FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to___________
Commission file number ________1-6905_________________
RUDDICK CORPORATION
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0905940
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1800 Two First Union Center
Charlotte, North Carolina 28282
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (704)372-5404
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ____________
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding Shares
Class As of August 6, 1999
-------------- --------------------
Common Stock 46,438,350 shares
<PAGE>
RUDDICK CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS -
JUNE 27, 1999 AND SEPTEMBER 27, 1998 2
CONSOLIDATED CONDENSED STATEMENTS OF
INCOME - THREE MONTHS AND NINE MONTHS
ENDED JUNE 27, 1999 AND JUNE 28, 1998 3
CONSOLIDATED CONDENSED STATEMENTS OF
TOTAL NONOWNER CHANGES IN EQUITY -
THREE MONTHS AND NINE MONTHS ENDED
JUNE 27, 1999 AND JUNE 28, 1998 4
CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS - NINE MONTHS ENDED
JUNE 27, 1999 AND JUNE 28, 1998 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7-13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 14
<PAGE> 1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RUDDICK CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 27, September 27,
ASSETS 1999 1998
(Unaudited) (Unaudited)
------------- -------------
CURRENT ASSETS:
Cash and Temporary Cash Investments $ 13,466 $ 16,668
Accounts Receivable, Net 87,955 76,948
Inventories 216,103 211,404
Other 28,238 27,733
--------- ---------
Total Current Assets 345,762 332,753
PROPERTY, NET 524,712 513,788
INVESTMENTS AND OTHER ASSETS 86,316 85,077
---------- ---------
Total $ 956,790 $ 931,618
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable $ 1,303 $ 2,411
Current Portion of Long-Term Debt 388 571
Accounts Payable 133,898 149,875
Income Taxes Payable 7,199 5,456
Other Accrued Liabilities 80,001 87,107
---------- ----------
Total Current Liabilities 222,789 245,420
LONG-TERM DEBT 209,775 191,360
DEFERRED LIABILITIES 85,623 79,600
MINORITY INTEREST 4,562 4,513
SHAREHOLDERS' EQUITY:
Capital Stock - Common 51,745 54,686
Retained Earnings 384,803 358,328
Cumulative Translation Adjustments (2,507) (2,289)
--------- ----------
Shareholders' Equity 434,041 410,725
========= ==========
Total $ 956,790 $ 931,618
<PAGE> 2
RUDDICK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except share and per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ---------- ----------- ----------
NET SALES
American & Efird $ 90,342 $ 89,805 $ 257,792 $ 265,203
Harris Teeter 546,286 530,666 1,676,620 1,589,132
--------- --------- ---------- ----------
Total 636,628 620,471 1,934,412 1,854,335
--------- --------- ---------- ----------
GROSS PROFIT
American & Efird 27,505 26,662 76,786 77,004
Harris Teeter 151,997 144,779 456,059 430,698
-------- --------- ---------- -----------
Total 179,502 171,441 532,845 507,702
-------- --------- ---------- -----------
OPERATING PROFIT
American & Efird 12,937 8,920 35,095 29,578
Harris Teeter 12,474 12,719 42,125 38,947
------- -------- ---------- -----------
Total 25,411 21,639 77,220 68,525
------- -------- ---------- -----------
OTHER COSTS AND DEDUCTIONS
Interest expense, net 3,734 4,079 11,150 12,150
Other expense, net 1,895 2,014 5,454 5,596
Minority interest 137 67 330 282
------ -------- ---------- -----------
Total 5,766 6,160 16,934 18,028
------ -------- ---------- -----------
Income before income taxes 19,645 15,479 60,286 50,497
Income taxes 7,377 5,185 22,647 16,832
------ --------- ---------- -----------
Net income $ 12,268 $ 10,294 $ 37,639 $ 33,665
