Harris Teeter 2010 Annual Report Download - page 26

thread, technical textiles and embroidery thread, respectively. The Company has no material independent operations,
nor material assets, other than the investments in its operating subsidiaries, as well as certain property and
equipment, cash equivalents and life insurance contracts to support corporate-wide operations and benefit programs.
The Company provides a variety of services to its subsidiaries and is dependent upon income and associated cash
flows from its operating subsidiaries.
The Company’s principal source of liquidity has been cash generated from operating activities and borrowings
available under the Company’s credit facility. During fiscal 2010, the net cash provided by operating activities was
$243.7 million, compared to $233.7 million during fiscal 2009 and $227.2 million during fiscal 2008. Investing
activities during fiscal 2010 required net cash of $124.8 million, compared to $218.8 million during fiscal 2009
and $226.2 million during fiscal 2008. Historically, capital spending has been financed by cash provided by
operating activities and supplemented with borrowings under the Company’s credit facility. Financing activities
for fiscal 2010 utilized $82.8 million of cash and included a repayment of $52.9 million of borrowings under the
Company’s credit facility. Financing activity also includes $29.3 million for the payment of dividends in fiscal 2010
(consisting of 5 quarterly payments), compared to $17.5 million in fiscal 2009 (consisting of 3 quarterly payments)
and $23.2 million in fiscal 2008 (consisting of 4 quarterly payments).
During fiscal 2010, consolidated capital expenditures totaled $132.1 million. Harris Teeter capital
expenditures were $106.7 million in fiscal 2010, compared to $206.7 million in fiscal 2009 and $192.2 million in
fiscal 2008. A&E’s capital expenditures were $3.9 million during fiscal 2010, compared to $2.5 million during fiscal
2009 and $7.3 million in fiscal 2008. Fiscal 2010 capital expenditures also included $21.5 million for the exchange
of the corporate aircraft, which was partially offset by $14.4 million of proceeds from the sale of the old aircraft.
In connection with the development of certain of its new stores, Harris Teeter invested an additional $21.3 million
which was partially offset by $13.8 million received from property investment sales and partnership distributions
during fiscal 2010. Also in fiscal 2010, A&E spent $0.3 million to acquire the noncontrolling interest in its joint
ventures in South Africa and now has a 100% ownership interest. Fiscal 2011 consolidated capital expenditures
are planned to total approximately $174 million, consisting of $165 million for Harris Teeter and $9 million for
A&E. Harris Teeter anticipates that its investment in new store growth and store remodels will be concentrated
in its existing markets in fiscal 2011 as well as the foreseeable future. A&E expects to mainly invest in the
modernization of its global operations. Such capital investment is expected to be financed by internally generated
funds, liquid assets and borrowings under the Company’s credit facility. Management believes that the Company’s
revolving line of credit provides sufficient liquidity for what management expects the Company will require through
the expiration of the line of credit in December 2012.
The Company’s credit facility was entered into on December 20, 2007 with eleven banks and provides for
a five-year revolving credit facility (“Revolving Credit Facility”) in the aggregate amount of up to $350 million
and a non-amortizing term loan of $100 million due December 20, 2012. The credit agreement also provides for
an optional increase of the Revolving Credit Facility by an additional amount of up to $100 million and two 1-year
maturity extension options, both of which require the consent of the lenders. 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 set forth 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 and a minimum fixed charge coverage ratio. As of October 3, 2010, the Company was in compliance
with all financial covenants of the credit agreement and no borrowings were outstanding under the Revolving Credit
Facility. Issued letters of credit reduce the amount available for borrowings under the Revolving Credit Facility
and amounted to $23.7 million as of October 3, 2010. In addition to the $326.3 million of borrowings available
under the Revolving Credit Facility as of October 3, 2010, the Company has the capacity to borrow up to an
aggregate amount of $33.7 million from two major U.S. life insurance companies utilizing certain insurance assets
as collateral. In the normal course of business, the Company will continue to evaluate other financing opportunities
based on the Company’s needs and market conditions.
Covenants in certain of the Company’s long-term debt agreements limit the total indebtedness that the
Company may incur. As of October 3, 2010, the amount of additional debt that could be incurred within the
limitations of the most restrictive debt covenants exceeded the additional borrowings available under the Revolving
21