EXHIBIT 13
RUDDICK CORPORATION
2000 ANNUAL REPORT TO SHAREHOLDERS:
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
FINANCIAL HIGHLIGHTS
Dollars in thousands,
except per share
data) 2000 1999 1998 1997 1996
------------------------------------------------------------------------------
Net Sales $2,682,833 $2,624,774 $2,487,370 $2,300,089 $2,142,501
Total Operating
Profit 106,624 104,055 94,196 94,836 83,143
Earnings Before
Interest, Taxes,
Depreciation and
Amortization
(EBITDA) 176,896 166,699 152,851 144,583 125,390
Net Income 51,002 50,714 46,772 47,731 42,802
Net Income Per Share
Basic 1.10 1.09 1.00 1.02 .92
Diluted 1.10 1.08 1.00 1.02 .92
Dividend Per Share .36 .33 .32 .32 .26
Total Assets 1,021,018 970,114 931,618 885,243 801,702
Long-Term Debt --
Including
Current Portion 227,940 198,961 191,931 190,494 164,435
Shareholders' Equity 473,005 443,683 410,725 380,507 346,856
Book Value Per Share 10.23 9.55 8.82 8.17 7.47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Fiscal 2000 Compared to Fiscal 1999
For the 52-week fiscal year ended October 1, 2000,
consolidated sales of $2.68 billion increased 2.2% over the $2.62
billion reported in the previous 53-week fiscal year ended October
3, 1999. Adjusted for the additional week of sales in fiscal
1999, sales increased by approximately 4.2%. Consolidated fiscal
2000 net income of $51.0 million increased .6% from
the $50.7 million reported last year. Basic and diluted earnings
per share were both $1.10 in fiscal 2000, compared to $1.09 and $1.08,
respectively, in fiscal 1999. The increase in net
income for fiscal 2000 resulted primarily from increased
operating profit at Harris Teeter, the Company's retail grocery
subsidiary, partially offset by a decrease in operating profit at
American & Efird (A&E), the industrial thread subsidiary, and
reduced by higher income taxes for the Company. The Company's effective
income tax rate rose to 39.6% (37.7% in 1999), driven primarily by reduced
tax benefits from Company-owned life insurance (COLI). As a result of
1996 federal tax legislation, certain policy loan interest which had
been partially deductible for income taxes during a three-year
phase-out period was no longer deductible effective January 1, 1999.
Harris Teeter, Inc. Sales grew by 2.6% for the 52-week fiscal
2000 to $2.33 billion from $2.27 billion in the 53-week fiscal 1999.
Adjusting for the additional week in fiscal 1999, total sales in
fiscal 2000 grew by approximately 4.6%. The sales increase was
primarily due to a 5.9% expansion in store square footage during the
fiscal year, as well as the promotional, advertising
and customer service activities put in place for new and existing
stores. Sales results for the fiscal year were impacted by the uneven
pace of sales growth in a number of its non-core markets, by
the lack of inflation in the grocery sector and by competitive
activity in the Southeast, to which Harris Teeter responded with
expanded promotional activities. Harris Teeter sales for stores in
operation during both fiscal years increased by .6% in fiscal
2000 compared to .9% in fiscal 1999. Weak comparable sales growth in
the first half of the current fiscal year improved
modestly in the second half; however, the Southeast market
continued to be extremely competitive. Overall, chain-wide grocery
sales of the current fiscal year grew by 1% and accounted for 28% of
the sales increase. Dairy, meat, produce and frozen products had sales
increases ranging from 1% to 4% and accounted for 55% of the
sales increase.
Gross profit increased by 4.4% to $648.7 million in fiscal
2000 from $621.3 million in fiscal 1999 and gross margin on sales
increased slightly to 27.8% in fiscal 2000 from 27.3% in
fiscal 1999. Operating profit expanded by 6.7%, to $59.1 million
in fiscal 2000 from $55.5 million in fiscal 1999. Operating margin on
sales in fiscal 2000 improved to 2.54% as compared to 2.44% in fiscal
1999. Harris Teeter's operating profit had decreased in the third and fourth
quarters of fiscal 1999 due to the reduced revenues and increased
costs related to the sale of 11 western Virginia stores and the opening
of eight of 10 stores it purchased from Kroger in the Winston-Salem and
Greensboro, North Carolina markets. In fiscal 2000, operating profit at
Harris Teeter was affected by additional promotional spending,
increases in labor costs and higher than expected waste. Even though labor
rates increased this year due to the tight labor market in the Southeastern
U.S., Harris Teeter was able to offset a portion of this by
implementing engineered labor standards in more departments. In
addition, the designation of model stores in each region is expected to
help store management better understand and implement desired best
operating practices and is expected to be a positive factor in the potential
to improve overall profitability.
