’s practices are in accordance
with EITF 02-16 and are based on the premise that the accounting for these vendor allowances should follow the economic substance of the underlying
transactions, which is evidenced by the agreement with the vendor as long as the allowance is distinguishable from the merchandise purchase. Consistent
with this premise, Harris Teeter recognizes allowances when the purpose for which the vendor funds were intended and committed to be used has been
fulfilled and a cost has been incurred by the retailer. Thus, it is the Company’s policy to recognize the vendor allowance consistent with the
timing of the recognition of the expense that the allowance is intended to reimburse and to determine the accounting classification consistent with the
economic substance of the underlying transaction. Where the Company provides an identifiable benefit or service
14
to the vendor apart from the purchase of
merchandise, that transaction is recorded separately. For example, co-operative advertising allowances are accounted for as a reduction of advertising
expense in the period in which the advertising cost is incurred. If the advertising allowance exceeds the cost of advertising, then the excess is
recorded against the cost of sales in the period in which the related expense is recognized.
There are numerous types of rebates and allowances
in the retail industry. The Company’s accounting practices with regard to some of the more typical arrangements are discussed as follows. Vendor
allowances for price markdowns are credited to the cost of sales during the period in which the related markdown was taken and charged to the cost of
sales. Slotting and stocking allowances received from a vendor to ensure that its products are carried or to introduce a new product at the
Company’s stores are recorded as a reduction of cost of sales over the period covered by the agreement with the vendor based on the estimated
inventory turns of the merchandise to which the allowance applies. Display allowances are recognized as a reduction of cost of sales in the period
earned in accordance with the vendor agreement. Volume rebates by the vendor in the form of a reduction of the purchase price of the merchandise reduce
the cost of sales when the related merchandise is sold. Generally, volume rebates under a structured purchase program with allowances awarded based on
the level of purchases are recognized, when realization is assured, as a reduction in the cost of sales in the appropriate monthly period based on the
actual level of purchases in the period relative to the total purchase commitment and adjusted for the estimated inventory turns of the merchandise.
Some of these typical vendor rebate, credit and promotional allowance arrangements require that the Company make assumptions and judgments regarding,
for example, the likelihood of attaining specified levels of purchases or selling specified volumes of products, the duration of carrying a specified
product and the estimation of inventory turns. The Company constantly reviews the relevant, significant factors and makes adjustments where the facts
and circumstances dictate.
Inventory Valuation
The Company’s inventories are valued at the
lower of cost or market with the cost of substantially all domestic U.S. inventories being determined using the last-in, first-out (LIFO) method.
Foreign inventories and limited categories of domestic inventories are valued on the weighted average and on the first-in, first-out (FIFO) cost
methods. LIFO assumes that the last costs in are the ones that should be used to measure the cost of goods sold, leaving the earlier costs residing in
the ending inventory valuation. The Company uses the “link chain” method of computing dollar value LIFO whereby the base year values of
beginning and ending inventories are determined using a cumulative price index. The Company generates an estimated internal index to “link”
current costs to the original costs of the base years in which the company adopted LIFO. The Company’s determination of the LIFO index is driven
by the change in current year costs as well as the change in inventory quantities on hand. Under the LIFO valuation method at Harris Teeter, all retail
store inventories are initially stated at estimated cost as calculated by the Retail Inventory Method (RIM). Under RIM, the valuation of inventories at
cost and the resulting gross margins are calculated by applying a calculated cost-to-retail ratio to the retail value of inventories. RIM is an
averaging method that has been widely used in the retail industry due to its practicality. Inherent in the RIM calculation are certain significant
management judgments and estimates, including markups, markdowns, lost inventory (shrinkage) percentages and the purity and similarity of inventory
sub-categories as to their relative inventory turns, gross margins and on hand quantities. These judgments and estimates significantly impact the
ending inventory valuation at cost as well as gross margin. Management believes that the Company’s RIM provides an inventory valuation which
reasonably approximates cost and results in carrying the inventory at the lower of cost or market. Management does not believe that the likelihood is
significant that materially higher LIFO reserves are required given its current expectations of on-hand inventory quantities and
costs.
The proper valuation of inventory also requires
management to estimate the net realizable value of the Company’s obsolete and slow-moving inventory at the end of each period. Management bases
its net realizable values upon many factors including historical recovery rates, the aging of inventories on hand, the inventory movement of specific
products and the current economic conditions. When management has determined inventory to be obsolete or slow moving, the inventory is reduced to its
net realizable value by recording an obsolescence reserve. Given the Company’s experiences in selling obsolete and slow-moving inventory,
management believes that the amounts of the obsolescence reserves to the carrying values of its inventories are materially adequate.
With regard to the proper valuations of inventories,
management reviews its judgments, assumptions and other relevant, significant factors on a routine basis and makes adjustments where the facts and
circumstances dictate.
15
Self-insurance Reserves for Workers’ Compensation, Healthcare and General
Liability
The Company is primarily self-insured for most U.S.
workers compensation claims, healthcare claims and general liability and automotive liability losses. The Company has purchased insurance coverages in
order to establish certain limits to its exposure on a per claim basis. Actual claims in each of these categories are reported to the Company by third
party administrators. The third party administrators also report initial estimates of related loss reserves in the workers compensation, general
liability and automotive liability programs. The open claims and initial loss reserves are subjected to examination by the Company’s risk
management and accounting management utilizing a consistent methodology which involves various assumptions, judgment and other factors. Such factors
include but are not limited to the probability of settlement, the amount at which settlement can be achieved, the probable duration of the claim, the
cost development pattern of the claim and the applicable cost development factor. The Company determines the estimated reserve required for U.S. worker
compensation claims in each accounting period. This requires that management determine estimates of the costs of claims incurred and accrue for such
expenses in the period in which the claims are incurred. Management calculates the current period costs based on actual claims, reviewed for the status
and probabilities associated with potential settlement and then adjusted by development factors from published insurance industry sources and
discounted to present values using an appropriate discount factor. A similar methodology is used to evaluate general liability and automotive liability
accrual requirements. The Company constantly reviews the relevant, significant factors and makes adjustments where the facts and circumstances dictate.
Management does not believe the likelihood is significant that existing worker compensation claims, general liability claims and automotive liability
claims will be settled for materially higher amounts than those accrued.
The variety of healthcare plans available to
employees are primarily self-insured, although some locations have insured health maintenance organization plans. The Company records an accrual for
the estimated amount of self-insured healthcare claims incurred by all participants but not yet reported. The most significant factors which impact on
the determination of the required accrual are the historical pattern of the timeliness of claims processing, changes in the nature or types of benefit
plans, changes in the plan benefit designs, employer-employee cost sharing factors, and medical trends and inflation. These reserves are recorded based
on historical experience and industry trends, which are continually monitored, and accruals are adjusted when warranted by changes in facts and
circumstances. The Company believes that the total healthcare cost accruals as of October 3, 2004 are reasonable and adequate as of that
date.
Impairment of Long-lived Assets and Closed Store Obligations
The Company assesses its long-lived assets for
possible impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is
measured by a comparison of the carrying amount to the net non-discounted cash flows expected to be generated by the asset. An impairment loss is
recognized for any excess of net book value over the estimated fair value of the asset impaired. The fair value is estimated based on expected future
cash flows.
The value of property and equipment associated with
closed stores and facilities is adjusted to reflect recoverable values based on the Company’s prior history of disposing of similar assets and
current economic conditions. Management continually reviews its fair value estimates and records impairment charges for assets held for sale when
management determines, based on new information which it believes to be reliable, that such charges are appropriate.
The results of impairment tests are subject to
management’s estimates and assumptions of projected cash flows and operating results. The Company believes that, based on current conditions,
materially different reported results are not likely to result from long-lived asset impairments. However, a change in assumptions or market conditions
could result in a change in estimated future cash flows and the likelihood of materially different reported results.
The Company records liabilities for closed stores
that are under long-term lease agreements. The liability represents an estimate of the present value of the remaining non-cancelable lease payments
after the anticipated closing date, net of estimated subtenant income. The closed store liabilities usually are paid over the lease terms associated
with the closed stores, unless settled earlier. Harris Teeter management estimates the subtenant income and future cash flows based on its historical
experience and knowledge of (1) the market in which the store is
16
located, (2) the results of its previous efforts
to dispose of similar assets and (3) the current economic conditions. The actual cost of disposition for these leases is affected by specific real
estate markets, inflation rates and general economic conditions and may differ significantly from those assumed and estimated.
Store closings generally are completed within one
year after the decision to close. Adjustments to closed store liabilities primarily relate to changes in subtenants and actual costs differing from
original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store closing liability
remaining upon settlement of the obligation is reversed to income in the period that such settlement is determined. The Company constantly reviews the
relevant, significant factors used in its estimates and makes adjustments where the facts and circumstances dictate.
Retirement Plans and Post-Retirement Benefit Plans
The Company maintains certain retirement benefit
plans for substantially all domestic full-time employees and a supplemental retirement benefit plan for certain selected officers of the Company and
its subsidiaries. Employees in foreign subsidiaries participate to varying degrees in local pension plans, which, in the aggregate, are not
significant. The qualified pension plans are non-contributory, funded defined benefit plans, while the non-qualified supplemental pension plan for
executives is an unfunded, defined benefit plan. The Company’s current funding policy for its qualified pension plans is to contribute annually
the amount required by regulatory authorities to meet minimum funding requirements and an amount to increase the funding ratios over future years to a
level determined by its actuaries to be effective in reducing the volatility of contributions.
The Company has certain deferred compensation
arrangements which allow or allowed in prior years its directors, officers and selected key management personnel to forego the receipt of earned
compensation for specified periods of time. As of October 3, 2004, these plans were unfunded, except for a directors’ compensation deferral plan
and a flexible deferral plan for executives which utilize a rabbi trust to hold assets designated to pay the respective liabilities. For further
disclosures regarding the Company’s pension and deferred compensation plans, see the Note entitled “Employee Benefit Plans” of the Notes
to Consolidated Financial Statements in Item 8 hereof.
The Company maintains a post-retirement healthcare
plan for retirees whose sum of age and years of service equal at least 75 at retirement. The plan continues coverage from early retirement date until
the earlier date of eligibility for Medicare or any other employer’s medical plan. The Company requires that the retiree pay the estimated full
cost of the coverage. The Company also provides a $5,000 post-retirement mortality benefit to a small number of retirees under a prior plan. The
obligations and expenses associated with each of these benefit plans are not material.
The determination of the Company’s obligation
and expense for pension, deferred compensation and other post-retirement benefits is dependent on certain assumptions selected by management and used
by the Company and its actuaries in calculating such amounts. The more significant of those assumptions applicable to the qualified pension plan
include the discount rate, the expected long-term rate of return on plan assets, the rates of increase in future compensation and the rates of future
employee turnover. Those assumptions also apply to determinations of the obligations and expense of the following plans, except as noted: (1)
supplemental pension — no funded assets to be measured, and (2) deferred compensation arrangement and post-retirement mortality benefit — no
funded assets to be measured and no dependency on future rates of compensation or turnover.
In accordance with generally accepted accounting
principles, actual results that differ from management’s assumptions are accumulated and amortized over future periods and, therefore, generally
affect the Company’s recognized expense and recorded obligation in such future periods. While management believes that its selections of values
for the various assumptions are appropriate, significant differences in actual experience or significant changes in the assumptions may materially
affect pension and other post-retirement obligations and future expense.
Recent Accounting Standards
The Company has adopted various new accounting
standards that became effective during fiscal 2004. The adoption of the new standards did not have a material impact on the Company’s results of
operations, financial position or cash flows in the reported periods. Information about the new accounting requirements has been incorporated into the
Note entitled “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Item 8
hereof.
17
In January 2003 and December 2003, the FASB issued
FIN 46 and FIN 46-R, respectively. FIN 46 and FIN 46-R address the consolidation of entities whose equity holders have either (a) not provided
sufficient equity at risk to allow the entity to finance its own activities or (b) do not possess certain characteristics of a controlling financial
interest. FIN 46 and FIN 46-R require the consolidation of these entities, known as variable interest entities (“VIE’s”) by the primary
beneficiary of the entity. The primary beneficiary is the entity, if any, that is subject to a majority of the risk of loss from the VIE’s
activities, entitled to receive a majority of the VIE’s residual returns or both. FIN 46 and FIN 46-R apply immediately to variable interests in
VIE’s created or obtained after January 31, 2003. For variable interest in a VIE created before February 1, 2003, FIN 46 and FIN 46-R apply to
VIE’s no later than the end of the first reporting period ending after March 15, 2004. Based on management’s review of the Company’s
various investments, management has concluded that the Company does not have any VIE’s that require consolidation.
In November 2003 the Emerging Issues Task Force
(“EITF”) confirmed as a consensus EITF Issue No. 03-10, “Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to
Consumers by Manufacturers” (“EITF 03-10”). EITF 03-10 addresses the accounting for manufacturer sales incentives offered directly to
consumers, including manufacturer coupons. The Company’s accounting policies related to vendor coupons and reimbursements are in accordance with
the requirements of EITF 03-10. The adoption of this pronouncement had no material impact on the Company’s results of operations, financial
position or cash flows in the reported periods.
In December 2003 the FASB issued SFAS No. 132,
(revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement requires additional
disclosures regarding employers’ pension plans and other postretirement benefit plans in annual and interim reports. Additional disclosures are
required for assets, obligations, cash flows and net periodic benefit costs. The Company has adopted the disclosure requirements (refer to Note
captioned “Employee Benefit Plans” of the Notes to Consolidated Financial Statements in Item 8 hereof). The adoption of this Statement
required disclosures only and did not impact the Company’s results of operations, financial position or cash flows.
Regarding Forward-Looking Statements
The foregoing discussion contains certain statements
that may constitute “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements relate
to, among other things, the Company’s strategic and business initiatives and plans for growth or operating changes; the Company’s financial
condition and results of operation; future events, developments or performance; and management’s expectations, beliefs, plans, estimates and
projections.
While management believes these forward-looking
statements are accurate and reasonable, uncertainties, risks and factors, including those described below, could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management’s judgment only as of the date of this report. Neither the Company nor its management undertakes an
obligation to publicly revise these forward-looking statements to reflect events and circumstances that arise after the date of this
report.
