Harris Teeter 2009 Annual Report Download - page 23

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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, management remains committed to its strategic plans that will
transform A&E’s business to a more Asian-centric global supplier of sewing thread, embroidery thread and
technical textiles.
Gross profit, and its percent to net sales, decreased during fiscal 2009 and fiscal 2008 when compared to
the prior fiscal years primarily as a result of weak sales and poor overhead absorption in the U.S. operations
and certain other foreign operations. Fiscal 2009 gross profit was reduced by $300,000 for severance costs
associated with the consolidation of one of A&E’s manufacturing facilities in North Carolina into one of A&E’s
other North Carolina operations, which was completed subsequent to the end of fiscal 2009. The shifting of
apparel production from the Americas to Asia has continued and management is focused on optimizing costs
and manufacturing capacities in its domestic and foreign operations.
SG&A expenses decreased in fiscal 2009 from fiscal 2008, as a result of increased net profit from non-
consolidated subsidiaries and A&E reducing expenses to more closely match the decline in sales volume;
however SG&A expenses as a percent to sales increased primarily due to sales declining faster than the expense
reductions achieved during fiscal 2009. Expense reductions have been realized through the consolidation and
rationalization of A&E’s operations in the U.S. and certain foreign locations. SG&A expenses, and its percent
to sales, in fiscal 2008 decreased from fiscal 2007, primarily as a result of increased net profit from non-
consolidated subsidiaries and reduced costs in A&E’s U.S. operations. In addition, SG&A expenses in fiscal
2008 were offset by an expense reversal of approximately $0.9 million for costs associated with certain import
duties levied against A&E’s Mexico operations and previously accrued by A&E. As disclosed in prior filings,
A&E resolved the dispute through an amnesty program provided by the Mexican authorities during the first
quarter of fiscal 2008. The net decrease in fiscal 2008 was offset, in part, by increases in certain items, such as
employee health care costs. Net profit from non-consolidated subsidiaries is recorded as a reduction to SG&A
expenses and amounted to $4.4 million in fiscal 2009, as compared to $3.4 million in fiscal 2008 and $1.4 million
in fiscal 2007. The increase in net profit from non-consolidated subsidiaries was driven primarily by A&E’s
investments in Vardhman during fiscal 2008 and 2009.
As discussed above, A&E recorded non-cash impairment charges during fiscal 2009 totaling $9.9 million
related to its U.S. operating unit. Impairment charges included $7.7 million for the write-off of all of the goodwill
associated with its U.S. acquisitions previously made in 1995 and 1996, and $2.2 million for the write-down of
long-lived assets.
A&E’s operating loss for fiscal 2009 was comprised of $9.9 million of impairment charges discussed above
and $4.7 million of operating losses resulting from the challenging economic environment in many parts of the
world and its impact on A&E’s customers. Although A&E has significantly reduced expenses, it was not enough
to offset the decline in sales and reduced operating schedules. 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.
For fiscal 2009, all geographic areas of A&E’s operations, including Asia, experienced weak business
conditions as a result of poor retail sales on a global basis. However, the accomplishments made in expense
reduction, and overall improved sales and operating profit in Asia, enabled A&E to realize a significant increase
in operating profit during the fourth quarter of fiscal 2009 over the fourth quarter of fiscal 2008. A&E’s operating
results are not indicative of the progress that has been made in becoming more Asian centric due to the fact that
increased sales and improved operating profit of its consolidated Asian operations realized during fiscal 2008
and the fourth quarter of fiscal 2009 have been offset by weakness in the U.S. and other operating areas outside
of Asia. In addition, A&E has minority interests in certain Asian operations that are not consolidated with
A&E’s reported sales, but have substantial sales and good operating results.