At the end of fiscal 2000, 156 stores were in operation,
compared to 147 a year ago. Nine new stores were opened during the year,
including Harris Teeter first two stores in the northern Virginia/Washington
D.C. market, and none were closed. Total store square footage increased
from 5.9 million at the end of fiscal 1999 to 6.3 million at the
current year end.
American & Efird, Inc. In the 52-week fiscal 2000, A&E's sales of $349.9
million fell by .5% from $351.6 million in 53-week fiscal 1999. Adjusting
for the additional week in fiscal 1999, total sales in fiscal 2000 increased
by approximately 1%. In 2000, the sales decline was primarily in industrial
sewing thread, although consumer thread and notions sales, as well as export
sales, also declined. Sales in the U.S. declined by 6.6% as the result
of the continued shift of apparel production out of this country, slower
retail sales, increased imports into the U.S. market and a
competitive pricing environment. In A&E's foreign operations, however,
sales increases were achieved in the majority of its international markets.
Although sales in Europe remained weak, NAFTA continued to drive strong
sales growth in Canada and Mexico. Sales expansion in A&E's
non-apparel thread products and the launch of its new embroidery
thread also contributed to sales growth and, along with foreign sales,
are expected to have significant growth potential.
<PAGE> 21
Gross profit decreased by 2.1% to $103.9 million in fiscal
2000 from $106.1 million in the prior year, primarily due to competitive
pricing pressures and the rising costs of labor, raw materials and energy.
As a result, operating profit decreased by 2.3% to $47.5 million in fiscal
2000 compared to $48.6 million in the prior year. Increased cost factors
were partially offset during the year by improved productivity related to
the consolidation of A&E's North Carolina dyeing and finishing facilities
and U.S. service centers, as well as the continued improvement in
many of its international operations.
Sales by A&E foreign operations in fiscal 2000 increased by 14% over
fiscal 1999. Foreign operations contributed approximately 34% of A&E's
total sales and 18% of its operating profit in fiscal 2000. Foreign growth
generates U.S. greige production volume and efficiencies in the Company's
U.S. manufacturing facilities, and accordingly, some portion of domestic
profits is attributable to foreign sales. A&E invests in selected
expanding markets worldwide on the basis of expected opportunities to
achieve targeted returns on its investment. The United States-Caribbean
Basin Trade Partnership Act, which took effect in October 2000, eliminates
duty on all apparel made of U.S. fabrics from U.S. yarns coming out of the
Caribbean Basin and is already having a positive impact on Latin American
thread sales by A&E. A&E anticipates that the bill will increase demand for
U.S. manufactured sewing thread in the region and bring more apparel
sourcing back to this hemisphere from Asia. While foreign sales and profits
were still not material to the Company's consolidated results of
operations, growth in international sales and operating profit were
significant in fiscal 2000, and foreign sales growth is expected to
continue for the foreseeable future. A new dyeing and finishing
facility in southern China was under construction at year end that
will allow A&E to better and more efficiently service its customer base
in Asia.
As Ruddick Corporation looks forward to fiscal 2001,
management is cautious in its expectations for modest increases in
consumer spending in the U.S. within at least the first half
of the fiscal year. While industrial thread sales in the U.S. are
expected to continue to decline, A&E anticipates the continuation in
the coming year of growth in foreign sales at a pace at least
equal to that at which it has grown recently. Total sales for A&E
are expected to grow at a very modest rate. Further, the competitive
environment for supermarkets is not expected to ease
significantly within the foreseeable future. However, Harris
Teeter has put into place aggressive promotional and merchandising
programs which it expects may have a positive impact on
comparable store sales, as well as attract new customers from
competitors that have closed in our markets. If Harris Teeter achieves
its comparable store sales growth plan of about 1% and its new
store opening plan of 11 new stores and one replacement store, it
would expect to generate total sales growth in the mid-single digits.