Factors that could cause the Company’s actual
results to differ materially from those anticipated in the forward-looking statements in this report include the following:
• |
|
Generally adverse economic and industry conditions, including a
decline in consumer demand for apparel products or significant changes in consumer food preferences; |
• |
|
Changes in the competitive environment for either of the
Company’s subsidiaries, including increased competition in the Company’s primary geographic markets, the entry of new competitors or changes
in the strategies of current competitors and consolidation in the retail grocery industry; |
• |
|
Changes in federal, state or local laws or regulations affecting
the manufacturing, distribution or retailing of food and changes in food safety requirements; |
• |
|
Changes in accounting standards or taxation requirements,
including the passage of future tax legislation or any regulatory or judicial position that could have an adverse impact on past, current or future tax
benefits; |
18
• |
|
Economic or political changes in the countries in which the
Company’s subsidiaries operate, adverse trade regulations, restrictions or tariffs or changes in import quotas; |
• |
|
Cost and stability of energy sources; |
• |
|
Cost and availability of raw materials; |
• |
|
Management’s ability to predict accurately the adequacy of
the Company’s present liquidity to meet future requirements; |
• |
|
Changes in the Company’s capital expenditures, costs for
new store openings or store closings and other business development or expansion costs; |
• |
|
Continued solvency of any third parities on leases the Company
has guaranteed; |
• |
|
Management’s ability to predict the required contributions
to the pension plans of the Company; |
• |
|
Changes in labor and employee benefit costs, such as increased
health care and other insurance costs; |
• |
|
Ability to recruit, train and retain effective employees and
management in both of the Company’s subsidiaries; |
• |
|
The extent and speed of successful execution of strategic
initiatives designed to increase sales and profitability of each of the Company’s subsidiaries and the ability to implement new technology;
and |
• |
|
Unexpected outcomes of any legal proceedings arising in the
normal course of business of the Company. |
Other factors not identified above also could cause
actual results to differ materially from those included, contemplated or implied by the forward-looking statements made in this
report.
| Item 7A. |
|
Quantitative and Qualitative Disclosures about Market
Risk |
The Company is subject to interest rate risk on its
fixed interest rate debt obligations. Generally, the fair value of debt with a fixed interest rate will increase as interest rates fall, and the fair
value will decrease as interest rates rise. As of October 3 2004, the Company had no significant foreign exchange exposure and no outstanding
derivative transactions.
The table below presents principal cash flows and
related weighted average interest rates by expected maturity dates for the Company’s significant fixed interest rate debt obligations ($150
million of Senior Notes due at various dates through 2017):
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
Fixed rate debt
obligations |
|
|
|
$ |
7,143 |
|
|
$ |
7,143 |
|
|
$ |
7,143 |
|
|
$ |
7,143 |
|
|
$ |
7,143 |
|
|
$ |
114,285 |
|
|
$ |
150,000 |
|
|
$ |
170,663 |
|
Weighted
average interest rate |
|
|
|
|
6.48 |
% |
|
|
6.48 |
% |
|
|
6.48 |
% |
|
|
6.48 |
% |
|
|
6.48 |
% |
|
|
7.49 |
% |
|
|
7.25 |
% |
|
|
|
|
For a more detail description of
fair value, refer to the Note entitled “Financial Instruments” of the Notes to Consolidated Financial Statements in Item 8
hereof.
19
| Item 8. |
|
Financial Statements and Supplementary
Data |
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
|
|
|
|
Page
|
Report of
Independent Registered Public Accounting Firm |
|
|
|
|
21 |
|
Consolidated
Balance Sheets, October 3, 2004 and September 28, 2003 |
|
|
|
|
22 |
|
Statements of
Consolidated Income for the fiscal years ended October 3, 2004,
September 28, 2003 and September 29, 2002 |
|
|
|
|
23 |
|
Statements of
Consolidated Stockholders’ Equity and Comprehensive Income for the fiscal years ended October 3, 2004, September 28, 2003 and September 29,
2002 |
|
|
|
|
24 |
|
Statements of
Consolidated Cash Flows for the fiscal years ended October 3, 2004,
September 28, 2003 and September 29, 2002 |
|
|
|
|
25 |
|
Notes to
Consolidated Financial Statements |
|
|
|
|
26 |
|
Schedule I
— Valuation and Qualifying Accounts and Reserves for the fiscal years ended
October 3, 2004, September 28, 2003 and September 29,
2002 |
|
|
|
|
S-1 |
|
20
Report of Independent Registered Public Accounting Firm
The Board of
Directors and Shareholders
Ruddick Corporation:
We have audited the accompanying consolidated
balance sheets of Ruddick Corporation and subsidiaries as of October 3, 2004 and September 28, 2003, and the related consolidated statements of income,
stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended October 3, 2004. Our audits
also included the financial statement schedule “valuation and qualifying accounts and reserves” for each of the years in the three-year
period ended October 3, 2004. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Ruddick Corporation and subsidiaries as of October 3,
2004 and September 28, 2003, and the results of its operations and its cash flows for each of the years in the three-year period ended October 3, 2004,
in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein
for each of the years in the three-year period ended October 3, 2004.
/s/ KPMG LLP
Charlotte, North Carolina
November 2, 2004
21
CONSOLIDATED BALANCE SHEETS
RUDDICK CORPORATION AND SUBSIDIARIES
(dollars
in thousands)
|
October 3,
2004
|
|
September 28,
2003
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents |
|
|
|
$ |
46,579 |
|
|
$ |
63,222 |
|
Temporary
Investments |
|
|
|
|
60,471 |
|
|
|
58,343 |
|
Accounts
Receivable, Net of Allowance For Doubtful Accounts
of $3,170 and $3,962 |
|
|
|
|
70,007 |
|
|
|
66,326 |
|
Inventories |
|
|
|
|
230,856 |
|
|
|
214,122 |
|
Net Current
Deferred Income Tax Benefits |
|
|
|
|
12,809 |
|
|
|
12,251 |
|
Prepaid and
Other Current Assets |
|
|
|
|
25,164 |
|
|
|
25,232 |
|
Total Current
Assets |
|
|
|
|
445,886 |
|
|
|
439,496 |
|
Property
|
|
|
|
|
|
|
|
|
|
|
Land |
|
|
|
|
29,898 |
|
|
|
32,217 |
|
Buildings and
Improvements |
|
|
|
|
185,477 |
|
|
|
179,324 |
|
Machinery and
Equipment |
|
|
|
|
671,198 |
|
|
|
640,362 |
|
Leasehold
Improvements |
|
|
|
|
278,839 |
|
|
|
253,578 |
|
Total, at
Cost |
|
|
|
|
1,165,412 |
|
|
|
1,105,481 |
|
Accumulated
Depreciation and Amortization |
|
|
|
|
626,301 |
|
|
|
582,084 |
|
Property,
Net |
|
|
|
|
539,111 |
|
|
|
523,397 |
|
Investments |
|
|
|
|
58,726 |
|
|
|
33,706 |
|
Goodwill |
|
|
|
|
8,169 |
|
|
|
8,169 |
|
Intangible
Assets |
|
|
|
|
6,234 |
|
|
|
4,515 |
|
Other
Long-Term Assets |
|
|
|
|
53,866 |
|
|
|
55,739 |
|
Total
Assets |
|
|
|
$ |
1,111,992 |
|
|
$ |
1,065,022 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable |
|
|
|
$ |
2,588 |
|
|
$ |
2,667 |
|
Current
Portion of Long-Term Debt |
|
|
|
|
8,648 |
|
|
|
31,596 |
|
Accounts
Payable |
|
|
|
|
148,196 |
|
|
|
148,369 |
|
Federal and
State Income Taxes |
|
|
|
|
1,640 |
|
|
|
147 |
|
Accrued
Compensation |
|
|
|
|
40,832 |
|
|
|
38,010 |
|
Other Current
Liabilities |
|
|
|
|
56,011 |
|
|
|
53,515 |
|
Total Current
Liabilities |
|
|
|
|
257,915 |
|
|
|
274,304 |
|
Long-Term
Debt |
|
|
|
|
157,639 |
|
|
|
157,499 |
|
Net Long-Term
Deferred Income Tax Liabilities |
|
|
|
|
24,589 |
|
|
|
29,282 |
|
Pension
Liabilities |
|
|
|
|
60,028 |
|
|
|
60,808 |
|
Other
Long-Term Liabilities |
|
|
|
|
54,300 |
|
|
|
39,106 |
|
Minority
Interest |
|
|
|
|
7,811 |
|
|
|
8,758 |
|
Commitments
and Contingencies |
|
|
|
|
— |
|
|
|
— |
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
Common Stock,
no par value — Shares Outstanding:
2004 — 46,730,758; 2003 — 46,223,233 |
|
|
|
|
56,634 |
|
|
|
47,749 |
|
Retained
Earnings |
|
|
|
|
535,188 |
|
|
|
489,135 |
|
Accumulated
Other Comprehensive Income |
|
|
|
|
(42,112 |
) |
|
|
(41,619 |
) |
Total
Shareholders’ Equity |
|
|
|
|
549,710 |
|
|
|
495,265 |
|
Total
Liabilities and Shareholders’ Equity |
|
|
|
$ |
1,111,992 |
|
|
$ |
1,065,022 |
|
See Notes to Consolidated Financial Statements.
22
STATEMENTS OF CONSOLIDATED INCOME
RUDDICK CORPORATION AND
SUBSIDIARIES
(dollars in thousands, except per share data)
|
|
|
|
53 Weeks
Ended
October 3,
2004
|
|
52 Weeks
Ended
September 28,
2003
|
|
52 Weeks
Ended
September 29,
2002
|
Net
Sales |
|
|
|
$ |
2,868,597 |
|
|
$ |
2,724,739 |
|
|
$ |
2,644,198 |
|
Cost of
Sales |
|
|
|
|
2,035,096 |
|
|
|
1,947,673 |
|
|
|
1,889,379 |
|
Selling,
General and Administrative Expenses |
|
|
|
|
720,703 |
|
|
|
674,374 |
|
|
|
653,904 |
|
Exit and
Impairment Charges |
|
|
|
|
384 |
|
|
|
580 |
|
|
|
7,113 |
|
Operating
Profit |
|
|
|
|
112,414 |
|
|
|
102,112 |
|
|
|
93,802 |
|
Interest
Expense |
|
|
|
|
12,938 |
|
|
|
12,385 |
|
|
|
12,568 |
|
Interest
Income |
|
|
|
|
(2,271 |
) |
|
|
(1,417 |
) |
|
|
(1,360 |
) |
Investment
(Gains) Losses |
|
|
|
|
(981 |
) |
|
|
(2,419 |
) |
|
|
(11 |
) |
Minority
Interest |
|
|
|
|
1,564 |
|
|
|
1,471 |
|
|
|
1,013 |
|
Income Before
Taxes |
|
|
|
|
101,164 |
|
|
|
92,092 |
|
|
|
81,592 |
|
Income Tax
Expense |
|
|
|
|
36,505 |
|
|
|
32,210 |
|
|
|
29,609 |
|
Net
Income |
|
|
|
$ |
64,659 |
|
|
$ |
59,882 |
|
|
$ |
51,983 |
|
|
Net Income
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
1.39 |
|
|
$ |
1.29 |
|
|
$ |
1.12 |
|
Diluted |
|
|
|
$ |
1.38 |
|
|
$ |
1.29 |
|
|
$ |
1.12 |
|
|
Weighted
Average Number of Shares of Common Stock Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
46,489 |
|
|
|
46,385 |
|
|
|
46,402 |
|
Diluted |
|
|
|
|
46,851 |
|
|
|
46,463 |
|
|
|
46,578 |
|
See Notes to Consolidated Financial Statements.
23
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
INCOME
RUDDICK CORPORATION AND SUBSIDIARIES
(dollars in thousands, except share and per share amounts)
|
|
|
|
Common Stock
Shares
(No Par Value)
|
|
Common
Stock
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
(Loss) Income
|
|
Total
Stockholders’
Equity
|
|
Comprehensive
Income
|
Balance at
September 30, 2001 |
|
|
|
|
46,319,696 |
|
|
$ |
49,549 |
|
|
$ |
410,665 |
|
|
$ |
(14,861 |
) |
|
$ |
445,353 |
|
|
|
|
|
Exercise of
stock options, including
tax benefits of $204 |
|
|
|
|
134,492 |
|
|
|
1,578 |
|
|
|
— |
|
|
|
— |
|
|
|
1,578 |
|
|
|
|
|
Net
earnings |
|
|
|
|
— |
|
|
|
— |
|
|
|
51,983 |
|
|
|
— |
|
|
|
51,983 |
|
|
$ |
51,983 |
|
Dividends
($0.36 a share) |
|
|
|
|
— |
|
|
|
— |
|
|
|
(16,708 |
) |
|
|
— |
|
|
|
(16,708 |
) |
|
|
|
|
Foreign
currency translation adjustment
(net of tax of $0) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
507 |
|
|
|
507 |
|
|
|
507 |
|
Minimum pension
liability adjustment
(net of tax benefit of $16,329) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,025 |
) |
|
|
(25,025 |
) |
|
|
(25,025 |
) |
Balance at
September 29, 2002 |
|
|
|
|
46,454,188 |
|
|
|
51,127 |
|
|
|
445,940 |
|
|
|
(39,379 |
) |
|
|
457,688 |
|
|
$ |
27,465 |
|
Exercise of
stock options, including
tax benefits of $102 |
|
|
|
|
146,845 |
|
|
|
1,824 |
|
|
|
— |
|
|
|
— |
|
|
|
1,824 |
|
|
|
|
|
Shares
purchased and retired |
|
|
|
|
(377,800 |
) |
|
|
(5,202 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,202 |
) |
|
|
|
|
Net
earnings |
|
|
|
|
— |
|
|
|
— |
|
|
|
59,882 |
|
|
|
— |
|
|
|
59,882 |
|
|
$ |
59,882 |
|
Dividends
($0.36 a share) |
|
|
|
|
— |
|
|
|
— |
|
|
|
(16,687 |
) |
|
|
— |
|
|
|
(16,687 |
) |
|
|
|
|
Foreign
currency translation adjustment
(net of tax of $0) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,957 |
|
|
|
1,957 |
|
|
|
1,957 |
|
Minimum pension
liability adjustment
(net of tax benefit of $2,739) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,197 |
) |
|
|
(4,197 |
) |
|
|
(4,197 |
) |
Balance at
September 28, 2003 |
|
|
|
|
46,223,233 |
|
|
|
47,749 |
|
|
|
489,135 |
|
|
|
(41,619 |
) |
|
|
495,265 |
|
|
$ |
57,642 |
|
Exercise of
stock options, including
tax benefits of $643 |
|
|
|
|
507,525 |
|
|
|
8,897 |
|
|
|
— |
|
|
|
— |
|
|
|
8,897 |
|
|
|
|
|
Directors’
stock plan |
|
|
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
|
|
Net
earnings |
|
|
|
|
— |
|
|
|
— |
|
|
|
64,659 |
|
|
|
— |
|
|
|
64,659 |
|
|
$ |
64,659 |
|
Dividends
($0.40 a share) |
|
|
|
|
— |
|
|
|
— |
|
|
|
(18,606 |
) |
|
|
— |
|
|
|
(18,606 |
) |
|
|
|
|
Foreign
currency translation
adjustment (net of tax of $0) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,301 |
|
|
|
1,301 |
|
|
|
1,301 |
|
Minimum pension
liability adjustment
(net of tax benefit of $515) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,794 |
) |
|
|
(1,794 |
) |
|
|
(1,794 |
) |
Balance at
October 3, 2004 |
|
|
|
|
46,730,758 |
|
|
$ |
56,634 |
|
|
$ |
535,188 |
|
|
$ |
(42,112 |
) |
|
$ |
549,710 |
|
|
$ |
64,166 |
|
See Notes to Consolidated Financial Statements.