====== ========= ========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING:
Basic 46,480,687 46,700,661 46,544,262 46,690,143
Diluted 46,693,916 46,994,722 46,786,011 47,006,865
NET INCOME PER SHARE -
BASIC $.26 $.22 $.81 $.72
DILUTED $.26 $.22 $.80 $.72
DIVIDENDS DECLARED
PER SHARE - Common $.08 $.08 $.24 $.24
<PAGE> 3
RUDDICK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF TOTAL NONOWNER CHANGES IN EQUITY
(in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- -----------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ---------- ----------- -----------
Net Income $ 12,268 $ 10,294 $ 37,639 $ 33,665
Other nonowner changes in
equity, net of tax:
Foreign currency
translation adjustment 18 (400) (219) (833)
--------- ---------- --------- -----------
Total nonowner changes in
equity $ 12,286 $ 9,894 $ 37,420 $ 32,832
========= ========= ========= ===========
<PAGE> 4
RUDDICK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
NINE MONTHS ENDED
-----------------------------
June 27, June 28,
1999 1998
------------- --------------
(Unaudited) (Unaudited)
------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 37,639 $ 33,665
Non-Cash Items Included in Net Income
Depreciation and Amortization 52,208 48,496
Other, Net 208 6,978
Decrease (Increase) in Current Assets (15,279) (11,252)
Increase (Decrease) in Current Liabilities (22,448) (12,344)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 52,328 65,543
----------- -----------
INVESTING ACTIVITIES
Capital Expenditures (63,475) (75,922)
Cash Proceeds from Sale of Property 1,213 578
Company Owned Life Insurance, Net 6,355 3,326
Other, Net (4,913) (14,276)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (60,820) (86,294)
----------- -----------
FINANCING ACTIVITIES
Proceeds of Long-Term Borrowings 18,937 29,100
Payment of Principal on Long-Term Debt (653) (375)
Dividends (11,163) (11,206)
Other, Net (1,831) 1,126
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,290 18,645
----------- ----------
INCREASE (DECREASE) IN BALANCE SHEET CASH (3,202) (2,106)
BALANCE SHEET CASH AT BEGINNING OF PERIOD 16,668 17,150
---------- ----------
BALANCE SHEET CASH AT END OF PERIOD $ 13,466 $ 15,044
========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest $ 11,788 $ 12,361
Income Taxes $ 19,162 $ 16,122
<PAGE> 5
RUDDICK CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
IN THE OPINION OF MANAGEMENT, THE INFORMATION FURNISHED REFLECTS
ALL ADJUSTMENTS (CONSISTING ONLY OF NORMAL RECURRING ACCRUALS)
NECESSARY TO PRESENT FAIRLY THE RESULTS FOR THE INTERIM PERIODS
PRESENTED.
THE COMPANY ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
(SFAS) NO. 130, "REPORTING COMPREHENSIVE INCOME", EFFECTIVE WITH THE
BEGINNING OF ITS FIRST FISCAL QUARTER OF 1999 AND, ACCORDINGLY, HAS
PRESENTED AN ADDITIONAL BASIC FINANCIAL STATEMENT "CONSOLIDATED
CONDENSED STATEMENTS OF TOTAL NONOWNER CHANGES IN EQUITY" WHICH
REPORTS NET INCOME, AS REPORTED UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, ADJUSTED FOR EACH APPLICABLE COMPONENT OF NONOWNER
CHANGES IN SHAREHOLDERS' EQUITY.
THE COMPANY ADOPTED SFAS NO. 131, "DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION", EFFECTIVE WITH THE BEGINNING
OF ITS FIRST FISCAL QUARTER OF 1999. THIS PRONOUNCEMENT WILL
REQUIRE, EFFECTIVE FOR THE COMPANY'S FISCAL YEAR ENDING OCTOBER 3,
1999, ANNUAL FINANCIAL STATEMENTS, AND FOR INTERIM AND ANNUAL
REPORTING PERIODS IN FISCAL 2000 AND THEREAFTER, NEW STANDARDS OF
DISCLOSURE FOR INFORMATION ABOUT OPERATING SEGMENTS OF THE
ENTERPRISE AND RELATED DISCLOSURES ABOUT PRODUCTS AND SERVICES,
GEOGRAPHIC AREAS AND MAJOR CUSTOMERS.