Consistent execution at underperforming Harris Teeter stores
of the productivity initiatives that have been implemented will dictate
the pace at which Harris Teeter's margins could improve. A&E can improve
margins when generating a level of sales volume that allows
for more efficient operating schedules. The extent of softness in
apparel, home furnishings and other markets will obviously have an impact
upon A&E production levels. Further, pressure from retailers on
manufacturers to reduce prices continues to be an important factor in
gross margin improvement for the company. Given all the complex factors
currently impacting sales and costs at both subsidiaries, Ruddick
Corporation management remains conservative in its outlook and
believes that earnings improvement for fiscal 2001 will be
difficult in the current environment.
Results of Operations - Fiscal 1999 Compared to Fiscal 1998
For the 53-week fiscal year ended October 3, 1999,
consolidated sales of $2.62 billion increased 5.5% over the $2.49
billion reported in the 52-week 1998 fiscal year. Consolidated
fiscal 1999 net income of $50.7 million increased 8% from the
$46.8 million reported last year. Basic and diluted earnings per
share were $1.09 and $1.08, respectively, in fiscal 1999 compared
to $1.00 for both in fiscal 1998. The adoption during the first
quarter of fiscal 1998 of Statement of Financial Accounting Standards
No. 128, "Earnings per Share," had no effect on the net
income per share for the respective periods. The increase in net
income for fiscal 1999 resulted primarily from increased operating
profit at both Harris Teeter and A&E, partially offset by a
higher effective income tax rate for the Company. The Company's
effective income tax rate rose to 37.7% (33.8% in 1998), driven by
reduced tax benefits from COLI, as described above.
<PAGE> 22
Harris Teeter, Inc. Sales grew by 6.6% for the 53-week fiscal
1999 to $2.27 billion from $2.13 billion in the 52-week fiscal 1998.
The sales increase was primarily due to a 5.2% expansion in
store square footage during the fiscal year, as well as the
promotional, advertising and customer service activities for new and
existing stores in the intensely competitive market environment in
the southeastern United States. Further, the rate of food
inflation continued to be modest. Harris Teeter sales for stores in
operation during both fiscal years increased by .9% in fiscal 1999,
compared to 4.8% in fiscal 1998. Overall, chain-wide grocery
sales for fiscal 1999 grew by 7% and accounted for 51% of the sales
increase. Dairy, meat, produce and frozen products had sales
increases ranging from 5% to 10% and accounted for 41% of the
sales increase. The overall sales growth was achieved despite a
disruption of net sales in certain stores during a period of
transition associated with the third quarter exchange of 11
western Virginia stores for 10 Kroger stores in the Greensboro and
Winston-Salem, North Carolina market areas. This market
realignment afforded the potential to achieve enhanced
distribution efficiency and better utilization of advertising costs.
Harris Teeter closed 11 Virginia stores in May and opened eight
of the newly acquired Kroger stores during June and July of the
fiscal year. Sales lost during this transition period were partially
offset by an increase in sales at existing Harris Teeter stores in
the region.
Gross profit increased by 6.9% to $621.3 million in fiscal
1999 from $581.2 million in fiscal 1998. Operating profit expanded
by 6.4%, to $55.5 million in fiscal 1999 from $52.1
million in fiscal 1998. These results were primarily due to
higher net sales and improved expense controls, the benefits of which
were partially offset by non-recurring expenses associated with
the closings of the western Virginia stores and the opening of
the new stores. The pre-tax cost of the exchange of stores was not
materially different from the $5.5 million estimate reported by the
Company at the time of the transaction. For both fiscal 1999 and
1998, the operating margin on sales remained flat at approximately 2.44%.
At the end of fiscal 1999, 147 stores were in operation,
compared to 144 at the end of fiscal 1998. Sixteen new stores were
opened during fiscal 1999, including eight former Kroger
stores in the Greensboro and Winston-Salem, North Carolina area,
and 13 stores were closed, including 11 in western Virginia which were
acquired by Kroger. Harris Teeter expanded its
market boundaries in fiscal 1999 by opening its first two stores
in the Jacksonville, Florida area.