24
STATEMENTS OF CONSOLIDATED CASH FLOWS
RUDDICK CORPORATION AND
SUBSIDIARIES
(dollars in thousands)
|
|
|
|
53 Weeks
Ended
October 3,
2004
|
|
52 Weeks
Ended
September 28,
2003
|
|
52 Weeks
Ended
September 29,
2002
|
CASH FLOW
FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income |
|
|
|
$ |
64,659 |
|
|
$ |
59,882 |
|
|
$ |
51,983 |
|
Non-Cash
Items Included in Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization |
|
|
|
|
77,415 |
|
|
|
77,237 |
|
|
|
75,788 |
|
Deferred
Taxes |
|
|
|
|
(4,736 |
) |
|
|
96 |
|
|
|
3,246 |
|
Loss on Sale
of Property |
|
|
|
|
2,357 |
|
|
|
6,061 |
|
|
|
3,495 |
|
Other,
Net |
|
|
|
|
1,997 |
|
|
|
8,589 |
|
|
|
9,072 |
|
Decrease
(Increase) in Accounts Receivable |
|
|
|
|
(3,681 |
) |
|
|
1,973 |
|
|
|
(6,618 |
) |
Decrease
(Increase) in Inventories |
|
|
|
|
(16,734 |
) |
|
|
12,242 |
|
|
|
(12,081 |
) |
Decrease
(Increase) in Other Current Assets |
|
|
|
|
69 |
|
|
|
13 |
|
|
|
(3,550 |
) |
Increase
(Decrease) in Accounts Payable |
|
|
|
|
(174 |
) |
|
|
(12,980 |
) |
|
|
20,984 |
|
Increase
(Decrease) in Other Current Liabilities |
|
|
|
|
6,639 |
|
|
|
4,129 |
|
|
|
1,454 |
|
Increase
(Decrease) in Certain Other LT Liabilities |
|
|
|
|
7,918 |
|
|
|
(6,882 |
) |
|
|
(471 |
) |
Net Cash
Provided by Operating Activities |
|
|
|
|
135,729 |
|
|
|
150,360 |
|
|
|
143,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures |
|
|
|
|
(92,092 |
) |
|
|
(73,581 |
) |
|
|
(79,116 |
) |
Net Increase
in Temporary Investments |
|
|
|
|
(2,129 |
) |
|
|
(48,823 |
) |
|
|
(9,520 |
) |
Purchase of
Other Investments |
|
|
|
|
(31,416 |
) |
|
|
(22,669 |
) |
|
|
(4,149 |
) |
Cash Proceeds
from Sale of Property |
|
|
|
|
12,017 |
|
|
|
2,669 |
|
|
|
17,055 |
|
COLI,
Net |
|
|
|
|
(910 |
) |
|
|
(2,851 |
) |
|
|
(1,952 |
) |
Other,
Net |
|
|
|
|
3,134 |
|
|
|
(3,702 |
) |
|
|
141 |
|
Net Cash Used
in Investing Activities |
|
|
|
|
(111,396 |
) |
|
|
(148,957 |
) |
|
|
(77,541 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Payments
on) Proceeds from Short-Term
Debt Borrowings |
|
|
|
|
(79 |
) |
|
|
967 |
|
|
|
— |
|
Net
Repayments of Long-Term Revolver Borrowings |
|
|
|
|
— |
|
|
|
— |
|
|
|
(900 |
) |
Proceeds from
Long-Term Borrowings |
|
|
|
|
449 |
|
|
|
1,164 |
|
|
|
1,577 |
|
Payments on
Long-Term Debt |
|
|
|
|
(31,417 |
) |
|
|
(708 |
) |
|
|
(5,590 |
) |
Dividends
Paid |
|
|
|
|
(18,606 |
) |
|
|
(16,687 |
) |
|
|
(16,708 |
) |
Purchase and
Retirement of Common Stock |
|
|
|
|
— |
|
|
|
(5,202 |
) |
|
|
— |
|
Proceeds from
Stock Issued and Other, Net |
|
|
|
|
8,677 |
|
|
|
1,863 |
|
|
|
1,381 |
|
Net Cash Used
in Financing Activities |
|
|
|
|
(40,976 |
) |
|
|
(18,603 |
) |
|
|
(20,240 |
) |
Increase
(Decrease) in Cash and Cash Equivalents |
|
|
|
|
(16,643 |
) |
|
|
(17,200 |
) |
|
|
45,521 |
|
Cash and Cash
Equivalents at Beginning of Year |
|
|
|
|
63,222 |
|
|
|
80,422 |
|
|
|
34,901 |
|
Cash and Cash
Equivalents at End of Year |
|
|
|
$ |
46,579 |
|
|
$ |
63,222 |
|
|
$ |
80,422 |
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID
DURING THE YEAR FOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
$ |
12,727 |
|
|
$ |
12,797 |
|
|
$ |
12,616 |
|
Income
Taxes |
|
|
|
|
39,962 |
|
|
|
29,275 |
|
|
|
33,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
ACTIVITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
Acquired under Capital Leases |
|
|
|
|
8,383 |
|
|
|
2,689 |
|
|
|
— |
|
See Notes to Consolidated Financial Statements.
25
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of Ruddick Corporation and subsidiaries, including its wholly owned operating companies, Harris Teeter, Inc. and American &
Efird, Inc., collectively referred to herein as the Company. All material intercompany amounts have been eliminated. To the extent that non-affiliated
parties held minority equity investments in joint ventures of the Company, such investments are classified as minority interest.
The Company reviews its investments in entities to
determine if such entities are deemed to be variable interest entities (VIE’s) as defined by FIN 46 and FIN 46-R. The Company will consolidate
those VIE’s in which the Company is the primary beneficiary of the entity. As of the fiscal year ended on October 3, 2004, the Company concluded
that it does not have any VIE’s that required consolidation.
Fiscal Year
The Company’s fiscal year ends on the Sunday
nearest to September 30. Fiscal year 2004 includes 53 weeks and ended on October 3, 2004. Fiscal years 2003 and 2002 each include 52 weeks, and ended
on September 28, 2003, and September 29, 2002, respectively.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual amounts could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of consolidated cash
flows, the Company considers all highly liquid cash investments purchased with a maturity of three months or less to be cash
equivalents.
Temporary Investments
The Company has invested in various municipal and
tax-exempt bonds and other similar investments in order to enhance its return on cash balances. The Company selects specific investments based on
certain criteria, which include, but are not limited to, suitable liquidity and credit quality requirements. The carrying amount of temporary
investments are recorded at their amortized costs which approximates their fair market values.
Inventories
The Company’s inventories are valued at the
lower of cost or market with the cost of substantially all domestic U.S. inventories being determined using the last-in, first-out (LIFO) method.
Foreign inventories and limited categories of domestic inventories are valued on the weighted average and on the first-in, first-out (FIFO) cost
methods. Under the LIFO valuation method at Harris Teeter, all retail store inventories are initially stated at estimated cost as calculated by the
Retail Inventory Method (RIM). Under RIM, the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated
cost-to-retail ratio to the retail value of inventories.
Vendor Rebates, Credits and Promotional Allowances
Consistent with standard practices in the retail
industry, Harris Teeter receives allowances from vendors through a variety of programs and arrangements. These allowances are generally intended to
defray the costs of
26
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
promotion, advertising and selling the
vendor’s products. Vendor rebates, credits and other promotional allowances that relate to Harris Teeter’s buying and merchandising
activities, including lump-sum payments associated with long-term contracts, are recorded as a component of cost of sales as they are earned, the
recognition of which is determined in accordance with the underlying agreement with the vendor, the authoritative guidance and completion of the
earning process. Portions of vendor allowances that are refundable to the vendor, in whole or in part, by the nature of the provisions of the contract
are deferred from recognition until realization is assured.
Harris Teeter recognizes allowances when the purpose
for which the vendor funds were intended and committed to be used has been fulfilled and a cost has been incurred by the retailer. Thus, it is the
Company’s policy to recognize the vendor allowance consistent with the timing of the recognition of the expense that the allowance is intended to
reimburse and to determine the accounting classification consistent with the economic substance of the underlying transaction. Where the Company
provides an identifiable benefit or service to the vendor apart from the purchase of merchandise, that transaction is recorded separately. For example,
co-operative advertising allowances are accounted for as a reduction of advertising expense in the period in which the advertising cost is incurred. If
the advertising allowance exceeds the cost of advertising, then the excess is recorded against the cost of sales in the period in which the related
expense is recognized.
Vendor allowances for price markdowns are credited
to the cost of sales during the period in which the related markdown was taken and charged to the cost of sales. Slotting and stocking allowances
received from a vendor to ensure that its products are carried or to introduce a new product at the Company’s stores are recorded as a reduction
of cost of sales over the period covered by the agreement with the vendor based on the estimated inventory turns of the merchandise to which the
allowance applies. Display allowances are recognized as a reduction of cost of sales in the period earned in accordance with the vendor agreement.
Volume rebates by the vendor in the form of a reduction of the purchase price of the merchandise reduce the cost of sales when the related merchandise
is sold. Generally, volume rebates under a structured purchase program with allowances awarded based on the level of purchases are recognized, when
realization is assured, as a reduction in the cost of sales in the appropriate monthly period based on the actual level of purchases in the period
relative to the total purchase commitment and adjusted for the estimated inventory turns of the merchandise.
Property and Depreciation
Property is recorded at cost and is depreciated,
using principally the straight-line method, over the following useful lives:
Land
improvements |
|
|
|
10–40 years |
Buildings |
|
|
|
15–40 years |
Machinery and
equipment |
|
|
|
3–15 years |
Leasehold improvements are depreciated over the
lesser of the estimated useful life or the remaining term of the lease. Assets under capital leases are amortized on a straight-line basis over the
lesser of the estimated useful life or the lease term. Maintenance and repairs are charged against income when incurred. Expenditures for major
renewals, replacements and betterments are added to property. The cost and the related accumulated depreciation of assets retired are eliminated from
the accounts with gains or losses on disposal being added to or deducted from income. Property categories include $16,911,000 and $14,249,000 of
accumulated costs for construction in progress at October 3, 2004 and September 28, 2003, respectively.
Impairment of Long-lived Assets and Closed Store Obligations
In accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 144 “Impairment of Long-Lived Assets,” the Company assesses its long-lived assets for possible impairment
whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison
of the carrying amount to the net non-discounted cash flows expected to be generated by the asset.
27
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
An impairment loss is recognized for any excess
of net book value over the estimated fair value of the asset impaired, and recorded as an offset to the asset value. The fair value is estimated based
on expected future cash flows or third party valuations, if available.
The value of property and equipment associated with
closed stores and facilities is adjusted to reflect recoverable values based on the Company’s prior history of disposing of similar assets and
current economic conditions. Management continually reviews its fair value estimates and records impairment charges for assets held for sale when
management determines, based on new information which it believes to be reliable, that such charges are appropriate.
The Company records liabilities for closed stores
that are under long-term lease agreements. The liability represents an estimate of the present value of the remaining non-cancelable lease payments
after the anticipated closing date, net of estimated subtenant income. The closed store liabilities usually are paid over the lease terms associated
with the closed stores, unless settled earlier. Harris Teeter management estimates the subtenant income and future cash flows based on its historical
experience and knowledge of (1) the market in which the store is located, (2) the results of its previous efforts to dispose of similar assets and (3)
the current economic conditions.
Investments
The Company or its Harris Teeter subsidiary holds
financial investments in certain developments, with a managing partner or partners, in which Harris Teeter, Inc. either operates or plans to operate a
supermarket. American & Efird has investments in various non-consolidated foreign entities in which they hold a minority interest and a 50%
ownership interest in a joint venture in China. These investments, depending on the state of development, are accounted for either under the equity
method of accounting or at cost. In prior years the Company made loans to and equity investments in a number of emerging growth companies, primarily
through investments in certain venture capital funds. Real estate and other investments are carried at the lower of cost or market and are periodically
reviewed for potential impairment in accordance SFAS No. 144 “Impairment of Long-Lived Assets.”
Goodwill and Other Intangibles
In accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets,” goodwill and certain other intangibles with indefinite lives are no longer amortized, but instead are tested for
impairment at least annually, or more frequently, if circumstances indicate a potential impairment. Intangible assets with finite, measurable lives
continue to be amortized over their respective useful lives until they reach their estimated residual values, and are reviewed for impairment in
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
Self-Insurance
The Company is self-insured for most U.S. workers
compensation claims, healthcare claims, and general liability and automotive liability losses. The Company has purchased insurance coverage in order to
establish certain limits to its exposure on a per claim basis. The Company determines the estimated reserve required for U.S. worker compensation
claims, general liability and automotive liability by first analyzing the costs of claims incurred and then adjusts such estimates by development
factors from published insurance industry sources. The estimated total expected costs of claims incurred is discounted to present values using an
appropriate discount factor.
The Company records an accrual for the estimated
amount of self-insured healthcare claims incurred by all participants but not yet reported. These reserves are recorded based on historical experience
and industry trends, which are continually monitored, and accruals are adjusted when warranted by changes in facts and circumstances.
28
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
Derivatives
The Company does not enter into derivative financial
instruments for trading purposes. Derivative instruments (including certain derivative instruments embedded in other contracts) entered into in the
normal course of business were not significant during any of the periods presented.
Revenue Recognition
The Company recognizes revenue from retail
operations at the point of sale to its customers and from manufacturing operations at the point of shipment to its customers, based on shipping
terms.
Cost of Sales
The major components of cost of sales in the textile
manufacturing and distribution segment are (a) the materials and supplies, labor costs and overhead costs associated with the manufactured products
sold, (b) the purchased cost of products bought for resale, (c) any charges, or credits, associated with LIFO reserves and reserves for obsolete and
slow moving inventories, (d) the freight costs incurred to deliver the products to the customer from the point of sale, and (e) all other costs
required to be classified as cost of sales under authoritative accounting pronouncements.
