Harris Teeter 2007 Annual Report Download

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RUDDICK CORPORATION
2007 Annual Report

Table of contents

  • Page 1
    R U D D I C K C O R P O R AT I O N 2007 Annual Report

  • Page 2
    ... of Capital Employed Number of Employees Common Shares Outstanding 1 Operating Profit, Net Income, Net Income Per Share - Diluted and related returns include the following exit and impairment charges and tax settlement, which have been previously disclosed in the Company's annual reports on Form...

  • Page 3
    ...Identification Number) 301 S. Tryon St., Suite 1800, Charlotte, North Carolina (Address of principal executive offices) Registrant's telephone number, including area code: (704) 372-5404 Securities registered pursuant to Section 12(b) of the Act: 28202 (Zip Code) Title of each class: Common Stock...

  • Page 4
    ... ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services ...58 58 58 59 59 Market for Registrant's Common Equity...

  • Page 5
    ... policies and reports to management of the Company. Harris Teeter As of September 30, 2007, Harris Teeter operated 164 supermarkets located in North Carolina (123), Virginia (26), South Carolina (9), Tennessee (3), Georgia (1), Florida (1) and Maryland (1). These supermarkets offer a full assortment...

  • Page 6
    ... 2007. Retail supermarket operations are supported by two companyowned distribution centers and one company-owned dairy production facility. Other than milk and ice cream produced by the company-owned facility, Harris Teeter purchases most of the products it sells, including its private label brands...

  • Page 7
    ... 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...

  • Page 8
    .... Risks Related to Harris Teeter The Supermarket Industry is Highly Competitive The supermarket industry is characterized by narrow profit margins and competes on price, location and service. Harris Teeter faces increased competitive pressure in all of its markets from existing competitors and from...

  • Page 9
    ... Teeter's expansion and renovation plans are unsuccessful, it could adversely affect Harris Teeter's cash flow, business and financial condition due to the significant amount of capital and management resources invested. Food Safety Issues Could Result in a Loss of Consumer Confidence and Product...

  • Page 10
    ... cost increases that A&E is not able to fully pass on to customers or the loss of a large number of customers to competitors as a result of price increases could have a material adverse effect on its business, financial condition, results of operations or cash flows. Other Risks Our Self-Insurance...

  • Page 11
    ... Unresolved Staff Comments 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...

  • Page 12
    ...- 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...

  • Page 13
    ... 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 2007 and 2006 is set forth below. The Common Stock is listed on the New York Stock...

  • Page 14
    ... Financial Statements in Item 8 hereof. (2) The weighted average exercise price does not take into account performance share awards or restricted stock units outstanding as of September 30, 2007. Comparison of Total Cumulative Shareholder Return for Five-Year Period Ending September 30, 2007...

  • Page 15
    ... stock purchase plan has no set expiration or termination date. Selected Financial Data (dollars in thousands, except per share data) 2007 2006 2005 2004 2003 Item 6. Net sales ...Operating profit ...Net income ...Net income per share Basic ...Diluted ...Dividend per share ...Total assets ...Long...

  • Page 16
    ..." and "club and warehouse store," specialty supermarkets 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 utilizes information gathered from various...

  • Page 17
    ...timing of the payments under the related leases. The revised lease accounting policy did not have a material effect on diluted earnings per share. Prior years' financial statements were not restated since the impact of this issue was immaterial to the Company's previously reported financial position...

  • Page 18
    ... income of $2.2 million for life insurance proceeds and a pre-tax charge of $1.5 million related to new Supplemental Executive Retirement Plans. Refer to the discussion of segment operations under the caption "Harris Teeter, Retail Grocery Segment" and "American & Efird, Industrial Thread Segment...

  • Page 19
    ... a result of changes in Harris Teeter's market mix and effective retail pricing and targeted promotional spending programs. Harris Teeter has also realized benefits from the continued emphasis the company places on distribution and store level productivity efforts, private label branding, assortment...

  • Page 20
    ... lease accounting correction that related to rent holidays. The improvements in operating profit as a percent to sales in each of fiscal 2007 and fiscal 2006 resulted from the sales and cost elements described above. The company continues to concentrate on its core markets, which management believes...

  • Page 21
    ... will dictate the pace at which Harris Teeter's margins could improve. Also, pre-opening and incremental start-up costs associated with the record number of new stores opened in fiscal 2007 and planned for fiscal 2008 could prove challenging. Promotional costs to drive sales in the presently intense...

  • Page 22
    ... Harris Teeter anticipates that its capital for new store growth and store remodels will be applied in its existing markets in fiscal 2008 as well as the foreseeable future. A&E expects to target further expansion of global operations. Such capital investment is expected to be financed by internally...

  • Page 23
    ... 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. (3) In connection with the closing of certain store locations, Harris Teeter...

  • Page 24
    ... 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...

  • Page 25
    ... 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...