American & Efird, Inc. In the 53-week fiscal 1999, A&E's sales
of $351.6 million fell 1% from $355.1 million in 52-week fiscal 1998,
reflecting the approximately $3.8 million of prior year
sales of A&E's Korean operations, which were closed in June of
1998. In 1999, the sales decline was primarily in industrial sewing thread,
although consumer thread and notions sales also
decreased slightly. Sales of A&E's industrial thread in the U.S.
in both years declined as the result of the shift of its customers'
production to Mexico and the Caribbean Basin countries, the
growth of low-priced apparel imports and a change in consumer
buying trends to more designer apparel, resulting in fewer units sold at
retail. In fiscal 1999, weak demand for industrial thread
in the U.S. resulted in decreased sales during the first and
second quarters, although overall business conditions improved in the
second half of the year. In A&E's foreign operations, while
business conditions were somewhat soft in Europe, sales increases
were achieved in the majority of its international markets.
Gross profit increased by 5% to $106.1 million in fiscal
1999 from $101.0 million in the prior year, primarily as a result of the
additional operating week in the 1999 fiscal year and
increased productivity in manufacturing operations. Operating
profit improved by 15.6% to $48.6 million in fiscal 1999 compared to
$42.1 million in the prior year, reflecting primarily the
negative impact of $5.4 million in operating losses in Korea in
fiscal 1998. A&E's productivity improved during fiscal 1999 due to
continued modernization and due to the consolidation of a
Charlotte, North Carolina distribution center and the Salisbury,
North Carolina dyehouse into existing facilities in Gastonia, North Carolina.
Sales by foreign operations in fiscal 1999 increased by 13%
over fiscal 1998. Foreign operations contributed 30% of A&E's total
sales and 16% of its operating profits in fiscal 1999.
During the fourth quarter of fiscal 1999, A&E withdrew from its
unsuccessful attempt to acquire Hicking Pentecost PLC, a United
Kingdom-based industrial thread manufacturer. While foreign
sales and profits were still not material to the Company's
consolidated results of operations, growth in international sales
continued during fiscal 1999. With the exception of Europe, all
major foreign operations improved profitability in fiscal 1999,
with NAFTA continuing to drive strong performances in Canada and Mexico.
Export sales also expanded during fiscal 1999.
<PAGE> 23
Capital Resources and Liquidity
Ruddick Corporation is a holding company which, through its
wholly owned subsidiaries, Harris Teeter, Inc. and American & Efird, Inc.,
is engaged in the primary businesses of regional supermarket operations
and industrial sewing thread manufacture and distribution, 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 restrictions on such dividends, which are
determined as a percentage of net income of each subsidiary.
The Company strives to achieve a goal of earning at least a
15% return on beginning shareholders' equity. The return on beginning
equity was 11.5% in fiscal 2000 and 12.3% in 1999. At the same time,
the Company seeks to limit long-term debt such that it constitutes no
more than 40% of capital employed, which includes long-term debt,
minority interest and shareholders' equity. As of the end of fiscal 2000,
this percentage was 32.1%, an increase from last year's 30.7%.
The Company's principal source of liquidity has been revenue
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 fiscal 2000 was $99.9 million, and $70.2
million was outstanding at year end compared to $40.8 million at October 3,
1999. The majority of the borrowings under Ruddick's
revolving credit facilities were used 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. Two-thirds of the aggregate balance
outstanding under these revolving lines of credit will mature
February 15, 2005, and one-third will mature February 15, 2004; however,
an annual one-year extension of term may be provided by the lenders under
the evergreen provisions of the loan agreement. In the normal course of
business, management expects to expand its revolving lines of
credit during fiscal year 2001. In addition, the Company has a short-term,
uncommitted bank line of credit for $10 million on
which no borrowing was outstanding at year end. Further, the
Company has the capacity to borrow up to an aggregate $27 million from
two major U.S. life insurance companies utilizing certain insurance
assets as collateral.
Working capital as of the fiscal years ended 2000, 1999 and
1998 was $132.9 million, $120.0 million and $87.3 million, respectively.
The increase of $12.9 million in fiscal 2000 was primarily the result of
an increase in inventories and a decrease in accounts payable. The current
ratio was 1.6 at October 1, 2000 and 1.5 at October 3, 1999.