The major components of cost of sales in the retail
supermarket segment are (a) the cost of products sold determined under the Retail Inventory Method (see “Inventories” above) reduced by
purchase cash discounts and vendor purchase allowances and rebates, (b) the cost of various sales promotional activities reduced by vendor promotional
allowances, and reduced by cooperative advertising allowances to the extent an advertising allowance exceeds the cost of the advertising, (c) the cost
of product waste, including, but not limited to, physical waste and theft, (d) the cost of product distribution, including warehousing, freight and
delivery, and (e) any charges, or credits, associated with LIFO reserves and reserves for obsolete and slow moving inventories. Additionally, the costs
of production of product sold by the dairy operation to outsiders are included in cost of sales in the period in which the sales are recognized in
revenues.
Selling, General and Administrative Expenses
The major components of selling, general and
administrative expenses in the textile manufacturing and distribution segment are (a) the costs of maintaining a sales force including compensation,
incentive compensation, benefits, office and occupancy costs, travel and all other costs of the sales force, (b) shipping and handling costs, excluding
freight, (c) the costs of advertising, customer service, sales support and other similar costs, and (d) the costs of maintaining general and
administrative support functions, including, but not limited to, personnel administration, finance and accounting, treasury, credit, information
systems, training, marketing, and environmental, health and safety, to the extent that such overhead activities are not allocable to indirect
manufacturing costs in cost of sales under generally accepted accounting principles.
The major components of selling, general and
administrative expenses in the retail supermarket segment are (a) the costs associated with store operations, including store labor and training,
fringe benefits and incentive compensation, supplies and maintenance, regional and district management and store support, store rent and other
occupancy costs, property management and similar costs, (b) advertising costs, (c) shipping and handling costs, excluding freight, warehousing and
distribution costs, (d) merchandising and purchasing department staffing, supplies and associated costs, (e) customer service and support, and (f) the
costs of maintaining general and administrative support functions, including, but not limited to, personnel administration, finance and accounting,
treasury, credit, information systems, marketing, and environmental, health and safety, based on appropriate classification under generally accepted
accounting principles.
The major components of selling, general and
administrative expenses in the corporate segment are (a) the costs associated with a portion of compensation and benefits of holding company employees,
and (b) certain other costs that are not related to the operating companies.
29
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
Advertising
Costs incurred to produce media advertising are
expensed in the period in which the advertising first takes place. All other advertising costs are also expensed when incurred. Cooperative advertising
income from vendors is recorded in the period in which the related expense is incurred and amounted to $1,440,000, $1,634,000 and $1,262,000 in fiscal
2004, 2003 and 2002, respectively. Net advertising expenses of $22,731,000, $22,894,000, and $22,715,000 were included in the Company’s results of
operations for fiscal 2004, 2003 and 2002, respectively.
Foreign Currency
Assets and liabilities of foreign operations are
translated at the current exchange rates as of the end of the accounting period, and revenues and expenses are translated using average exchange rates.
The resulting translation adjustments are accumulated as a component of other comprehensive income in equity.
Income Taxes
Ruddick and its subsidiaries file a consolidated
federal income tax return. Tax credits are recorded as a reduction of income taxes in the years in which they are generated. Deferred tax liabilities
or assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Accordingly,
income tax expense will increase or decrease in the same period in which a change in tax rates is enacted.
Earnings Per Share (“EPS”)
Basic EPS is based on the weighted average
outstanding common shares. Diluted EPS is based on the weighted average outstanding common shares adjusted by the dilutive effect of stock
options.
Stock Options
As permitted by SFAS No. 123, “Accounting for
Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” the Company
continues to record compensation cost for stock option plans in accordance with Accounting Principles Board Opinion No. 25. Accordingly, compensation
cost of stock options is measured as the excess, if any, of the market price of the Company’s stock at the date of the grant over the option
exercise price and is charged to operations over the vesting period. Income tax benefits attributable to stock options exercised are credited to
capital stock.
Other Comprehensive Income
Other comprehensive income refers to revenues,
expenses, gains and losses that are not included in net earnings but rather are recorded directly in stockholders’ equity. The accumulated
components of other comprehensive income, net of taxes at October 3, 2004 were additional minimum pension liability of $42,099,000 and foreign currency
translation adjustments of $13,000.
Reclassifications
To conform with classifications adopted in the
current year, the financial statements for the prior year reflect certain reclassifications, which have no effect on net income.
New Accounting Standards
The Company has adopted various new accounting
standards that became effective during fiscal 2004. The adoption of the new standards did not have a material impact on the
Company’s results of operations, financial position or cash flows in the reported periods.
In January 2003 and December 2003, the FASB issued
FIN 46 and FIN 46-R, respectively. FIN 46 and FIN 46-R address the consolidation of entities whose equity holders have either (a) not provided
sufficient equity at
30
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
risk to allow the entity to finance its own
activities or (b) do not possess certain characteristics of a controlling financial interest. FIN 46 and FIN 46-R require the consolidation of these
entities, known as variable interest entities (“VIE’s”) by the primary beneficiary of the entity. The primary beneficiary is the entity,
if any, that is subject to a majority of the risk of loss from the VIE’s activities, entitled to receive a majority of the VIE’s residual
returns, or both. FIN 46 and FIN 46-R apply immediately to variable interests in VIE’s created or obtained after January 31, 2003. For variable
interest in a VIE created before February 1, 2003, FIN 46 and FIN 46-R apply to VIE’s no later than the end of the first reporting period ending
after March 15, 2004. Based on management’s review of the Company’s various investments, management has concluded that the Company does not
have any VIE’s that require consolidation.
In November 2003 the Emerging Issues Task Force
(“EITF”) confirmed as a consensus EITF Issue No. 03-10, “Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to
Consumers by Manufacturers” (“EITF 03-10”). EITF 03-10 addresses the accounting for manufacturer sales incentives offered directly to
consumers, including manufacturer coupons. The Company’s accounting policies related to vendor coupons and reimbursements are in accordance with
the requirements of EITF 03-10. The adoption of this pronouncement had no material impact on the Company’s results of operations, financial
position or cash flows in the reported periods.
In December 2003 the FASB issued SFAS No. 132,
(revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement requires additional
disclosures regarding employers’ pension plans and other postretirement benefit plans in annual and interim reports. Additional disclosures are
required for assets, obligations, cash flows, and net periodic benefit costs (refer to Note captioned “Employee Benefit Plans”). The adoption
of this Statement required disclosures only and did not impact the Company’s results of operations, financial position or cash
flows.
INVENTORIES
Inventories are valued at the lower of cost or
market with the cost of substantially all domestic U.S. inventories being determined using the last-in, first-out (LIFO) method. The LIFO cost of such
inventories was $15,706,000 and $18,012,000 less than the first-in, first-out (FIFO) cost method at October 3, 2004 and September 28, 2003,
respectively. Foreign inventories and limited categories of domestic inventories, totaling $61,782,000 for fiscal 2004 and $54,203,000 for fiscal 2003,
are valued on the weighted average and on the FIFO cost methods. At October 3, 2004 (September 28, 2003) the value of finished goods inventory was
$206,521,000 ($193,779,000), work in progress was $5,211,000 ($4,002,000) and raw materials and supplies were $19,124,000
($16,341,000).
GOODWILL
Goodwill is recorded by the Company’s American
& Efird textile subsidiary. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company has reviewed goodwill
for possible impairment, and as a result, there was no impairment charge required in fiscal years 2004 and 2003. Amortization of goodwill during fiscal
2002 impacted operating profit (net income, EPS) by $924,500 ($570,000, $0.01 per diluted share).
INTANGIBLE ASSETS
The carrying amount of intangible assets at October
3, 2004 and September 28, 2003 was as follows (in thousands):
|
|
|
|
2004
|
|
2003
|
Non-Amortizing Intangibles — Pension related intangible assets |
|
|
|
$ |
3,318 |
|
|
$ |
3,407 |
|
Amortizing
Intangibles — Customer lists, trademarks and other contracts |
|
|
|
|
2,916 |
|
|
|
1,108 |
|
|
|
|
|
$ |
6,234 |
|
|
$ |
4,515 |
|
31
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
Amortizing intangibles are recorded by the
Company’s American & Efird textile subsidiary, and the non-amortizing intangibles are recorded by the respective corporate and subsidiary
companies. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company has reviewed non-amortizing intangible assets
for possible impairment, and as a result, there have been no impairment charges required.
COMPANY OWNED LIFE INSURANCE (COLI)
The Company has purchased life insurance policies to
fund its obligations under certain benefit plans for officers, key employees and directors. The cash surrender value of these policies is recorded net
of policy loans and included with other long-term assets in the Company’s consolidated balance sheets. The cash value of the Company’s life
insurance policies were $44,115,000 at October 3, 2004 and $44,793,000 at September 28, 2003, and no policy loans were outstanding at either
date.
IMPAIRMENT AND EXIT COSTS
During the first half of fiscal 2004 the Company
recorded pre-tax charges of $384,000 ($238,000 after tax benefits) related to severance costs paid in connection with the closing of A&E’s
thread yarn spinning plant in Maiden, North Carolina.
During fiscal 2003 the Company recorded a pre-tax
charge of $580,000 ($360,000 after income tax benefits) related to the announced closing of A&E’s thread yarn spinning plant in Maiden, North
Carolina, which occurred in the first quarter of fiscal 2004. The charge related to the impairment of the manufacturing plant being
closed.
During fiscal 2002, the Company’s textile
subsidiary, American & Efird (A&E), recorded a pre-tax charge of $7,823,000 ($4,825,000 after income taxes) for exit and impairment costs
related to the consolidation of industrial thread dyeing and finishing operations into its plant in Mt. Holly, North Carolina and the closing of its
dyeing and finishing operations in Gastonia, North Carolina. The pre-tax charge was composed of $7,443,000 for the impairment of the building,
machinery, and equipment and $380,000 for the costs of severance benefits (which were settled by the end of fiscal 2003).
LEASES
The Company leases certain equipment under
agreements expiring during the next 7 years. Harris Teeter leases most of its stores under leases that expire during the next 28 years. It is expected
that such leases will be renewed by exercising options or replaced by leases of other properties. Most store leases provide for additional rentals
based on sales, and certain store facilities are sublet under leases expiring during the next 15 years. Certain leases also contain rent escalation
clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases with step rents is recognized on a
straight-line basis over the minimum lease term. Rent expense for the fiscal years was as follows (in thousands):
|
|
|
|
2004
|
|
2003
|
|
2002
|
Minimum, net
of sublease income |
|
|
|
$ |
64,369 |
|
|
$ |
65,333 |
|
|
$ |
67,932 |
|
Contingent |
|
|
|
|
1,204 |
|
|
|
1,215 |
|
|
|
1,329 |
|
Total |
|
|
|
$ |
65,573 |
|
|
$ |
66,548 |
|
|
$ |
69,261 |
|
32
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
Future minimum lease commitments (excluding leases
assigned — see below) and total minimum sublease rental income to be received under non-cancelable subleases at October 3, 2004 were as follows
(in thousands):
|
|
|
|
Operating
Leases
|
|
Subleases
|
|
Capital
Leases
|
2005 |
|
|
|
$ |
64,887 |
|
|
$ |
(1,895 |
) |
|
$ |
1,551 |
|
2006 |
|
|
|
|
65,842 |
|
|
|
(1,798 |
) |
|
|
1,405 |
|
2007 |
|
|
|
|
64,295 |
|
|
|
(1,725 |
) |
|
|
1,419 |
|
2008 |
|
|
|
|
63,351 |
|
|
|
(1,430 |
) |
|
|
1,433 |
|
2009 |
|
|
|
|
62,223 |
|
|
|
(901 |
) |
|
|
1,448 |
|
Later
years |
|
|
|
|
596,417 |
|
|
|
(5,792 |
) |
|
|
25,426 |
|
Total minimum
lease obligations (receivables) |
|
|
|
$ |
917,015 |
|
|
$ |
(13,541 |
) |
|
|
32,682 |
|
Amount representing interest |
|
(21,620 |
) |
Present value of net minimum obligation (included with long-term debt) |
$ |
11,062 |
|
In connection with the closing of certain store
locations, Harris Teeter has assigned leases to other merchants with recourse. These leases expire over the next 17 years and the future minimum lease
payments totaling $93,535,000 over this period have been assumed by these merchants.
LONG-TERM DEBT
Long-term debt at October 3, 2004 and September 28,
2003 was as follows (in thousands):
|
|
|
|
2004
|
|
2003
|
6.48% Senior
Note due $7,143 annually March, 2005 through 2011 |
|
|
|
$ |
50,000 |
|
|
$ |
50,000 |
|
7.72% Senior
Note due April, 2017 |
|
|
|
|
50,000 |
|
|
|
50,000 |
|
7.55% Senior
Note due July, 2017 |
|
|
|
|
50,000 |
|
|
|
50,000 |
|
Lease
financing obligation, variable interest rate, paid off March, 2004 |
|
|
|
|
— |
|
|
|
30,364 |
|
Capital lease
obligations |
|
|
|
|
11,062 |
|
|
|
3,044 |
|
Other
obligations |
|
|
|
|
5,225 |
|
|
|
5,687 |
|
Total |
|
|
|
|
166,287 |
|
|
|
189,095 |
|
Less current
portion |
|
|
|
|
8,648 |
|
|
|
31,596 |
|
Total
long-term debt |
|
|
|
$ |
157,639 |
|
|
$ |
157,499 |
|
Long-term debt maturities (including capital lease
obligations) in each of the next five fiscal years are as follows: 2005 — $8,648,000; 2006 — $8,393,000; 2007 — $8,124,000; 2008 —
$7,936,000; 2009 — $7,752,000.
In the second quarter of 2004, the Company exercised
its option to purchase certain real property of primarily three Harris Teeter stores, which were maintained under a leasing arrangement, for $30.4
million. The lease arrangement, with an original expiration date of September 13, 2004, was between the Company and a non-related national bank as
owner-trustee and two additional banks as lenders. The total financing costs for these properties was $214,000 in fiscal 2004 and $547,000 in fiscal
2003.
In 2002, the Company and three banks entered into a
new revolving credit facility for an aggregate amount of up to $100 million to replace an existing credit facility. Borrowings and repayments under
this revolving credit facility are of the same nature as short-term credit lines. During the period from inception to October 3, 2004, there have been
no borrowings under the credit facility. The facility has a maturity of three years, plus two annual extensions of one year each if then granted by the
banks. As of October 3, 2004, the three banks granted the two annual extensions of the credit facility and thereby established a maturity date of May
14, 2007. The amount which may be borrowed from time to time and the interest rate on any outstanding borrowings are each dependent on a leverage
factor. The leverage factor is based on a ratio of rent-adjusted consolidated funded debt divided by earnings before interest, taxes, depreciation,
amortization and operating rents as those terms are defined in the credit
33
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
agreement. The more significant of the financial
covenants which the Company must meet during the term of the credit agreement include a maximum leverage ratio, minimum fixed charge coverage ratio and
tangible net worth requirements. As of October 3, 2004, the Company was in compliance with all financial covenants. The Company is charged a variable
commitment fee based on the unused balance net of trade and standby letters of credit which were $21,181,000 at October 3, 2004. The commitment fee
rate based on the net unused balance was 0.225%, 0.25% and 0.25% for fiscal 2004, 2003 and 2002, respectively.