  • Page 26
    ... a discount rate representing a return on high-quality fixed income securities with an average maturity equal to the average payout of the related liability. Harris Teeter liabilities represent approximately 94% of the total Company self-insurance reserves for workers compensation, general liability...

  • Page 27
    ... the non-qualified supplemental retirement benefit plans are unfunded, defined benefit plans. The Company's current funding policy for its qualified pension plan is to contribute annually the amount required by regulatory authorities to meet minimum funding requirements and an amount to increase...

  • Page 28
    ...-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...

  • Page 29
    ... rates fall, and the fair value will decrease as interest rates rise. As of September 30, 2007, the Company had no significant foreign exchange exposure and no significant outstanding derivative transactions. The table below presents principal cash flows and related weighted average interest rates...

  • Page 30
    ... RUDDICK CORPORATION AND CONSOLIDATED SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Page Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets, September 30, 2007 and October 1, 2006 ...Statements of Consolidated Income for the fiscal years...

  • Page 31
    ... internal control over financial reporting. As discussed in the Summary of Significant Accounting Policies, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" effective October 3, 2005, and Financial Accounting Standards Board Staff Position...

  • Page 32
    ... Corporation: We have audited management's assessment, included in the accompanying Management's Annual Report on Internal Controls over Financial Reporting that Ruddick Corporation and subsidiaries (the Company) maintained effective internal control over financial reporting as of September 30, 2007...

  • Page 33
    ... ...Total Current Liabilities ...Long-Term Debt and Capital Lease Obligations ...Deferred Income Taxes ...Pension Liabilities ...Other Long-Term Liabilities ...Minority Interest ...Commitments and Contingencies ...Shareholders' Equity Common Stock, no par value - Shares Outstanding: 2007 - 48...

  • Page 34
    ... INCOME RUDDICK CORPORATION AND SUBSIDIARIES (dollars in thousands, except per share data) 52 Weeks Ended September 30, 2007 52 Weeks Ended October 1, 2006 52 Weeks Ended October 2, 2005 Net Sales ...Cost of Sales ...Selling, General and Administrative Expenses ...Operating Profit ...Interest...

  • Page 35
    ... SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME RUDDICK CORPORATION AND SUBSIDIARIES (dollars in thousands, except share and per share amounts) Common Stock Shares (No Par Value) Accumulated Other Total Comprehensive Shareholders' Comprehensive Income (Loss) Income Equity Common Stock Retained...

  • Page 36
    ...Long-Term Borrowings ...319 Payments on Long-Term Debt and Capital Leases ...(8,387) Dividends Paid ...(21,118) Proceeds from Stock Issued ...5,711 Share-Based Compensation Tax Benefits ...1,820 Purchase and Retirement of Common Stock ...- Other, Net ...(210) Net Cash (Used in) Provided by Financing...

  • Page 37
    ... gross margins are calculated by applying a calculated cost-to-retail ratio to the retail value of inventories. LIFO indices are developed approximately one month prior to year end except for inventory held at Harris Teeter's distribution facilities which are developed at year end. The annual LIFO...

  • Page 38
    ... are generally intended to defray the costs of 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...

  • Page 39
    ... 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's Harris Teeter subsidiary invests in certain real estate development projects, with a managing partner or partners...

  • Page 40
    ... liability losses at Harris Teeter based upon a projection of the ultimate cost for claims incurred. The estimated total expected costs of claims includes an estimate for claims incurred but not reported (IBNR) and is discounted to present values using a discount rate representing a return on high...

  • Page 41
    ... 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...

  • Page 42
    ...resulting from the operation of the Company's comprehensive stock option and awards plans. Stock Options and Stock Awards The Company adopted SFAS 123R as of the beginning of the first quarter of fiscal 2006 utilizing the modified prospective method which requires fair-value accounting for all share...

  • Page 43
    ... raw materials and supplies were $24,783,000 ($23,768,000). 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...

  • Page 44
    ...was as follows (in thousands): 2007 2006 Non-Amortizing Intangible Assets - Pension related intangible assets: Harris Teeter ...American & Efird ...Corporate ...Total non-amortizing intangibles ...Amortizing Intangible Assets: Acquired favorable operating leases ...Customer lists ...Land use rights...

  • Page 45
    ...105 106,462 (67,135) $ 39,327 $ 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 14 years and the future minimum lease payments totaling $66,946,000 over this period have been assumed by...

  • Page 46
    ... a result of the operation of the Company's comprehensive stock option and awards plans. During fiscal 2006, the Company purchased and retired 395,000 shares at a total cost of $7,899,000, or an average price of $20.00 per share pursuant to this plan. There were no stock purchases during fiscal 2007...

  • Page 47
    ... 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...