<PAGE> 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table shows net sales, gross profit and
operating profit for each of Ruddick Corporation's operating
subsidiaries for the quarter and nine months ended June 27, 1999
and June 28, 1998:
(In Thousands) Quarter Ended Nine Months Ended
------------------- -----------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
-------- -------- -------- ---------
Net Sales
American & Efird $ 90,342 $ 89,805 $ 257,792 $ 265,203
Harris Teeter 546,286 530,666 1,676,620 1,589,132
-------- -------- --------- ---------
Total $ 636,628 $ 620,471 $1,934,412 $1,854,335
-------- -------- --------- ---------
Gross Profit
American & Efird $ 27,505 $ 26,662 $ 76,786 $ 77,004
Harris Teeter 151,997 144,779 456,059 430,698
-------- -------- ---------- ---------
Total $ 179,502 $ 171,441 $ 532,845 $ 507,702
-------- -------- --------- ---------
Operating Profit
American & Efird $ 12,937 $ 8,920 $ 35,095 $ 29,578
Harris Teeter 12,474 12,719 42,125 38,947
-------- -------- --------- ---------
Total $ 25,411 $ 21,639 $ 77,220 $ 68,525
-------- -------- --------- ---------
For the Three Months Ended June 27, 1999 and June 28, 1998
Consolidated sales of $637 million in the third quarter of fiscal
1999 increased 2.6% over the $620 million reported for the comparable
period last year. Total gross profit was up 4.7% from $171 million in
the third quarter of fiscal 1998 to $180 million in fiscal 1999. Total
operating profit of $25.4 million increased 17.4% from $21.6 million
for the comparable period last year. Net income of $12.3 million grew
by 19.2% from the $10.3 million reported in the third fiscal quarter
last year, and the quarter's basic and diluted earnings per share rose
to $.26 in fiscal 1999 from $.22 in fiscal 1998. As expected, the
Company's income tax rate increased from 33.5% in the prior year
quarter to 37.6% in the current quarter due to the reduction of
favorable tax attributes related to Company owned life insurance.
In the third quarter of fiscal 1999, A&E sales of $90.3 million
increased slightly from the $89.8 million reported for the comparable
period last year. This change was primarily due to growth in foreign
sales, especially in Mexico, Central America and the Caribbean.
Foreign sales growth was partially offset by the continuation of a soft
sales environment in the U.S. due to increased apparel imports and the
continued shift of apparel production out of the U.S. Further, the
prior year period included $1.0 million in sales from the Korean
operations, which were closed in June 1998. A&E's foreign sales
expanded by 16% in the quarter in comparison to the prior year period
and accounted for
<PAGE> 7
30% of A&E's total sales in the current quarter. A&E's gross profit of
$27.5 million in the third quarter of fiscal 1999 increased 3.2% from
$26.7 million in the third quarter last year. However, in spite of soft
sales and a tough competitive environment worldwide, A&E was able to
increase operating profitability. Operating profit of $12.9 million in
the third quarter of fiscal 1999 grew by 45% from $8.9 million in the
comparable period last year. Operating margin was favorably impacted
primarily by the elimination of $3.9 million in losses associated with
the company's Korean operations, which were closed in 1998. Further, the
majority of the foreign operations of A&E generated improvements in
operating profitability, although none are individually material to the
Company. A&E's operating margin in the U.S. market declined slightly in
comparison to the prior year quarter, reflecting the reduction in
manufacturing operating schedules in response to comparatively sluggish
sales during the first half of the quarter, which decreased overall
profitability. During the second half of the third fiscal quarter of
1999, A&E noted some improvement in its business conditions and was
optimistic that this improvement could continue into the fourth fiscal
quarter.