In fiscal 2002, the amount outstanding on the
previous credit facility was $900,000 from the beginning of the year through the repayment date in May, 2002. The daily weighted average interest rate
(a variable rate related to the current published CD rate) was 2.4% through the repayment date in fiscal 2002. A commitment fee of 0.15% of the unused
line was charged during 2002.
As indicated above, various loan agreements provide,
among other things, for the maintenance of minimum levels of consolidated tangible net worth, as defined in the respective agreements. The required
minimum consolidated net worth, as defined under the most restrictive provision, was approximately $460.6 million as of October 3, 2004. Consolidated
tangible net worth, as defined, exceeded this required minimum by approximately $78.0 million as of October 3, 2004. Future required minimum
consolidated tangible net worth is subject to annual increases of 40% of consolidated net income for such year.
Total interest expense on debt and capital lease
obligations was $12,938,000, $12,373,000 and $12,135,000 in 2004, 2003 and 2002, respectively.
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the
Company to concentration of credit risk consist principally of cash equivalents and receivables. The Company limits the amount of credit exposure to
each individual financial institution and places its temporary cash into investments of high credit quality. Concentrations of credit risk with respect
to receivables are limited due to their dispersion across various companies and geographies.
The carrying amounts for certain of the
Company’s financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts payable and other accrued
liabilities approximate fair value because of their short maturities. The fair value of variable interest debt is equal to its carrying amount. The
estimated fair value of the Company’s significant fixed interest debt obligations ($150 million of Senior Notes due at various dates through 2017)
outstanding as of October 3, 2004 was $170,663,000 as compared to its carrying amount of $150,000,000. This estimated fair value is computed based on
borrowing rates currently available to the Company for loans with similar terms and maturities.
CAPITAL STOCK
The capital stock of the Company authorized at
October 3, 2004 was 75,000,000 shares of no par value Common Stock, 4,000,000 shares of Preference Stock (non-cumulative voting $0.56 convertible Preference Stock, $10
liquidation value), and 1,000,000 shares of Additional Preferred Stock. No shares of Preference Stock or Additional Preferred Stock were issued or
outstanding at October 3, 2004.
One preferred share purchase right is attached to
each outstanding share of common stock, which rights expire on November 16, 2010. Each right entitles the holder to purchase one one-hundredth of a
share of a new Series A Junior Participating Additional Preferred Stock for $60. The rights will become exercisable only under certain circumstances
related to a person or group acquiring or offering to acquire a substantial portion of the Company’s common stock. If certain additional events
then occur, each right would entitle the rightholder to acquire common stock of the Company, or in some cases of an acquiring entity, having a value
equal to twice the exercise price. Under certain circumstances the Board of Directors may extinguish the rights by exchanging one share of common stock
or an equivalent security for each qualifying right or may redeem each right at a price of $0.01. There are 600,000 shares of Series A Junior
Participating Additional Preferred Stock reserved for issuance upon exercise of the rights.
34
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
The Board of Directors adopted a stock buyback
program in 1996, authorizing, at management’s discretion, the Company to purchase and retire up to 10% of the then outstanding shares of the
Company’s common stock for the purpose of preventing dilution as a result of the operation of the Company’s stock option plans. The stock
purchases are effected from time to time and it is not expected that the Company will purchase a material number of shares in any quarterly or annual
fiscal period. During fiscal 2003, the Company purchased and retired 377,800 shares at a total cost of $5,202,000, or an average price of $13.77 per
share. There were no stock purchases during fiscal 2004 or 2002.
STOCK OPTIONS
At October 3, 2004, the Company has 1988, 1993,
1995, 1997, 2000 and 2002 stock option plans, which were approved by the Company’s shareholders and authorized options for 6,300,000 shares of
common stock. Under the plans, the Company may grant to officers and management personnel incentive stock options which generally become exercisable in
installments of 20% per year at each of the first through fifth anniversaries from grant date and which expire seven years from grant date. Under
certain stock option plans, the Company may grant incentive stock options to employees or nonqualified stock options to employees and outside
directors. Historically and pursuant to the terms of certain plans, the Company grants a single, one-time nonqualified stock option of 10,000 shares,
generally vested immediately, to each of its outside directors at the time of their initial election to the Board. Under each of the stock option
plans, the exercise price of each stock option shall be no less than the market price of the Company’s stock on the date of grant, and an
option’s maximum term is ten years. At the discretion of the Company, under certain plans a stock appreciation right may be granted and exercised
in lieu of the exercise of the related option (which is then forfeited). The plans also allow the Company to grant stock awards such as performance
shares and restricted stock. Under the plans, as of October 3, 2004 the Company may grant additional options or stock awards for the purchase of
1,995,000 shares.
A summary of the status of the Company’s stock
option plans as of October 3, 2004, September 28, 2003 and September 29, 2002, changes during the years ending on those dates and related weighted
average exercise price is presented below (shares in thousands):
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
Outstanding
at beginning of year |
|
|
|
|
2,279 |
|
|
$ |
16.07 |
|
|
|
2,089 |
|
|
$ |
16.15 |
|
|
|
1,797 |
|
|
$ |
15.88 |
|
Granted |
|
|
|
|
622 |
|
|
|
16.89 |
|
|
|
464 |
|
|
|
14.44 |
|
|
|
575 |
|
|
|
15.84 |
|
Exercised |
|
|
|
|
(530 |
) |
|
|
16.33 |
|
|
|
(163 |
) |
|
|
11.98 |
|
|
|
(161 |
) |
|
|
11.17 |
|
Forfeited |
|
|
|
|
(42 |
) |
|
|
16.18 |
|
|
|
(111 |
) |
|
|
16.75 |
|
|
|
(122 |
) |
|
|
17.43 |
|
Outstanding
at end of year |
|
|
|
|
2,329 |
|
|
$ |
16.23 |
|
|
|
2,279 |
|
|
$ |
16.07 |
|
|
|
2,089 |
|
|
$ |
16.15 |
|
Options
exercisable at year end |
|
|
|
|
972 |
|
|
$ |
17.08 |
|
|
|
1,138 |
|
|
$ |
17.21 |
|
|
|
933 |
|
|
$ |
16.77 |
|
The following table summarizes options outstanding
and options exercisable as of October 3, 2004, and the related weighted average remaining contractual life (years) and weighted average exercise price
(shares in thousands):
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Option Price per Share
|
|
|
|
Shares
Outstanding
|
|
Remaining
Life
|
|
Price
|
|
Shares
Exercisable
|
|
Price
|
$11.50 to
$15.58 |
|
|
|
|
651 |
|
|
|
4.6 |
|
|
$ |
13.43 |
|
|
|
216 |
|
|
$ |
13.05 |
|
15.58
to 16.88 |
|
|
|
|
1,038 |
|
|
|
5.6 |
|
|
|
16.43 |
|
|
|
169 |
|
|
|
15.93 |
|
16.88
to 20.28 |
|
|
|
|
640 |
|
|
|
1.8 |
|
|
|
18.76 |
|
|
|
587 |
|
|
|
18.89 |
|
$11.50 to
$20.28 |
|
|
|
|
2,329 |
|
|
|
4.3 |
|
|
|
16.23 |
|
|
|
972 |
|
|
|
17.08 |
|
35
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
The weighted average fair value at date of grant for
options granted during fiscal 2004, 2003 and 2002 was $4.00, $3.50 and $4.09 per option, respectively. The fair value of options at date of grant was
estimated using the Black-Scholes model with the following weighted average assumptions:
|
|
|
|
2004
|
|
2003
|
|
2002
|
Expected life
(years) |
|
|
|
|
5.4 |
|
|
|
5.1 |
|
|
|
5.1 |
|
Risk-free
interest rate |
|
|
|
|
3.25 |
% |
|
|
3.14 |
% |
|
|
3.71 |
% |
Volatility |
|
|
|
|
27.63 |
% |
|
|
29.61 |
% |
|
|
30.33 |
% |
Dividend
yield |
|
|
|
|
2.33 |
% |
|
|
2.30 |
% |
|
|
2.30 |
% |
The Company has adopted the
disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure.” Accordingly, no compensation cost has been recognized for the stock options granted in fiscal
2004, 2003 or 2002. Had compensation cost been determined based on the fair value at the grant date consistent with the provisions of these statements,
the Company’s pro forma net income and basic and diluted net income per share would have been as follows (in thousands, except per share
data):
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net Income
— as reported |
|
|
|
$ |
64,659 |
|
|
$ |
59,882 |
|
|
$ |
51,983 |
|
Deduct: Total stock-based employee compensation
expense determined under the fair value based
method, net of
taxes |
|
|
|
|
(1,136 |
) |
|
|
(991 |
) |
|
|
(1,031 |
) |
Net Income
— proforma |
|
|
|
$ |
63,523 |
|
|
$ |
58,891 |
|
|
$ |
50,952 |
|
|
Net Income
Per Share —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic — as reported |
|
|
|
$ |
1.39 |
|
|
$ |
1.29 |
|
|
$ |
1.12 |
|
— pro
forma |
|
|
|
|
1.37 |
|
|
|
1.27 |
|
|
|
1.10 |
|
Diluted
— as reported |
|
|
|
|
1.38 |
|
|
|
1.29 |
|
|
|
1.12 |
|
— pro
forma |
|
|
|
|
1.36 |
|
|
|
1.27 |
|
|
|
1.09 |
|
The pro forma effect on net income
for prior years is not necessarily representative of the pro forma effect on net income in future years.
INCOME TAXES
The provision for income taxes consisted of the
following (in thousands):
|
|
|
|
2004
|
|
2003
|
|
2002
|
CURRENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
$ |
31,928 |
|
|
$ |
22,845 |
|
|
$ |
21,832 |
|
State and
other |
|
|
|
|
9,313 |
|
|
|
9,269 |
|
|
|
4,531 |
|
|
|
|
|
|
41,241 |
|
|
|
32,114 |
|
|
|
26,363 |
|
DEFERRED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
(2,609 |
) |
|
|
1,357 |
|
|
|
2,514 |
|
State and
other |
|
|
|
|
(2,127 |
) |
|
|
(1,261 |
) |
|
|
732 |
|
|
|
|
|
|
(4,736 |
) |
|
|
96 |
|
|
|
3,246 |
|
Provision for
income taxes |
|
|
|
$ |
36,505 |
|
|
$ |
32,210 |
|
|
$ |
29,609 |
|
36
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
Income from foreign operations before income taxes
in fiscal 2004, 2003 and 2002 was $4,724,000, $4,207,000 and $1,010,000, respectively. Income taxes provided for income from foreign operations in
fiscal 2004, 2003 and 2002 was $1,576,000, $1,546,000 and $699,000, respectively, including the minority interest in such taxes.
Income tax expense differed from an amount computed
by applying the statutory tax rates to pre-tax income as follows (in thousands):
|
|
|
|
2004
|
|
2003
|
|
2002
|
Income tax on
pre-tax income at the statutory
federal rate of 35% |
|
|
|
$ |
35,407 |
|
|
$ |
32,232 |
|
|
$ |
28,557 |
|
Increase
(decrease) attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and
other income taxes, net of federal
income tax benefit |
|
|
|
|
4,663 |
|
|
|
3,512 |
|
|
|
3,486 |
|
Employee
Stock Ownership Plan (ESOP) |
|
|
|
|
(1,404 |
) |
|
|
(1,065 |
) |
|
|
(843 |
) |
COLI |
|
|
|
|
(1,388 |
) |
|
|
(974 |
) |
|
|
(943 |
) |
Other items,
net |
|
|
|
|
(773 |
) |
|
|
(1,495 |
) |
|
|
(648 |
) |
Income tax
expense |
|
|
|
$ |
36,505 |
|
|
$ |
32,210 |
|
|
$ |
29,609 |
|
The tax effects of temporary differences giving rise
to the Company’s consolidated deferred tax assets and liabilities at October 3, 2004 and September 28, 2003 are as follows (in
thousands):
|
|
|
|
2004
|
|
2003
|
Deferred Tax
Assets (no valuation allowance considered necessary):
|
|
|
|
|
|
|
|
|
|
|
Employee
benefits |
|
|
|
$ |
20,868 |
|
|
$ |
20,501 |
|
Reserves not
currently deductible |
|
|
|
|
13,111 |
|
|
|
14,376 |
|
Vendor
allowances |
|
|
|
|
5,795 |
|
|
|
6,322 |
|
Rent
obligations |
|
|
|
|
12,198 |
|
|
|
9,502 |
|
Other |
|
|
|
|
3,456 |
|
|
|
2,614 |
|
Total
deferred tax assets |
|
|
|
$ |
55,428 |
|
|
$ |
53,315 |
|
|
Deferred Tax
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment |
|
|
|
$ |
(57,540 |
) |
|
$ |
(57,953 |
) |
Undistributed
earnings of foreign subsidiaries |
|
|
|
|
(3,915 |
) |
|
|
(4,859 |
) |
Other |
|
|
|
|
(5,753 |
) |
|
|
(7,534 |
) |
Total
deferred tax liabilities |
|
|
|
$ |
(67,208 |
) |
|
$ |
(70,346 |
) |
Undistributed earnings of the Company’s foreign
subsidiaries amount to approximately $23.2 million at October 3, 2004. Of those earnings, approximately $12.8 million are considered to be indefinitely
reinvested and accordingly, no provision for U.S. federal and state income taxes is required to be provided thereon. If those earnings were
distributed, the Company would be subject to U.S. federal taxes and withholding taxes payable to the various foreign countries of approximately $4.8
million (less any applicable U.S. foreign tax credits).
INDUSTRY SEGMENT INFORMATION
The Company operates primarily in two businesses:
industrial thread (textile primarily) — American & Efird, and retail grocery (including the real estate and store development activities of
the Company) — Harris Teeter. American & Efird primarily manufactures sewing thread for the apparel and other markets. Harris Teeter operates
a regional chain of supermarkets. The Company evaluates performance of its two businesses utilizing various measures which are based on operating
profit.