Covenants in certain of the Company's long-term debt
agreements limit the total indebtedness that the Company may incur. The
Company remains well within such covenants. 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.
In fiscal 2000, capital expenditures were $118.8 million. In
fiscal 2001, capital expenditures are expected to be not more than $107
million. For construction of its southern China dyeing and finishing
facility, and other modernization and expansion, American & Efird
expects to spend about $31 million. Harris Teeter anticipates
lower capital spending of approximately $76 million. The Harris Teeter
estimates include the fiscal year 2001 opening of 12 new stores, one of
which will be a replacement store. New store locations include six in North
Carolina, one in South Carolina, two in Virginia, one in Georgia,
one in Florida and one in Tennessee. If A&E and Harris Teeter achieve
these capital spending plans, depreciation and amortization costs should
increase by approximately 9% for fiscal 2001. Management expects
that internally generated funds, supplemented by available
borrowing capacity, will be adequate to finance such expenditures.
<PAGE> 24
Other Matters
Year 2000 Remediation The Company successfully completed its
Year 2000 remediation programs and encountered no significant disruptions
or other adverse effects as the result of functioning beyond calendar year
1999. The Company spent $3.3 million to achieve Year 2000 compliance since
beginning in fiscal year 1997.
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 COLI, the Company's effective income
tax rate, in comparison to the prior fiscal year, has risen to a level
approximating 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 pursuing an adverse position regarding the
deductibility of COLI policy loan interest for years prior to
January 1, 1999. The IRS issued Technical Advice Memoranda regarding the
COLI deductibility to taxpayers unrelated to the
Company. Further, on October 19, 1999, the Tax Court ruled, in a
single judge's decision, that Winn-Dixie Stores, Inc. was not entitled to
deduct interest on policy loans from its COLI program, finding that the
program lacked economic substance. On October 16, 2000, the U.S.
District Court of Delaware issued an opinion disallowing the COLI
interest deductions of Camelot Music, Inc. Management expects that the
adverse position taken by the IRS will be subjected to extensive further
challenges in the courts, not only by Winn-Dixie and Camelot but
also by many other large corporations with similar life insurance
programs. 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. If the IRS were to prevail, the income tax
payable (including federal and state amounts) would total
approximately $7.4 million, for 1994 and 1995, and for all years a total
of approximately $31.0 million, including interest thereon. The
Company strongly disagrees with the position of the IRS, has begun the
appeal of the assessment 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 would 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 or
judicial position which prevails, if any, that could have an adverse
impact on the tax benefits of 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 and Harris
Teeter store openings and closings; and
* the extent and speed of the successful execution of
strategic initiatives designed to increase sales and profitability in
each of the operating companies.
<PAGE> 25
CONSOLIDATED BALANCE SHEETS
October 1 October 3
(Dollars in thousands) 2000 1999
--------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 9,527 $ 14,467
Accounts Receivable, Less Allowance
for Doubtful Accounts:
2000, $3,166; 1999, $3,233 73,889 76,827
Inventories 248,623 223,694
Other Current Assets 31,205 43,886
---------- ----------
Total Current Assets 363,244 358,874
---------- ----------
Property
Land 19,531 19,748
Buildings and Improvements 172,789 160,089
Machinery and Equipment 665,930 615,172
Leasehold Improvements 222,312 176,074
---------- ----------
Total, at Cost 1,080,562 971,083
Accumulated Depreciation and
Amortization 500,033 431,526
---------- ----------
Property, Net 580,529 539,557
---------- ----------
Investments and Other Assets
Investments 15,651 16,511
Other Assets 61,594 55,172
----------- ------------
Total Assets $ 1,021,018 $ 970,114
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 800 $ 177