On June 29, 1999, the Company posted a recommended cash offer in
the United Kingdom on behalf of A&E to acquire all of the issued and to
be issued shares of Hicking Pentecost PLC for 1.75 pounds per share.
Hicking Pentecost is a U.K.-based company whose key business, Barbour Threads,
manufactures industrial thread. Subsequently, the Company and Coats
Viyella PLC, a major British thread manufacturer, have made increased
bids for Hicking Pentecost, with the most recently announced offer by
Coats Viyella standing at 2.40 pounds, or approximately $127 million for
the equity of Hicking Pentecost. The Company has not responded with any
higher bid and stated on July 30, 1999 that it is considering its
position.
Harris Teeter sales in the third quarter of fiscal 1999 of $546.3
million increased by 2.9% over the $530.7 million reported for the
comparable period last year. Net sales for stores in operation during
both periods increased by .8%. As previously announced, Harris Teeter
sold 11 western Virginia stores to Kroger and purchased 10 Kroger
stores in Winston-Salem and Greensboro, North Carolina during the
quarter. This market realignment afforded the potential to increase
sales, as well as to improve operating profitability by achieving
enhanced distribution efficiency, better utilization of advertising
costs and other enhancements in productivity. Harris Teeter closed its
11 Virginia stores during May and opened five of the newly purchased
stores in North Carolina during June. Sales lost during this
transition period were partially offset by an increase in sales at
existing Harris Teeter stores in the region. Sales also continued to
be negatively impacted by the lack of inflation in the grocery sector
and the intensely competitive supermarket environment in a number of
the company's markets. The company expects both the highly competitive
environment and minimal food inflation to continue for the foreseeable
future. Despite these factors, sales reflected the success of the
company's aggressive promotional, advertising and customer service
activities, and the increased use by customers of the company's loyalty
card. Gross profit of $152.0 million expanded by 5.0% from $144.8
million in the third fiscal quarter of 1998 and gross margin on sales
grew to 27.8% from 27.3% last year, primarily due to a more favorable
mix of products sold and better management of merchandising programs.
Previously, the Company had estimated that the Kroger transactions
would result in decreased operating profitability for Harris Teeter
totaling $5.5 million during the third and fourth quarters, due to
non-recurring expenses associated with the closings of the western Virginia
stores and the opening of the new stores, as well as the lack of
contribution from sales lost during the period. To date, management
had carried out this process more efficiently than originally
projected. With the limited number of stores remaining to be reopened
in the fourth quarter, management expects
<PAGE> 8
the total remaining transition costs to be immaterial to the company's
results of operations. Primarily due to these costs of opening and closing
the stores, Harris Teeter's operating profit of $12.5 million in the third
quarter of 1999 fell 1.9% from the $12.7 million reported for the
comparable period last year and operating margin on sales decreased to
2.28% of sales in the current quarter from 2.40% of sales in the third
quarter of fiscal 1998. Including the Kroger transactions, Harris
Teeter closed twelve stores during the third quarter and opened a total
of seven, leaving 143 stores in operation at June 27, 1999, up from 142
at June 28, 1998.
For the Nine Months Ended June 27, 1999 and June 28, 1998
Consolidated sales for the nine months ended June 27, 1999 of
$1.93 billion increased 4.3% over the $1.85 billion reported for the
nine months of fiscal 1998, due to continued sales growth at Harris
Teeter, while sales at A&E declined. Total gross profit increased by
5% to $532.8 million in fiscal 1999 from $507.7 million in fiscal 1998,
with A&E reporting a slight decrease and Harris Teeter showing an
increase. Operating profit was up 12.7% to $77.2 million in the nine
months of 1999 from $68.5 million in the comparable period of fiscal
1998, with both subsidiaries showing improvement. Net income rose by
11.8% to $37.6 million in fiscal 1999 from $33.7 million in the nine-month
period in 1998. Basic and diluted earnings per share for the
nine months of this year were $.81 and $.80, respectively, versus both
basic and diluted earnings per share of $.72 a year ago.