37
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
Summarized financial information for fiscal 2004,
2003 and 2002 is as follows (in millions):
|
|
|
|
Industrial
Thread
|
|
Retail
Grocery
|
|
Corporate(1)
|
|
Consolidated
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales |
|
|
|
$ |
296.2 |
|
|
$ |
2,572.4 |
|
|
|
|
|
|
$ |
2,868.6 |
|
Gross
Profit |
|
|
|
|
77.6 |
|
|
|
755.9 |
|
|
|
|
|
|
|
833.5 |
|
Operating
Profit (Loss) |
|
|
|
|
13.1 |
|
|
|
104.4 |
|
|
$ |
(5.1 |
) |
|
|
112.4 |
|
Assets
Employed at Year End |
|
|
|
|
265.1 |
|
|
|
697.5 |
|
|
|
149.4 |
|
|
|
1,112.0 |
|
Depreciation
and Amortization |
|
|
|
|
17.5 |
|
|
|
58.5 |
|
|
|
1.4 |
|
|
|
77.4 |
|
Capital
Expenditures |
|
|
|
|
8.1 |
|
|
|
83.9 |
|
|
|
0.1 |
|
|
|
92.1 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales |
|
|
|
$ |
293.1 |
|
|
$ |
2,431.6 |
|
|
|
|
|
|
$ |
2,724.7 |
|
Gross
Profit |
|
|
|
|
73.9 |
|
|
|
703.2 |
|
|
|
|
|
|
|
777.1 |
|
Operating
Profit (Loss) |
|
|
|
|
13.6 |
|
|
|
93.6 |
|
|
$ |
(5.1 |
) |
|
|
102.1 |
|
Assets
Employed at Year End |
|
|
|
|
259.1 |
|
|
|
660.1 |
|
|
|
148.0 |
|
|
|
1,067.2 |
|
Depreciation
and Amortization |
|
|
|
|
17.9 |
|
|
|
57.8 |
|
|
|
1.5 |
|
|
|
77.2 |
|
Capital
Expenditures |
|
|
|
|
9.2 |
|
|
|
64.4 |
|
|
|
— |
|
|
|
73.6 |
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales |
|
|
|
$ |
294.5 |
|
|
$ |
2,349.7 |
|
|
|
|
|
|
$ |
2,644.2 |
|
Gross
Profit |
|
|
|
|
77.1 |
|
|
|
677.7 |
|
|
|
|
|
|
|
754.8 |
|
Operating
Profit (Loss) |
|
|
|
|
12.5 |
|
|
|
88.8 |
|
|
$ |
(7.5 |
) |
|
|
93.8 |
|
Assets
Employed at Year End |
|
|
|
|
279.4 |
|
|
|
684.4 |
|
|
|
75.1 |
|
|
|
1,038.9 |
|
Depreciation
and Amortization |
|
|
|
|
19.4 |
|
|
|
55.0 |
|
|
|
1.4 |
|
|
|
75.8 |
|
Capital
Expenditures |
|
|
|
|
7.8 |
|
|
|
66.6 |
|
|
|
4.7 |
|
|
|
79.1 |
|
(1) |
|
Corporate Operating Profit (Loss) includes a portion of
compensation and benefits of holding company employees and certain other costs that are not related to the operating companies. Operating profit of the
operating companies include all direct expenses and the common expenses incurred by the holding company on behalf of its operating subsidiaries.
Corporate Assets Employed include property, equipment, cash and investment assets, and net cash surrender value of Company-owned life
insurance. |
Geographic information for the
Company’s fiscal years is based on the operating locations where the items were produced or distributed as follows (in
thousands):
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net Revenues
— Domestic United States |
|
|
|
$ |
2,711,164 |
|
|
$ |
2,572,987 |
|
|
$ |
2,506,805 |
|
Net Revenues
— Foreign |
|
|
|
|
157,433 |
|
|
|
151,752 |
|
|
|
137,393 |
|
|
|
|
|
$ |
2,868,597 |
|
|
$ |
2,724,739 |
|
|
$ |
2,644,198 |
|
|
Net
Long-Lived Assets — Domestic United States |
|
|
|
$ |
519,862 |
|
|
$ |
505,102 |
|
|
$ |
511,562 |
|
Net
Long-Lived Assets — Foreign |
|
|
|
|
31,252 |
|
|
|
32,924 |
|
|
|
30,836 |
|
|
|
|
|
$ |
551,114 |
|
|
$ |
538,026 |
|
|
$ |
542,398 |
|
38
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
EMPLOYEE BENEFIT PLANS
Substantially all domestic full-time employees of
the Company and its subsidiaries participate in non-contributory defined benefit pension plans. Employees in foreign subsidiaries participate to
varying degrees in local pension plans, which, in the aggregate, are not significant. The Company also has an unfunded, non-qualified supplemental
executive retirement plan for certain officers. Employee retirement benefits under the various plans are a function of both the years of service and
compensation for a specified period of time before retirement. The Company’s current funding policy for its qualified pension plans is to
contribute annually the amount required by regulatory authorities to meet minimum funding requirements and an amount to increase the funding ratios
over future years to a level determined by its actuaries to be effective in reducing the volatility of contributions.
The Company uses September 30th as the
measurement date for its Company-sponsored defined benefit pension plans.
The following table sets forth the change in benefit
obligation and plan assets, as well as the defined benefit plans’ funded status and amounts recognized in the Company’s consolidated balance
sheets at October 3, 2004 and September 28, 2003 for the pension plan and the supplemental retirement plan (in thousands):
|
|
|
|
Pension Plan
|
|
Supplemental Plan
|
|
|
|
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Change in
benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at the beginning of year |
|
|
|
$ |
220,078 |
|
|
$ |
189,649 |
|
|
$ |
23,402 |
|
|
$ |
19,747 |
|
Service
cost |
|
|
|
|
10,947 |
|
|
|
8,982 |
|
|
|
481 |
|
|
|
552 |
|
Interest
cost |
|
|
|
|
13,260 |
|
|
|
12,188 |
|
|
|
1,329 |
|
|
|
1,327 |
|
Plan
change |
|
|
|
|
— |
|
|
|
— |
|
|
|
258 |
|
|
|
— |
|
Actuarial
loss |
|
|
|
|
14,490 |
|
|
|
17,754 |
|
|
|
1,996 |
|
|
|
2,921 |
|
Benefits
paid |
|
|
|
|
(8,104 |
) |
|
|
(8,495 |
) |
|
|
(1,261 |
) |
|
|
(1,145 |
) |
Pension
benefit obligation at end of year |
|
|
|
|
250,671 |
|
|
|
220,078 |
|
|
|
26,205 |
|
|
|
23,402 |
|
Change in
plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
assets at the beginning of year |
|
|
|
|
148,949 |
|
|
|
120,631 |
|
|
|
— |
|
|
|
— |
|
Actual return
on plan assets |
|
|
|
|
12,838 |
|
|
|
15,857 |
|
|
|
— |
|
|
|
— |
|
Employer
contribution |
|
|
|
|
22,200 |
|
|
|
22,000 |
|
|
|
1,261 |
|
|
|
1,145 |
|
Benefits
paid |
|
|
|
|
(8,104 |
) |
|
|
(8,495 |
) |
|
|
(1,261 |
) |
|
|
(1,145 |
) |
Non-investment expenses |
|
|
|
|
(1,325 |
) |
|
|
(1,044 |
) |
|
|
— |
|
|
|
— |
|
Fair value of
assets at end of year |
|
|
|
|
174,558 |
|
|
|
148,949 |
|
|
|
— |
|
|
|
— |
|
Funded
status |
|
|
|
|
(76,113 |
) |
|
|
(71,129 |
) |
|
|
(26,205 |
) |
|
|
(23,402 |
) |
Unrecognized
net actuarial loss |
|
|
|
|
102,780 |
|
|
|
93,631 |
|
|
|
8,421 |
|
|
|
6,762 |
|
Unrecognized
prior service cost |
|
|
|
|
1,169 |
|
|
|
1,384 |
|
|
|
2,149 |
|
|
|
2,023 |
|
Prepaid
(accrued) benefit cost |
|
|
|
$ |
27,836 |
|
|
$ |
23,886 |
|
|
$ |
(15,635 |
) |
|
$ |
(14,617 |
) |
Amounts
recognized in the Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
benefit liability |
|
|
|
$ |
(40,924 |
) |
|
$ |
(42,170 |
) |
|
$ |
(19,104 |
) |
|
$ |
(18,571 |
) |
Intangible
pension asset |
|
|
|
|
1,169 |
|
|
|
1,384 |
|
|
|
2,149 |
|
|
|
2,023 |
|
Accumulated
other comprehensive income |
|
|
|
|
67,591 |
|
|
|
64,672 |
|
|
|
1,320 |
|
|
|
1,931 |
|
Net amount
recognized |
|
|
|
$ |
27,836 |
|
|
$ |
23,886 |
|
|
$ |
(15,635 |
) |
|
$ |
(14,617 |
) |
39
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
The Company’s pension plans had accumulated
benefit obligations in excess of the fair value of plan assets. Selected information concerning these plans is a follows (in
thousands):
|
|
|
|
Pension Plan
|
|
Supplemental Plan
|
|
|
|
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Projected
benefit obligation |
|
|
|
$ |
250,671 |
|
|
$ |
220,078 |
|
|
$ |
26,205 |
|
|
|
23,402 |
|
Accumulated
benefit obligation |
|
|
|
|
215,482 |
|
|
|
191,119 |
|
|
|
19,105 |
|
|
|
18,571 |
|
Fair value of
plan assets |
|
|
|
|
174,558 |
|
|
|
148,949 |
|
|
|
— |
|
|
|
— |
|
A minimum pension liability
adjustment is required when the accumulated benefit obligation exceeds the fair value of plan assets and accrued pension liabilities. This adjustment
also requires the elimination of any previously recorded pension assets. The minimum liability adjustment, less allowable intangible assets, net of tax
benefit, is reported as a component of other comprehensive income and included in the Statements of Consolidated Stockholders’ Equity and
Comprehensive Income.
Net periodic pension expense for defined benefit
plans for fiscal 2004, 2003 and 2002 included the following components (in thousands):
|
|
|
|
Pension Plan
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Service
cost |
|
|
|
$ |
10,947 |
|
|
$ |
8,982 |
|
|
$ |
6,787 |
|
Interest
cost |
|
|
|
|
13,260 |
|
|
|
12,188 |
|
|
|
11,323 |
|
Expected
return on plan assets |
|
|
|
|
(13,229 |
) |
|
|
(11,976 |
) |
|
|
(10,831 |
) |
Amortization
of prior service cost |
|
|
|
|
215 |
|
|
|
168 |
|
|
|
243 |
|
Recognized
net actuarial loss |
|
|
|
|
7,056 |
|
|
|
4,203 |
|
|
|
1,665 |
|
Net periodic
pension expense |
|
|
|
$ |
18,249 |
|
|
$ |
13,565 |
|
|
$ |
9,187 |
|
|
|
|
|
Supplemental Plan
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Service
cost |
|
|
|
$ |
481 |
|
|
$ |
552 |
|
|
$ |
367 |
|
Interest
cost |
|
|
|
|
1,329 |
|
|
|
1,327 |
|
|
|
1,378 |
|
Amortization
of prior service cost |
|
|
|
|
133 |
|
|
|
131 |
|
|
|
134 |
|
Recognized
net actuarial loss |
|
|
|
|
337 |
|
|
|
202 |
|
|
|
557 |
|
Net periodic
pension expense |
|
|
|
$ |
2,280 |
|
|
$ |
2,212 |
|
|
$ |
2,436 |
|
Net periodic pension expense for
defined benefit plans is determined using assumptions as of the beginning of each year. The projected benefit obligation and related funded status are
determined using assumptions as of the end of each year. The following table summarizes the assumptions utilized:
|
|
|
|
2004
|
|
2003
|
|
2002
|
Weighted
Average Discount Rate (both Plans) |
|
|
|
5.75% |
|
6.00% |
|
6.50% |
Rate of
Increase in Future Payroll Costs:
|
|
|
|
|
|
|
|
|
Pension
Plan |
|
|
|
3.5%–4.0% |
|
3.5%–4.0% |
|
3.5%–4.0% |
Supplemental
Plan |
|
|
|
6.0% |
|
6.0% |
|
6.0% |
Assumed
Long-Term Rate of Return on Assets
(Pension Plan only) |
|
|
|
8.25% |
|
8.25% |
|
8.25% |
Discount rates are based on the expected timing and
amounts of the expected employer paid benefits. Expected long-term return on plan assets is estimated by asset class and is generally based on
historical returns, volatilities and risk premiums. Based upon the plan’s asset allocation, composite return percentiles are developed upon which
the plan’s expected long-term is based.
40
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
The supplemental plan is unfunded, with benefit
payments being made from the Company’s general assets. Assets of the pension plan are invested in directed trusts. Assets in the directed trusts
as of the fiscal year end were invested as follows:
Asset Class
|
|
|
|
2004
|
|
2003
|
Fixed
income |
|
|
|
|
38.6 |
% |
|
|
46.0 |
% |
Large cap
domestic equities |
|
|
|
|
33.4 |
|
|
|
35.0 |
|
Small cap
domestic equities |
|
|
|
|
11.2 |
|
|
|
11.2 |
|
International
equities |
|
|
|
|
5.7 |
|
|
|
5.4 |
|
Tactical
asset allocation fund |
|
|
|
|
8.7 |
|
|
|
— |
|
Guaranteed
investment contracts |
|
|
|
|
0.8 |
|
|
|
0.9 |
|
Cash
equivalents |
|
|
|
|
1.6 |
|
|
|
1.5 |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
Investments in the pension trust are overseen by the
Retirement Plan Committee which is made up of officers of the company and directors. The plan assets are split into two segments: the Strategic
Allocation segment over which the Committee will retain responsibility for directing and monitoring asset allocation, and the Tactical Allocation
segment which will be directed by an appropriate advisor selected by the Committee. The Tactical Allocation assets are targeted at approximately 8% of
total plan assets.
The Company has developed an Investment Policy
Statement based on the need to satisfy the long-term liabilities of the Company’s pension plan. The Company seeks to maximize return with
reasonable and prudent levels of risk. Risk management is accomplished through diversification across asset classes, multiple investment manager
portfolios and both general and portfolio-specific investment guidelines. Asset guidelines for the Strategic Allocation segment (or approximately 92%
of the plan assets) are as follows:
Asset Class
|
|
|
|
Minimum
Exposure
|
|
Target
|
|
Maximum
Exposure
|
Investment
grade fixed income and cash equivalents |
|
|
|
|
40.0 |
% |
|
|
50.0 |
% |
|
|
60.0 |
% |
Domestic
equities: |
|
|
|
|
35.0 |
|
|
|
45.0 |
|
|
|
55.0 |
|
Large cap
value |
|
|
|
|
5.0 |
|
|
|
15.0 |
|
|
|
25.0 |
|
Large cap
growth |
|
|
|
|
3.0 |
|
|
|
8.0 |
|
|
|
18.0 |
|
Large cap
core |
|
|
|
|
6.0 |
|
|
|
12.0 |
|
|
|
18.0 |
|
Small cap
value |
|
|
|
|
0.0 |
|
|
|
5.0 |
|
|
|
10.0 |
|
Small cap
growth |
|
|
|
|
0.0 |
|
|
|
5.0 |
|
|
|
10.0 |
|
International
equities: |
|
|
|
|
0.0 |
|
|
|
5.0 |
|
|
|
10.0 |
|
International
growth |
|
|
|
|
0.0 |
|
|
|
2.5 |
|
|
|
5.0 |
|
International
value |
|
|
|
|
0.0 |
|
|
|
2.5 |
|
|
|
5.0 |
|
Managers are expected to generate a total return
consistent with their philosophy, offer protection in down markets and achieve a rate of return which ranks in the top 40% of a universe of similarly
managed portfolios and outperforms a target index, net of expenses, over rolling three year periods.