  • Page 48
    ... - as reported ...- pro forma ... $68,598 (647) $67,951 $ 1.45 1.44 1.44 1.42 A summary of the status of the Company's stock option plans as of September 30, 2007, October 1, 2006, and October 2, 2005, changes during the years ending on those dates and related weighted average exercise price is...

  • Page 49
    ... Company has historically issued new shares to satisfy the stock option exercises. The following table summarizes options outstanding and options exercisable as of September 30, 2007, and the related weighted average remaining contractual life (years) and weighted average exercise price (shares in...

  • Page 50
    ...): 2007 2006 Deferred Tax Assets: Employee benefits ...Reserves not currently deductible ...Vendor allowances ...Rent obligations ...Other ...Total deferred tax assets ...Deferred Tax Liabilities: Property, plant and equipment ...Undistributed earnings on foreign subsidiaries ...Inventories...

  • Page 51
    RUDDICK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Dividends of $6.4 million were distributed during fiscal 2005 to take advantage of the temporary tax benefit of a dividend received deduction on the repatriation of cash dividends from foreign subsidiaries ...

  • Page 52
    RUDDICK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) INDUSTRY SEGMENT INFORMATION The Company operates primarily in two businesses: retail grocery (including the real estate and store development activities of the Company) - Harris Teeter and industrial ...

  • Page 53
    ... 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 plan is...

  • Page 54
    ... of year ...Service cost ...Interest cost ...Plan change ...Actuarial (Gain) loss ...Curtailment (gain)/loss ...Special Termination Benefits ...Benefits paid ...Pension benefit obligation at end of year ...Change in plan assets: Fair value of assets at the beginning of year ...Actual return on plan...

  • Page 55
    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 2007 2006 ...

  • Page 56
    ... FINANCIAL STATEMENTS - (continued) Discount rates are based on the expected timing and amounts of the expected employer paid benefits and are established by reference to the Moody's AA Corporate Bond annualized yield with durations similar to the pension liabilities. Expected long-term return...

  • Page 57
    ... 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 were based on the Company's net income for the fiscal year as a percentage of average shareholders' equity. The total amount contributed was comprised...

  • Page 58
    ... time. These arrangements include (1) a directors' compensation deferral plan, funded in a rabbi trust, the benefit and payment under such plan being made in the Company's common stock that has historically been purchased on the open market, (2) a key management deferral plan, unfunded, the benefit...

  • Page 59
    ... stock options were included in the calculation of potential common share equivalents for the fiscal years 2007, 2006 and 2005. COMMITMENTS AND CONTINGENCIES The Company is involved in various lawsuits and environmental and patent matters arising in the normal course of business. Management...

  • Page 60
    ... 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...

  • Page 61
    ...included herein, expresses unqualified opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting as of September 30, 2007. (d) Changes in internal control over financial reporting. During the Company's fourth fiscal quarter of 2007, there...

  • Page 62
    ... to: Ruddick Corporation, 301 South Tryon Street, Suite 1800, Charlotte, North Carolina 28202, Attention: Corporate Secretary. 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...

  • Page 63
    ...by reference to the section entitled "Transactions with Related Persons and Certain Control Person" and "Election of Directors - Corporate Governance Matters" in the 2008 Proxy Statement. Item 14. Principal Accountant Fees and Services The information required by this item is incorporated herein by...

  • Page 64
    ... 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...

  • Page 65
    ...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).** Ruddick Corporation Irrevocable Trust for the Benefit of...

  • Page 66
    ...File No. 1-6905).** 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...

  • Page 67
    ...registrant's Current Report on Form 8-K dated September 19, 2007 (Commission File No. 1-6905).** Summary of Non-Employee Director Compensation. List of Subsidiaries of the Company. Consent of Independent Registered Public Accounting Firm. Certification of Chief Executive Officer pursuant to Rule 13a...

  • Page 68
    ...thereunto duly authorized. RUDDICK CORPORATION (Registrant) Dated: November 28, 2007 By:/s/ THOMAS W. DICKSON Thomas W. Dickson, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 69
    SCHEDULE I RUDDICK CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Fiscal Years Ended September 30, 2007, October 1, 2006 and October 2, 2005 (in thousands) COLUMN A COLUMN B BALANCE AT BEGINNING OF FISCAL YEAR COLUMN C ADDITIONS CHARGED TO COSTS AND EXPENSES ...

  • Page 70

  • Page 71
    ... President, American & Efird Shareholder Information Corporate Address 301 S. Tryon Street Suite 1800 Charlotte, NC 28202 704-372-5404 New York Stock Exchange (NYSE) Listing Common stock symbol: RDK The most recent certifications by our Chief Executive Officer and Chief Financial Officer...

  • Page 72
    ... primary operating subsidiaries - Harris Teeter, a leading regional supermarket chain, and American & Efird, one of the world's largest global manufacturers and distributors of industrial sewing thread, embroidery thread and technical textiles. 301 S. Tryon Street, Suite 1800, Charlotte, NC 28202...