A&E sales of $257.8 million for the nine months of this year
decreased by 2.8% from $265.2 million in the comparable period last
year. This sales decrease was primarily due to weak demand for
industrial thread in the U.S. market by A&E's apparel customers as the
result of the increase in apparel imports from Asia and the continued
growth of apparel production outside of the U.S. Sales were also
impacted by the elimination of $3.4 million 1998 year to date sales
from the Korean operations that were closed in June 1998. The relative
distribution of the company's business in Latin America, particularly
in Mexico, continued to grow. A&E's total foreign sales increased by
17% for the nine months in comparison to the nine months in fiscal 1998
and accounted for 29% of total year-to-date sales. For the nine months
of fiscal 1999, A&E's gross profit of $76.8 million decreased slightly
from the $77.0 million in the comparable period last year. Operating
profit of $35.1 million in 1999 increased by 18.7% from $29.6 million
in the nine months of last year. The operating margin grew primarily
as the result of the elimination of prior period operating losses of
$5.4 million associated with the company's Korean operations, which
were closed in 1998. Further, the majority of the foreign operations
of A&E achieved comparative operating margin improvements, most notably
in Asia and Latin America, although none are individually material to
the Company. A&E's U.S. consolidation of dyeing, finishing and
distribution, which took place during the second fiscal quarter of
1999, has also had a positive effect on operating profitability through
expense reduction and enhanced productivity. Despite reduced sales,
A&E's operating margin in the U.S. during the nine-month period
remained relatively even with the prior year.
The intense competitive environment for supermarkets in the
Southeastern U.S. continued. In addition, the market realignment that
Harris Teeter undertook by selling 11 stores in western Virginia to
Kroger, and buying 10 stores in Greensboro and Winston-Salem, North
Carolina in the third quarter resulted, as expected, in lost sales
during the transition. Nevertheless, the company's sales of $1.68
billion for the nine months of fiscal 1999 increased by 5.5% over the
$1.59 billion recorded in the period last year. Net sales for stores
in operation during both periods increased by 1.17%. These
<PAGE> 9
results were achieved through increased promotional, advertising and customer
service activities, including customer acceptance and increased use of
Harris Teeter's customer loyalty card. Although the company experienced
a very competitive pricing environment during the current nine months,
a more favorable mix of business enabled it to increase gross profit by
5.9%, to $456.1 million from $430.7 million during fiscal 1998 and hold
gross margin on sales relatively flat. Operating profit increased by
8.2% to $42.1 million in nine months of fiscal 1999 from $38.9 million
in the comparable prior year period and, as a percentage of sales,
improved slightly. The company believes these results were achieved due
to the combination of improved sales volume and gross profit, control
of store operating expenses and store productivity enhancements. In
addition, Harris Teeter was able to carry out the closing of 11
Virginia stores and the opening in North Carolina of 5 former Kroger
stores during the third quarter more efficiently than originally
expected. Previously, the company had estimated that the Kroger
transactions would result in decreased operating profitability of $5.5
million during the third and fourth quarters, due to non-recurring
expenses and loss of contribution from sales. Harris Teeter currently
anticipates ending the fiscal year with less negative impact on
operating profit than projected. Including these stores, a total of 12
stores were opened during the nine-month period in fiscal 1999 and 13
stores were closed, with 143 stores in operation at June 27, 1999.
Capital Resources and Liquidity
Ruddick Corporation is a holding company which, through its
wholly-owned subsidiaries, American & Efird, Inc. and Harris Teeter,
Inc., is engaged in the primary businesses of industrial sewing thread
manufacturing and distribution, and regional supermarket operations,
respectively. Ruddick has no material independent operations, nor
material assets, other than the investments in its operating
subsidiaries. Ruddick provides a variety of services to its
subsidiaries and is dependent upon income and upstream dividends from
its subsidiaries. There exist no material restrictions on such
dividends, which are determined as a percentage of net income of each
subsidiary.