The Investment Policy Statement contains the
following guidelines:
— |
|
Categorical restrictions such as limiting the average weighted
duration of fixed income investments, limiting the aggregate amount of American Depository Receipts (ADRs), no direct foreign currency speculation,
limited foreign exchange contracts, and limiting the use of derivatives; |
— |
|
Portfolio restrictions that address such things as investment
restrictions, proxy voting, and brokerage arrangements; and |
— |
|
Asset class restrictions that address such things as single
security or sector concentration, capitalization limits and minimum quality standards. |
41
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
Since the Company’s supplemental plan is
unfunded, the contributions to this plan is equal to the benefit payments made during the year. The Company expects to contribute $20.0 million for the
pension plan and approximately $1.3 million for the supplemental plan during fiscal 2005.
The following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid by the Company’s defined benefit pension plans (in thousands):
|
|
|
|
Pension
Plan
|
|
Supplemental
Plan
|
2005 |
|
|
|
$ |
8,541 |
|
|
$ |
1,294 |
|
2006 |
|
|
|
|
9,112 |
|
|
|
1,339 |
|
2007 |
|
|
|
|
9,767 |
|
|
|
1,326 |
|
2008 |
|
|
|
|
10,534 |
|
|
|
1,310 |
|
2009 |
|
|
|
|
11,268 |
|
|
|
1,293 |
|
Years
2010–2014 |
|
|
|
|
73,151 |
|
|
|
7,293 |
|
The Company also has an Employee
Stock Ownership Plan (“ESOP”) for eligible employees. Under the ESOP the Company provides cash contributions, as determined by the Board of
Directors, to a trust for the purpose of purchasing shares of the Company’s common stock on the open market. Such contributions are based on the
Company’s net income for the fiscal year as a percentage of average shareholders’ equity. The total amount contributed is comprised of a base
contribution of 1.5% of participants’ eligible compensation and an additional contribution of up to 3.5% of eligible compensation. At October 3,
2004, approximately 17% of the Company’s common shares outstanding were owned by employees as participants in the ESOP.
The Company also sponsors the Ruddick Savings Plan
which is a defined contribution retirement plan that was authorized for the purpose of providing retirement benefits for employees of the Company. The
Ruddick Savings Plan is a salary deferral plan pursuant to Section 401(k) of the Internal Revenue Code. The Company provides a matching contribution
based on the amount of eligible compensation contributed by the associate.
The Company has certain deferred compensation
arrangements which allow, or allowed in prior years, its directors, officers and selected key management personnel to forego the receipt of earned
compensation for specified periods of time. These arrangements include (1) a directors’ compensation deferral plan, funded in a rabbi trust, the
benefit and payment under such plan being determined by the Company’s common stock, (2) a key management deferral plan, unfunded, the benefit
liability under such plan determined on the basis of the performance of selected market investment indices, and (3) other compensation deferral
arrangements, unfunded and only available to directors and select key management in prior years, the benefit liability for which is determined based on
fixed rates of interest.
The Company’s textile subsidiary maintains a
profit sharing plan for most of its domestic employees. American & Efird provides discretionary cash contributions, as determined by its management
and board based on annual profitability measures, to a trust for the benefit of the participants, who may elect to withdraw such benefit at any
time.
Expenses under the ESOP, as well as the profit
sharing, deferred compensation and other plans, were as follows (in thousands):
|
|
|
|
2004
|
|
2003
|
|
2002
|
ESOP |
|
|
|
$ |
8,717 |
|
|
$ |
7,371 |
|
|
$ |
8,059 |
|
Profit
sharing and other |
|
|
|
|
3,791 |
|
|
|
3,518 |
|
|
|
8,573 |
|
42
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
COMPUTATION OF EARNINGS PER SHARE (EPS)
The following table details the computation of EPS
for fiscal 2004, 2003 and 2002 (in thousands except per share data):
|
|
|
|
2004
|
|
2003
|
|
2002
|
Basic
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
$ |
64,659 |
|
|
$ |
59,882 |
|
|
$ |
51,983 |
|
Weighted
average common shares outstanding |
|
|
|
|
46,489 |
|
|
|
46,385 |
|
|
|
46,402 |
|
Basic
EPS |
|
|
|
$ |
1.39 |
|
|
$ |
1.29 |
|
|
$ |
1.12 |
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
$ |
64,659 |
|
|
$ |
59,882 |
|
|
$ |
51,983 |
|
Weighted
average common shares outstanding |
|
|
|
|
46,489 |
|
|
|
46,385 |
|
|
|
46,402 |
|
Potential
common share equivalents |
|
|
|
|
362 |
|
|
|
78 |
|
|
|
176 |
|
Weighted
average common shares outstanding |
|
|
|
|
46,851 |
|
|
|
46,463 |
|
|
|
46,578 |
|
Diluted
EPS |
|
|
|
$ |
1.38 |
|
|
$ |
1.29 |
|
|
$ |
1.12 |
|
|
Calculation
of potential common share equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to
purchase potential common shares |
|
|
|
|
2,007 |
|
|
|
805 |
|
|
|
1,118 |
|
Potential
common shares assumed purchased |
|
|
|
|
(1,645 |
) |
|
|
(727 |
) |
|
|
(942 |
) |
Potential
common share equivalents |
|
|
|
|
362 |
|
|
|
78 |
|
|
|
176 |
|
|
Calculation of potential common shares assumed purchased with potential proceeds:
|
Potential
proceeds from exercise of options to
purchase common shares |
|
|
|
$ |
31,482 |
|
|
$ |
10,585 |
|
|
$ |
15,329 |
|
Common stock
price used under the treasury
stock method |
|
|
|
$ |
19.14 |
|
|
$ |
14.55 |
|
|
$ |
16.27 |
|
Potential
common shares assumed purchased |
|
|
|
|
1,645 |
|
|
|
727 |
|
|
|
942 |
|
Outstanding options to purchase
shares excluded from potential common share equivalents (option price exceeded the average market price during the period) amounted to 512,000 shares,
1,511,000 shares and 1,008,000 shares for the years ended October 3, 2004, September 28, 2003 and September 29, 2002, respectively.
COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits and
environmental and patent matters arising in the normal course of business. Management believes that such matters will not have a material effect on the
financial condition or results of operations of the Company.
See “Leases” above in this Item 8 for
additional commitments and contingencies.
43
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (continued)
QUARTERLY INFORMATION (UNAUDITED)
The Company’s stock is listed and traded on the
New York Stock Exchange. The following table sets forth certain financial information, the high and low sales prices and dividends declared for the
common stock for the periods indicated (in millions, except per share data):
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2004
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales |
|
|
|
$ |
692.4 |
|
|
$ |
700.8 |
|
|
$ |
702.7 |
|
|
$ |
772.7 |
|
Gross
Profit |
|
|
|
|
196.0 |
|
|
|
207.3 |
|
|
|
206.1 |
|
|
|
224.1 |
|
Net
Income(1) |
|
|
|
|
13.8 |
|
|
|
15.9 |
|
|
|
17.0 |
|
|
|
17.9 |
|
Net Income
Per Share |
|
|
|
|
0.30 |
|
|
|
0.34 |
|
|
|
0.36 |
|
|
|
0.38 |
|
Dividend Per
Share |
|
|
|
|
0.10 |
|
|
|
0.10 |
|
|
|
0.10 |
|
|
|
0.10 |
|
Market Price
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
17.99 |
|
|
|
20.48 |
|
|
|
22.27 |
|
|
|
22.45 |
|
Low |
|
|
|
|
15.50 |
|
|
|
17.66 |
|
|
|
19.52 |
|
|
|
18.56 |
|
|
2003
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales |
|
|
|
$ |
678.4 |
|
|
$ |
685.2 |
|
|
$ |
685.0 |
|
|
$ |
676.1 |
|
Gross
Profit |
|
|
|
|
191.8 |
|
|
|
196.1 |
|
|
|
194.0 |
|
|
|
195.2 |
|
Net
Income(2) |
|
|
|
|
13.0 |
|
|
|
14.4 |
|
|
|
16.1 |
|
|
|
16.4 |
|
Net Income
Per Share(2) |
|
|
|
|
0.28 |
|
|
|
0.31 |
|
|
|
0.35 |
|
|
|
0.35 |
|
Dividend Per
Share |
|
|
|
|
0.09 |
|
|
|
0.09 |
|
|
|
0.09 |
|
|
|
0.09 |
|
Market Price
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
16.06 |
|
|
|
14.30 |
|
|
|
16.00 |
|
|
|
17.22 |
|
Low |
|
|
|
|
13.40 |
|
|
|
11.95 |
|
|
|
12.30 |
|
|
|
15.49 |
|
(1) |
|
Includes the effects of pre-tax exit and impairment costs
totaling $384,000 ($238,000 after tax benefits) in the first quarter of 2004 as more fully described in the note “Impairment and Exit
Costs.” |
(2) |
|
Includes the effects of pre-tax exit and impairment costs
totaling $580,000 ($360,000 after tax benefits, or $0.01 per diluted share) in the fourth quarter of 2003, as more fully described in the note
“Impairment and Exit Costs.” |
44
| Item 9. |
|
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure |
None
| Item 9A. |
|
Controls and Procedures |
(a) |
|
Evaluation of disclosure controls and procedures. As
of October 3, 2004, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13(a)-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and
with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation,
the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission rules and forms. |
(b) |
|
Changes in internal control over financial
reporting. During the Company’s fourth fiscal quarter of 2004, there has been no change in the Company’s internal controls
over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal controls over financial reporting. |
| Item 9B. |
|
Other Information |
None
45
PART III
| Item 10. |
|
Directors and Executive Officers of the
Registrant |
For information regarding executive officers, refer
to “Executive Officers of the Registrant” in Item 4A hereof. Other information required by this item is incorporated herein by reference to
the sections entitled “Election of Directors,” “Corporate Governance Matters” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission with respect to the
Registrant’s 2005 Annual Meeting of Shareholders (the “2005 Proxy Statement”).
Code of Ethics and Code of Business Conduct and Ethics
The Company has adopted a written Code of Ethics
(the “Code of Ethics”) that applies to our President and Chief Executive Officer, Vice President-Finance and Chief Financial Officer and our
Vice President and Treasurer. The Company has also adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all
employees, officers and directors of the Company as well as any subsidiary company officers that are executive officers of the Company. Each of our
operating subsidiaries maintains a code of ethics tailored to their businesses. The Code of Ethics and Code of Conduct are available on the
Company’s website, www.ruddickcorp.com, under the “Corporate Governance” caption, and print copies are available to any
shareholder that requests a copy. Any amendments to the Code of Ethics or Code of Conduct, or any waivers of the Code of Ethics, or any waiver of the
Code of Conduct for directors or executive officers, will be disclosed on the Company’s website promptly following the date of such amendment or
waiver. Information on the Company’s website, however, does not form a part of this Form 10-K.
Corporate Governance Guidelines and Committee Charters
In furtherance of its longstanding goal of providing
effective governance of the Company’s business and affairs for the benefit of shareholders, the Board of Directors of the Company has approved
Corporate Governance Guidelines. The Guidelines contain general principles regarding the functions of the Company’s Board of Directors. The
Guidelines are available on the Company’s website referenced above and print copies are available to any shareholder that requests a copy. In
addition, committee charters for the Company’s Audit Committee, Compensation and Special Stock Option Committee and Corporate Governance and
Nominating Committee are also included on the Company’s website.
| Item 11. |
|
Executive Compensation |
The information required by this item is
incorporated herein by reference to the sections entitled “Election of Directors — Directors’ Fees and Attendance” and
“Executive Compensation” in the Registrant’s 2005 Proxy Statement.
46
| Item 12. |
|
Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters |
Equity Compensation Plan Information
The following table provides information as of
October 3, 2004 regarding the number of shares of Common Stock that may be issued under the Company’s equity compensation plans.
Plan category (1)
|
|
|
|
Number of securities to be
issued upon exercise of
outstanding
options,
warrants and rights
(a)
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
|
Number of securities
remaining available for
future issuance
under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
|
Equity
compensation
plans approved by
security holders |
|
|
|
|
2,328,763 |
|
|
$ |
16.23 |
|
|
|
1,994,750 |
|
Equity
compensation
plans not approved by
security holders |
|
|
|
|
–0– |
|
|
|
–0– |
|
|
|
–0– |
|
Total |
|
|
|
|
2,328,763 |
|
|
$ |
16.23 |
|
|
|
1,994,750 |
|
(1) |
|
The table does not include information regarding the Ruddick
Corporation Director Deferral Plan, which permits the deferral of the payment of the annual fee and the regular board meeting fees. The deferred fees are
converted into a number of shares of common stock with a fair market value equal to the value of the retainer or fees deferred, and such number of
shares are then credited to the director’s account (along with the amount of any dividends or stock distributions) in the form of phantom stock
units. At the time a participant in the plan ceases to be a director, shares of common stock or cash, in the discretion of the Compensation Committee,
will be distributed to the participant or a designated beneficiary. On October 3, 2004, there were 62,831 phantom stock units allocated pursuant to
this plan. |
Additional information required by this item is
incorporated herein by reference to the sections entitled “Principal Shareholders” and “Election of Directors-Beneficial Ownership of
Company Stock” in the Registrant’s 2005 Proxy Statement.
| Item 13. |
|
Certain Relationships and Related
Transactions |
The information required by this item is
incorporated herein by reference to the section entitled “Certain Relationships and Related Transactions” in the Registrant’s 2005 Proxy
Statement.
| Item 14. |
|
Principal Accountant Fees and Services |
The information required by this item is
incorporated herein by reference to the section entitled “Selection of Independent Public Accountants” in the Registrant’s 2005 Proxy
Statement.
