Harris Teeter 2009 Annual Report Download - page 18

Download and view the complete annual report

Please find page 18 of the 2009 Harris Teeter annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 119

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119

14
A&E’s growth in China, India and other Asian markets has been accomplished through additional
investments in its wholly owned subsidiaries by way of capital expenditures and through strategic joint ventures.
In fiscal 2003, A&E entered into a joint venture in China resulting in a 50% ownership interest in Huamei
Thread Company Limited, which is one of the largest thread producers in the China market. During fiscal 2005,
A&E acquired an 80% ownership interest in Jimei Spinning Company Limited (a thread yarn spinning company
located in China) and increased its ownership interest in Hengmei Spinning Company Limited (another thread
yarn spinning company in China) from 60% to 80%. During the third quarter of fiscal 2008, A&E entered into a
joint venture with Vardhman Textiles Limited in India (“Vardhman”) to manufacture, distribute and sell sewing
thread for industrial and consumer markets within India and for export markets. During the first quarter of fiscal
2009, A&E exercised its option to purchase an additional 14% ownership interest in Vardhman under the terms
of the original joint venture agreement, which increased A&E’s total ownership interest in Vardhman to 49%.
A&E continues to transform its business to be more Asian centric, which is in line with the global shifting of
A&E’s customer base.
A&E also expanded its global presence during fiscal 2005 by entering into a joint venture in Brazil
resulting in a 30% ownership interest in Linhas Bonfio S.A (“Linhas”). During the first quarter of fiscal 2009,
A&E acquired an additional 13% ownership interest in Linhas, which increased A&E’s total ownership interest
in Linhas to 43%. In addition, A&E obtained a majority ownership interest in its two joint ventures in South
Africa during fiscal 2006.
A&E’s fiscal 2004 acquisition of certain assets and the U.S. business of Synthetic Thread Company, Inc.
provided A&E with an entry into the technical textiles market. A&E expanded its customer base and product
line offerings in the technical textiles arena by acquiring certain assets and the U.S. business of Ludlow Textiles
Company, Inc. in fiscal 2005. Technical textiles represent non-apparel yarns A&E supplies to its customers in the
automotive, telecommunication, wire and cable, paper production and other industries. Further diversification
was achieved in fiscal 2005 by A&E’s acquisition of certain assets and the business of Robison-Anton Textile
Co., a U.S. producer of high-quality embroidery threads. The sale of non-apparel threads and yarns resulting
from these acquisitions has partially offset sales declines in the U.S. resulting from the shifting of apparel
manufacturing. In fiscal 2006, A&E expanded its production and distribution of non-apparel products through
the acquisition of TSP Tovarna Sukancev in Trakov d.d. (“TSP”) located in Maribor, Slovenia. A&E continues
to expand the manufacturing and distribution of non-apparel products throughout its global operations.
A&E continues to face increased operating costs and highly competitive pricing in its markets. A&E has
completed the integration and consolidation of the strategic investments made in the past few years. Management
at A&E intends to continue to reduce expenses at its U.S. operations and certain foreign operations, and focus
on its strategic plans to become more Asian centric.
Results of Operations
Goodwill and Long-Lived Asset Impairments
The continuing deterioration of the economic environment during 2009, particularly with respect to A&E’s
customers in the retail apparel and non-apparel markets, caused management to lower the expected future cash
flows of A&E’s U.S. operating segment during the Company’s annual strategic planning process. Based on the
revised expectations, A&E was required to perform an interim test for goodwill impairment and, as a result,
recorded non-cash impairment charges related to its U.S. operating segment during the third quarter of fiscal
2009. Impairment charges included the write-off of all of the goodwill associated with its U.S. acquisitions
previously made in 1995 and 1996 and the write-down of certain long-lived assets of its U.S. operating segment.
During fiscal 2009, A&E wrote off $7,654,000 of goodwill and wrote down certain long-lived assets of its
U.S. operating segment by $2,237,000. A&E also recorded deferred tax benefits of $3,792,000 related to the
impairment charges.