The Company seeks to limit long-term debt so that it constitutes
no more than 40% of capital employed, which includes long-term debt,
minority interest and shareholders' equity. As of June 27, 1999, this
percentage was 32.4%, as compared to 31.6% at September 27, 1998.
The Company's principal source of liquidity has been revenues from
operations. The Company also has the ability to borrow up to an
aggregate of $100 million under established revolving lines of credit
with three banks. The maximum amount outstanding under these credit
facilities during the quarter ended June 27, 1999 was $68.1 million,
and $51.9 million was outstanding at quarter end compared to $36.0
million at September 27, 1998. The additional borrowings under
Ruddick's revolving credit facilities were used primarily for capital
expenditures. Borrowings and repayments under these revolving credit
facilities are of the same nature as short-term credit lines; however,
due to the nature and terms of the agreements allowing up to five years
for repayment, all borrowings under these facilities are classified as
long-term debt.
The Company executed term loan agreements with two major U.S.
banks on May 28, 1999, as amended on July 16, 1999, to provide the
Company with senior unsecured financing of up to an aggregate of $124
million for the purpose of the contemplated acquisition of the equity
of Hicking Pentecost PLC as described in the foregoing "Results of
Operations." There have been no borrowings under these facilities as
of the date of this report. Management believes that available
borrowing
<PAGE> 10
capacity, as may be further amended, will be adequate if the
Company were to proceed with such acquisition.
Working capital of $123.0 million at June 27, 1999 increased $35.7
million from September 27, 1998, primarily the result of increases in
inventories and accounts receivable to support increased sales activity
at Harris Teeter and reductions in accounts payable and accrued
liabilities. The current ratio was 1.6 at June 27, 1999 and 1.4 at
September 27, 1998.
Covenants in certain of the Company's long-term debt agreements
limit the total indebtedness that the Company may incur. Management
believes that the limit on indebtedness does not significantly restrict
the Company's liquidity and that such liquidity is adequate to meet
foreseeable requirements.
During the first nine months of fiscal 1999, capital expenditures
totaled $63.5 million. A&E has spent $11.9 million year to date and
will likely not spend the full $24 million budgeted in fiscal year
1999. Harris Teeter has spent $51.2 million of an anticipated $77
million in fiscal year 1999. These expenditures are for modernization
and expansion. Management expects that internally generated funds,
supplemented by available borrowing capacity, will be adequate to
finance such expenditures.
Other Matters
Year 2000 Compliance
The Company is well along in the process of the modification or
conversion of Company computer (IT) systems, as well as non-IT systems
which have embedded technology such as microcontrollers, to provide for
proper functioning beyond calendar year 1999. During the fiscal year
ended September 28, 1997, the Company instituted plans and initiated
its Year 2000 remediation programs by which it would complete such
remediation by the end of April 1999 in the U.S. and June 1999 in its
foreign operations, including final testing in all operations worldwide
by September 1999. Such remediation plans have been modified as the
project progressed and a very limited number of U.S. systems are still
in the process of being remediated, including the following: certain
administrative programs for retirement benefits are expected to be
remediated by September 1999; A&E's frame relay equipment is expected
to be remediated by September 1999; and Harris Teeter's vendor
purchasing system is expected to be remediated by August 1999. Routine
periodic reports have displayed that the project activities are on
schedule with the requirements of the latest Year 2000 remediation and
testing plans. At both Harris Teeter and A&E, the assessment and
technical plan development phases have been completed and the companies
are at various levels of completion of the remediation implementation
and testing phases. As of June 27, 1999 Harris Teeter remediation was
98% complete and A&E remediation was 99% complete in their respective
mission-critical IT and non-IT systems. At both Harris Teeter and A&E,
the integration testing of most U.S. systems has been underway and
compliance testing continues on a priority basis. Full compliance
testing, which has been ongoing throughout the Year 2000 conversion and
is substantially finished, will be completed in all mission critical IT
and non-IT systems in the U.S. operations by September, 1999. All
foreign operations have reported the attainment of Year 2000 compliance
and additional testing will continue throughout calendar year 1999. A
current assessment of the total amount of Year 2000 remediation
expenditures over the fiscal years 1997 through completion in 1999
yielded an estimate of $3.4 to $3.7
<PAGE> 11
million. The combined companies have spent $2.4 million cumulatively
for all periods prior to June 27, 1999, and expect to spend $1.1 million
more during the remainder of 1999 in order to complete the Year 2000
remediation and testing. Maintenance and modification costs will be
expensed as incurred, while the costs of new software will be capitalized
and amortized over the software's useful life. The Company has formal
correspondence programs with its major suppliers and its major thread
customers, of which no single customer exceeds 9% of A&E sales, for inquiry,
monitoring and assessing their Year 2000 remediation plans and efforts.