47
PART IV
| Item 15. |
|
Exhibits and Financial Statement
Schedule |
| (a) |
|
The following documents are filed as part of this
report: |
(1) |
|
|
|
Financial Statements: |
|
|
Page |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
21 |
|
|
|
|
|
Consolidated Balance Sheets, October 3, 2004 and September 28, 2003 |
|
|
22 |
|
|
|
|
|
Statements of Consolidated Income for the fiscal years ended October 3, 2004, September 28, 2003, and September 29, 2002 |
|
|
23 |
|
|
|
|
|
Statements of Consolidated Stockholders’ Equity and Comprehensive Income for the fiscal years ended October 3, 2004, September 28, 2003,
and September 29, 2002 |
|
|
24 |
|
|
|
|
|
Statements of Consolidated Cash Flows for the fiscal years ended October 3, 2004, September 28, 2003, and September 29, 2002 |
|
|
25 |
|
|
|
|
|
Notes
to Consolidated Financial Statements |
|
|
26 |
|
(2) |
|
|
|
Financial Statement Schedules: The following report and financial statement schedules are filed herewith: |
|
|
|
|
|
|
|
|
Schedule I — Valuation and Qualifying Accounts and Reserves |
|
|
S-1 |
|
|
|
|
|
All
other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or
related notes thereto. |
|
|
|
|
(3) |
|
|
|
Index to Exhibits: The following exhibits are filed with this report or, as noted, incorporated by reference herein. |
|
|
|
|
Exhibit
Number |
|
|
|
Description of Exhibits |
3.1* |
|
|
|
Restated Articles of Incorporation of the Company, dated December 14, 2000, incorporated herein by reference to Exhibit 3.1 of the
registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2000 (Commission File No. 1-6905). |
3.2* |
|
|
|
Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.2 of the registrant’s Quarterly Report on Form
10-Q for the quarterly period ended December 29, 2002 (Commission File No. 1-6905). |
4.1* |
|
|
|
Credit Agreement for up to an aggregate of $100,000,000 entered into as of May 14, 2002, by and between the Company and each of Branch Banking
and Trust Company and RBC Centura Bank as lenders and Wachovia Bank, National Association as lender and administrative agent, incorporated herein by
reference to Exhibit 4.1 of the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002 (Commission File No.
1-6905). |
4.2* |
|
|
|
$50,000,000 6.48% Series A Senior Notes due March 1, 2011 and $50,000,000 Private Shelf Facility dated March 1, 1996 between Ruddick
Corporation and The Prudential Insurance Company of America, incorporated herein by reference to Exhibit 4.1 of the registrant’s Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1996 (Commission File No. 1-6905). |
48
Exhibit
Number |
|
|
|
Description of Exhibits |
4.3* |
|
|
|
$50,000,000 7.55% Senior Series B Notes due July 15, 2017 and $50,000,000 7.72% Series B Senior Notes due April 15, 2017 under the Note
Purchase and Private Shelf Agreement dated April 15, 1997 between Ruddick Corporation and The Prudential Insurance Company of America, incorporated
herein by reference to Exhibit 4.3 of the registrant’s Annual Report on Form 10-K for the fiscal year period ended September 28, 1997 (Commission
File No. 1-6905).
The Company has other long-term debt but has not filed the instruments evidencing such debt as part of Exhibit 4 as none of such
instruments authorize the issuance of debt exceeding 10 percent of the total consolidated assets of the Company. The Company agrees to furnish a copy
of each such agreement to the Commission upon request. |
10.1* |
|
|
|
Description of Incentive Compensation Plans, incorporated herein by reference to Exhibit 10.1 of the registrant’s Annual Report on Form
10-K for the fiscal year ended September 29, 1996 (Commission No. 1-6905).** |
10.2* |
|
|
|
Supplemental Executive Retirement Plan of Ruddick Corporation, as amended and restated, incorporated herein by reference to Exhibit 10.3 of
the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1990 (Commission File No. 1-6905).** |
10.3* |
|
|
|
Resolutions adopted by the Board of Directors of the Company and the Plan’s Administrative Committee with respect to benefits payable
under the Company’s Supplemental Executive Retirement Plan to Alan T. Dickson and R. Stuart Dickson, incorporated herein by reference to Exhibit
10.3 of the registrant’s Annual Report on Form 10-K for the fiscal year ended September 29, 1991 (Commission File No. 1-6905).** |
10.4* |
|
|
|
Deferred Compensation Plan for Key Employees of Ruddick Corporation and subsidiaries, as amended and restated, incorporated herein by
reference to Exhibit 10.5 of the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1990 (Commission File No.
1-6905).** |
10.5* |
|
|
|
1988
Incentive Stock Option Plan, incorporated herein by reference to Exhibit 10.6 of the registrant’s Annual Report on Form 10-K for the fiscal year
ended October 2, 1994 (Commission File No.1-6905).** |
10.6* |
|
|
|
1993
Incentive Stock Option and Stock Appreciation Rights Plan, incorporated herein by reference to Exhibit 10.7 of the registrant’s Annual Report on
Form 10-K for the fiscal year ended October 3, 1993 (Commission File No. 1-6905).** |
10.7* |
|
|
|
Description of the Ruddick Corporation Long Term Key Management Incentive Program, incorporated herein by reference to Exhibit 10.7 of the
registrant’s Annual Report on Form 10-K for the fiscal year ended September 29, 1991 (Commission File No. 1-6905).** |
10.8* |
|
|
|
Ruddick Corporation Irrevocable Trust for the Benefit of Participants in the Long Term Key Management Incentive Program, incorporated herein
by reference to Exhibit 10.9 of the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1990 (Commission File No.
1-6905).** |
10.9* |
|
|
|
Rights Agreement dated November 16, 2000 by and between the Company and First Union National Bank, incorporated herein by reference to Exhibit
10.9 of the registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 2000 (Commission File No. 1-6905). |
10.10* |
|
|
|
Ruddick Corporation Senior Officers Insurance Program Plan Document and Summary Plan Description, incorporated herein by reference to Exhibit
10.10 of the registrant’s Annual Report on Form 10-K for the fiscal year ended September 27, 1992 (Commission File No.
1-6905).** |
10.11* |
|
|
|
Ruddick Corporation Nonstatutory Stock Option Agreement Between the Company and Edwin B. Borden, Jr., incorporated herein by reference to
Exhibit 10.2 of the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996 (Commission File No.
1-6905).** |
49
Exhibit
Number |
|
|
|
Description of Exhibits |
10.12* |
|
|
|
Ruddick Corporation Nonstatutory Stock Option Agreement Between the Company and Roddey Dowd, Sr., incorporated herein by reference to Exhibit
10.4 of the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996 (Commission File No.
1-6905).** |
10.13* |
|
|
|
Ruddick Corporation Nonstatutory Stock Option Agreement Between the Company and James E.S. Hynes, incorporated herein by reference to Exhibit
10.5 of the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996 (Commission File No.
1-6905).** |
10.14* |
|
|
|
Ruddick Corporation 1995 Comprehensive Stock Option Plan (the “1995 Plan”), incorporated herein by reference to Exhibit 10.1 of the
registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-6905).** |
10.15* |
|
|
|
Ruddick Corporation 1997 Comprehensive Stock Option and Award Plan (the “1997 Plan”), incorporated herein by reference to Exhibit
10.1 of the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 28, 1997 (Commission File No.
1-6905).** |
10.16* |
|
|
|
Ruddick Corporation Director Deferred Plan, incorporated herein by reference to Exhibit 10.2 of the registrant’s Quarterly Report on Form
10-Q for the quarterly period ended March 29, 1998 (Commission File No. 1-6905).** |
10.17* |
|
|
|
Ruddick Corporation Senior Officers Insurance Program, incorporated herein by reference to Exhibit 10.3 of the registrant’s Quarterly
Report on Form 10-Q for the quarterly period ended March 29, 1998 (Commission File No. 1-6905).** |
10.18* |
|
|
|
Ruddick Corporation 2000 Comprehensive Stock Option and Award Plan (the “2000 Plan”), incorporated herein by reference to Exhibit
10.1 of the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2001 (Commission File No.
1-6905).** |
10.19* |
|
|
|
Description of retirement arrangement between the Company and each of Alan T. Dickson and R. Stuart Dickson effective May 1, 2002,
incorporated herein by reference to Exhibit 10.1 of the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002
(Commission File No. 1-6905)** |
10.20* |
|
|
|
Ruddick Corporation Flexible Deferral Plan, incorporated herein by reference to Exhibit 10.22 of the registrant’s Annual Report on Form
10-K for the fiscal year ended September 29, 2002 (Commission File No. 1-6905).** |
10.21* |
|
|
|
Ruddick Corporation 2002 Comprehensive Stock Option and Award Plan (the “2002 Plan”), incorporated herein by reference to Exhibit
10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2003 (Commission File No.
1-6905)** |
10.22* |
|
|
|
Form
of Ruddick Corporation Non-Employee Director Nonqualified Stock Option Agreement for use in connection with the 1995 Plan, 1997 Plan, 2000 Plan and
2002 Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 17, 2004 (Commission File
No. 1-6905).** |
10.23* |
|
|
|
Form
of Ruddick Corporation Incentive Stock Option Award Agreement for use in connection with the 1995 Plan, 1997 Plan, 2000 Plan and 2002 Plan,
incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 17, 2004 (Commission File No.
1-6905).** |
10.24* |
|
|
|
Form
of Ruddick Corporation Nonqualified Stock Option Agreement for use in connection with the 1995 Plan, 1997 Plan, 2000 Plan and 2002 Plan, incorporated
herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated November 17, 2004 (Commission File No.
1-6905).** |
10.25* |
|
|
|
Form
of Ruddick Corporation Restricted Stock Award Agreement for use in connection with the 1997 Plan, 2000 Plan and 2002 Plan, incorporated herein by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated November 17, 2004 (Commission File No. 1-6905).** |
10.26+ |
|
|
|
Summary of Executive Bonus Insurance Plan.** |
50
Exhibit
Number |
|
|
|
Description of Exhibits |
10.27+ |
|
|
|
Summary of Non-Employee Director Compensation.** |
21+ |
|
|
|
List
of Subsidiaries of the Company. |
23+ |
|
|
|
Consent of Independent Registered Public Accounting Firm. |
31.1+ |
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2+ |
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1+ |
|
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
32.2+ |
|
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
* |
|
Incorporated by reference. |
** |
|
Indicates management contract or compensatory plan required to
be filed as an Exhibit. |
+ |
|
Indicates exhibits filed herewith and follow the signature
pages. |
(b) |
|
Exhibits
See (a) (3) above. |
(c) |
|
Financial Statement Schedules
See (a) (2) above. |
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
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.
|
|
|
|
RUDDICK CORPORATION
(Registrant)
|
Dated: November
30, 2004 |
|
|
|
By:
/s/ THOMAS W. DICKSON
Thomas W. Dickson,
President and Chief Executive Officer |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated:
| Name |
|
|
|
Title
|
|
Date
|
/s/ THOMAS W.
DICKSON
Thomas W. Dickson
|
|
|
|
President and Chief Executive Officer
and Director (Principal Executive Officer) |
|
November 30, 2004 |
/s/ JOHN B.
WOODLIEF
John B. Woodlief
|
|
|
|
Vice President — Finance and Chief
Financial Officer (Principal Financial Officer) |
|
November 30, 2004 |
s/ RONALD H.
VOLGER
Ronald H. Volger
|
|
|
|
Vice President and Treasurer
(Principal Accounting Officer) |
|
November 30, 2004 |
/s/ JOHN R.
BELK
John R. Belk
|
|
|
|
Director |
|
November 30, 2004 |
/s/ EDWIN B.
BORDEN, JR.
Edwin B. Borden, Jr.
|
|
|
|
Director |
|
November 30, 2004 |
/s/ JOHN P.
DERHAM CATO
John P. Derham Cato
|
|
|
|
Director |
|
November 30, 2004 |
/s/ ALAN T.
DICKSON
Alan T. Dickson
|
|
|
|
Chairman of the Board
and Director |
|
November 30, 2004 |
/s/ R. STUART
DICKSON
R. Stuart Dickson
|
|
|
|
Chairman of the Executive
Committee and Director |
|
November 30, 2004 |
/s/ JAMES E.
S. HYNES
James E. S. Hynes
|
|
|
|
Director |
|
November 30, 2004 |
/s/ ANNA S.
NELSON
Anna S. Nelson
|
|
|
|
Director |
|
November 30, 2004 |
/s/ BAILEY W.
PATRICK
Bailey W. Patrick
|
|
|
|
Director |
|
November 30, 2004 |
/s/ ROBERT H.
SPILMAN, JR.
Robert H. Spilman, Jr.
|
|
|
|
Director |
|
November 30, 2004 |
/s/ HAROLD C.
STOWE
Harold C. Stowe
|
|
|
|
Director |
|
November 30, 2004 |
/s/ ISAIAH
TIDWELL
Isaiah Tidwell |
|
|
|
Director |
|
November 30, 2004 |
52
SCHEDULE I
RUDDICK CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
For the Fiscal Years Ended
September 29, 2002, September 28, 2003
and October 3, 2004 (in thousands)
COLUMN A
|
|
|
|
COLUMN B
|
|
COLUMN C
|
|
COLUMN D
|
|
COLUMN E
|
DESCRIPTION
|
|
|
|
BALANCE AT
BEGINNING OF
FISCAL YEAR
|
|
ADDITIONS
CHARGED TO
COSTS AND
EXPENSES
|
|
DEDUCTIONS
|
|
BALANCE
AT END
OF PERIOD
|
Fiscal Year
Ended September 29, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
deducted from assets
to which they apply —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance For
Doubtful Accounts |
|
|
|
$ |
2,933 |
|
|
$ |
1,263 |
|
|
$ |
710 |
* |
|
$ |
3,486 |
|
Reserves For
Exit Costs |
|
|
|
$ |
6,532 |
|
|
$ |
(710 |
) |
|
$ |
5,010 |
|
|
$ |
812 |
|
|
Fiscal Year
Ended September 28, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
deducted from assets to
which they apply —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance For
Doubtful Accounts |
|
|
|
$ |
3,486 |
|
|
$ |
1,436 |
|
|
$ |
960 |
* |
|
$ |
3,962 |
|
Reserves For
Exit Costs |
|
|
|
$ |
812 |
|
|
|
— |
|
|
$ |
444 |
|
|
$ |
368 |
|
|
Fiscal Year
Ended October 3, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
deducted from assets
to which they apply —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance For
Doubtful Accounts |
|
|
|
$ |
3,962 |
|
|
$ |
953 |
|
|
$ |
1,745 |
* |
|
$ |
3,170 |
|
Reserves For
Exit Costs |
|
|
|
$ |
368 |
|
|
|
— |
|
|
$ |
230 |
|
|
$ |
138 |
|
* |
|
Represents accounts receivable balances written off as
uncollectible, less recoveries. |
S-1