Harris Teeter 2009 Annual Report Download - page 20

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16
The gross profit increase for fiscal 2009 was driven by increased gross profit at Harris Teeter that was
offset, in part, by a gross profit decline at A&E when compared to fiscal 2008. The increase in gross profit, and
its percent to sales, for fiscal 2008 was driven by a gross profit increase at Harris Teeter that was offset, in part,
by a gross profit decline at A&E from fiscal 2007 to fiscal 2008. 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.
Consolidated selling, general & administrative (“SG&A”) expenses increased during fiscal 2009, when
compared to the prior year, as a result of the increased operating costs at Harris Teeter driven by store expansion.
The increase in SG&A expenses in fiscal 2009 was partially offset by reduced SG&A expenses at A&E and
Corporate. SG&A expenses, as a percent to consolidated net sales, decreased in fiscal 2009 from fiscal 2008
and fiscal 2007 as a result of the leverage created through sales gains that apply against fixed costs at Harris
Teeter and lower SG&A expenses at A&E and Corporate. 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.
As discussed previously, A&E recorded non-cash impairment charges of $9,891,000 related to its U.S.
operating unit during fiscal 2009. The related income tax benefit of these charges amounted to $3,792,000,
resulting in a net income reduction of $6,099,000. Refer to the discussion of segment operations under the
caption “American & Efird, Industrial Thread Segment” for a further analysis of the segment operating results.
Other expense, net includes interest expense, interest income, investment gains and losses, and minority
interest. Net interest expense (interest expense less interest income) decreased $2.3 million in fiscal 2009 from
fiscal 2008. The decrease in interest expense was driven by lower average interest rates on outstanding debt
balances. Average outstanding debt balances increased between the comparable periods as a result of increased
borrowings under the Company’s credit facility and new capital leases entered into in support of Harris Teeter’s
new store development program. Net interest expense increased $1.8 million in fiscal 2008 over fiscal 2007 as a
result of additional interest expense associated with increased borrowings under the Company’s credit facility in
support of Harris Teeter’s new store development program. In addition, incremental borrowings were required
for A&E’s fiscal 2008 equity investment in Vardhman. The increase in interest expense was offset, in part, by a
lower weighted average interest rate realized during fiscal 2008.
The effective consolidated income tax rate for fiscal 2009 was 37.8% as compared to 37.2% for fiscal 2008
and 38.2% for fiscal 2007. Income tax expense for fiscal 2009 included the removal of $1.6 million of valuation
allowances associated with foreign tax credits which management now believes will be realized and adjustments
made for an increase in the Company’s state income taxes. Income tax expense for fiscal 2008 included refund
claims related to prior years of approximately $2.4 million associated with A&E’s foreign operations.
As a result of the items discussed above, consolidated net income for fiscal 2009 decreased by $10.8 million,
or 11.1%, over fiscal 2008 and net income per diluted share decreased by 11.0% to $1.78 per share in fiscal 2009
from $2.00 per share in fiscal 2008. The non-cash impairment charges recorded by A&E during fiscal 2009
reduced consolidated net income by $6.1 million, or $0.13 per diluted share. Consolidated net income for fiscal
2008 increased by $16.1 million, or 19.9%, over fiscal 2007 and net income per diluted share increased by 19.0%
to $2.00 per share in fiscal 2008 from $1.68 per share in fiscal 2007.