All costs of their remediation will be borne by the suppliers and customers.
Management expects that the costs of the Company's Year 2000
remediation will have no material impact on its results of operations,
liquidity and capital resources and further, that resources are
available to complete the modification and conversion as planned. It
must be recognized, however, that failure to do so could have a
material adverse effect on the Company's future results of operations.
The Company has developed contingency plans to address the potential
worst-case scenarios which could conceivably evolve in mission-critical
systems, presumably as a result of the lack of readiness of outside
parties. This will include temporary and manual procedures to follow
in the event of a system or subsystem failure. In reference to the
supply of goods and services by vendors, the contingency plans will
largely take into account the vendors' progress to adequately address
the Year 2000 issue.
At both A&E and Harris Teeter, the contingency plans were
developed to mitigate the potential impacts of system, equipment or
supplier disruptions. These plans include temporary, manual procedures
for each function in the procurement, production, warehousing,
distribution and revenue cycles of the businesses. Further, alternate
sources to supply materials and product have been determined and
appropriate levels of increased inventories will be maintained. These
plans have been completed and fully documented in the U.S. operations.
The A&E contingency plans will be the guideline for developing
contingency plans in its foreign operations by September 30, 1999.
Additionally, at Harris Teeter, contingency plans further encompassed
the specific potential adversities that could effect the retail store
operations, such as the potential of disruptions in point of sale
register systems, retail price management, cash management, debit and
credit card operations and store inventory replenishment. To a large
extent the contingency plans engage temporary, manual solutions to each
potential random disruption. While the companies will have remediated
and tested all mission critical systems, the possibility still exists
for random equipment failures, power outages or system failures of
vendors and suppliers. Although the contingency plans of the Company
have been thoroughly and prudently developed, it must be recognized
that disruptions caused by third parties which may be more than random
occurrences or may be catastrophically extensive, could have a material
adverse effect on the Company's results of operations.
Income Taxes
As a result of federal legislation which phased out, effective
January 1, 1999, interest deductions on certain insurance policy loans
and thereby significantly diminished the favorable tax attributes of
company owned life insurance ("COLI"), the Company's effective income
tax rate, in comparison to the prior year quarter and year to date, has
risen to a level slightly below statutory rates domestically. The
Company has recorded income tax reductions of approximately $25 million
cumulatively as the result of COLI interest deductions from October
1993 through December 27, 1998. The Internal Revenue Service, on a
comprehensive national level, is evaluating its position regarding the
deductibility of COLI policy loan interest for years prior to January
1, 1999. The IRS has issued Technical Advice Memoranda regarding the
COLI deductibility to taxpayers unrelated to
<PAGE> 12
the Company. Management understands that the adverse position taken by
the IRS will be subjected to extensive challenges in the courts. On
June 17, 1999, the IRS issued a notice of assessment of tax to the Company
for the amounts of COLI loan interest deducted in fiscal years 1994 and 1995
for which, if the IRS were to prevail, the income tax payable (including
federal and state amounts) would total approximately $7.4 million, plus
interest thereon. The Company strongly disagrees with the position of
the IRS and intends to vigorously pursue justice through the taxpayer
appeals process and, if necessary, the judicial system. In the event
that the IRS prevails, this outcome could result in a material impact
upon the Company's future income taxes and results of operations.
Regarding Forward-Looking Statements
The foregoing discussion contains some forward-looking statements
about the Company's financial condition and results of operations,
which are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the
forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect
management's judgment only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking
statements to reflect events and circumstances that arise after the
date hereof.
Factors that might cause the Company's actual results to differ
materially from those anticipated in forward-looking statements include
the following:
-generally adverse economic and industry conditions, including a
decline in consumer demand for apparel products or significant changes
in consumer food preferences or eating habits,
-changes in the competitive environment, including increased
competition in the Company's primary geographic markets, the entry of
new competitors and consolidation in the supermarket industry,
-economic or political changes in the countries in which the
Company operates or adverse trade regulations,
-the passage of future tax legislation, or any regulatory position
which prevails, if any, that could have an adverse impact on the tax
benefits of the ESOP dividends and COLI,
-management's ability to accurately predict the adequacy of the
Company's present liquidity to meet future requirements,
-changes in the Company's capital expenditures, new store openings
and store closings, and
-non-availability of resources for the Company, or its suppliers
and customers, to complete their respective Year 2000 compliance
effectively.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk sensitive instruments do not subject the
Company to material market risk exposures.
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit No. Description of Exhibit
------------ ---------------------------
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K - None
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
RUDDICK CORPORATION
DATE: August 10, 1999 /s/ R. N. Brigden
R. N. BRIGDEN
VICE PRESIDENT - FINANCE
(PRINCIPAL FINANCIAL OFFICER)
<PAGE> 14
EXHIBIT INDEX
Exhibit No.
(per Item 601 Description Sequential
Of Reg. S-K) of Exhibit Page No.
- -------------- ----------------------- -------------
11 Statement Re: Computation of Per
Share Earnings
27 Financial Data Schedule
<PAGE>
RUDDICK CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
NINE MONTHS ENDED
------------------------------
June 27, June 28,
1999 1998
------------- -------------
NET INCOME PER SHARE COMPUTED AS FOLLOWS:
BASIC:
1. Net income available to common
shareholders $37,639,000 $33,665,000
============= =============
2. Weighted average common shares
outstanding - Basic 46,544,262 46,690,143
============= =============
3. Basic net income per share
(Item 1 divided by Item 2) $.81 $.72
============= =============
DILUTED:
1. Net income available to common
shareholders $37,639,000 $33,665,000
============== =============
2. Weighted average common shares
outstanding - Basic 46,544,262 46,690,143
3. Weighted potential shares under
stock options computed for the
periods using the Treasury
Stock Method. 241,749 316,722
------------- -----------
4. Weighted average common shares
outstanding - Diluted 46,786,011 47,006,865
============= ============
5. Net Income Per Share (Item 1
divided by Item 4) $.80 $.72
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-27-1999
<CASH> 13,466,000
<SECURITIES> 0
<RECEIVABLES> 90,555,000
<ALLOWANCES> 2,600,000
<INVENTORY> 216,103,000
<CURRENT-ASSETS> 345,762,000
<PP&E> 939,224,000
<DEPRECIATION> 414,512,000
<TOTAL-ASSETS> 956,790,000
<CURRENT-LIABILITIES> 222,789,000
<BONDS> 209,775,000
0
0
<COMMON> 51,745,000
<OTHER-SE> 382,296,000
<TOTAL-LIABILITY-AND-EQUITY> 956,790,000
<SALES> 636,628,000
<TOTAL-REVENUES> 636,628,000
<CGS> 457,126,000
<TOTAL-COSTS> 611,217,000
<OTHER-EXPENSES> 2,032,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,734,000
<INCOME-PRETAX> 19,645,000
<INCOME-TAX> 7,377,000
<INCOME-CONTINUING> 12,268,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,268,000
<EPS-BASIC> .26
<EPS-DILUTED> .26
</TABLE>