Current Portion of Long-Term Debt 2,944 429
Accounts Payable 129,356 143,095
Federal and State Income Taxes 17,983 14,986
Accrued Compensation 29,157 28,179
Accrued Interest 5,893 4,208
Other Accrued Liabilities 44,228 47,794
--------- --------
Total Current Liabilities 230,361 238,868
--------- --------
Non-Current Liabilities
Long-Term Debt 224,996 198,532
Deferred Income Taxes 56,544 59,774
Other Liabilities 27,654 24,531
Minority Interest 8,458 4,726
--------- ----------
Commitments and Contingencies
Shareholders' Equity
Common Stock - Shares Outstanding:
2000-46,220,876; 1999-46,451,240 48,398 52,137
Retained Earnings 428,053 393,699
Cumulative Translation Adjustments (3,446) (2,153)
--------- ---------
Shareholders' Equity 473,005 443,683
--------- ---------
Total Liabilities and
Shareholders' Equity $1,021,018 $970,114
========== =========
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
<PAGE> 26
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
For the
Fiscal Years Ended
October 1 October 3 September 27
(Dollars in thousands, 2000 1999 1998
except per share data)
----------------------------------------------------------------
Net Sales $2,682,833 $ 2,624,774 $2,487,370
---------- ----------- -------------
Cost of Sales 1,930,253 1,897,397 1,805,088
Selling, General and
Administrative
Expenses 645,956 623,322 588,086
--------- ----------- ------------
Operating Profit 106,624 104,055 94,196
--------- ----------- ------------
Net Interest Expense 15,487 14,686 15,973
Other Expense, Net 6,744 7,980 7,529
--------- ----------- ------------
Income Before Taxes 84,393 81,389 70,694
Taxes 33,391 30,675 23,922
--------- ----------- ------------
Net Income 51,002 50,714 46,772
Retained Earnings at
Beginning of Fiscal
Year 393,699 358,328 326,488
Common Dividend - 2000:
$.36 a share; 1999:
$.33 a share; 1998:
$.32 a share 16,648 15,343 14,932
-------- ---------- -----------
Retained Earnings at
End of Fiscal Year $428,053 $393,699 $358,328
========= ========== ===========
Net Income Per
Share -Basic $ 1.10 $1.09 $1.00
Net Income Per
Share - Diluted $ 1.10 $1.08 $1.00
========= ========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
STATEMENTS OF CONSOLIDATED TOTAL NON-OWNER CHANGES IN EQUITY
For the
Fiscal Years Ended
October 1 October 3 September 27
(Dollars in thousands) 2000 1999 1998
-------------------------------------------------------------------
Net Income $ 51,002 $ 50,714 $ 46,772
Other Non-Owner Changes
in Equity, Net of Tax:
Foreign Currency
Translation Adjustment (1,293) 136 (917)
---------- --------- ------------
Total Non-Owner Changes
in Equity $ 49,709 $ 50,850 $ 45,855
========== ========= ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE> 27
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the
Fiscal Years Ended
October 1 October 3 September 27
(Dollars in thousands) 2000 1999 1998
------------------------------------------------------------------
Cash Flow from Operating
Activities
Net Income $ 51,002 $ 50,714 $ 46,772
Non-Cash Items Included
in Net Income
Depreciation and
Amortization 77,016 70,624 66,184
Deferred Taxes (2,520) 1,434 3,064
Other, Net (5,156) (3,980) 5,822
Decrease(Increase)in
Accounts Receivable 5,298 121 904
Decrease(Increase)in
Inventories (20,845) (12,290) (15,356)
Decrease (Increase)
in Other Current Assets 12,076 (13,718) 4,911
Increase (Decrease) in
Current Liabilities (14,711) (6,411) 11,018
---------- ---------- -----------
Net Cash Provided by
Operating Activities 102,160 86,494 123,319
---------- ----------- ------------
Investing Activities
Capital Expenditures (118,755) (96,937) (95,473)
Cash Proceeds from Sale
of Property 1,426 2,931 1,719
COLI, Net (5,320) 11,084 (1,405)
Other, Net 4,496 3,419 (13,860)
---------- ----------- -------------
Net Cash Used in Investing
Activities (118,153) (79,503) (109,019)
---------- ----------- ------------
Financing Activities
Proceeds from Long-Term
Borrowings 29,400 7,837 2,100
Payments of Principal
on Long-Term Debt (422) (735) (508)
Dividends Paid (16,648) (15,343) (14,932)
Other, Net (1,277) (951) (1,442)
---------- ----------- ------------
Net Cash Provided by
(Used in) Financing
Activities 11,053 (9,192) (14,782)
---------- ------------ -------------
Decrease in Cash and
Cash Equivalents (4,940) (2,201) (482)
Cash and Cash Equivalents
at Beginning of Year 14,467 16,668 17,150
---------- ------------- ------------
Cash and Cash Equivalents
at End of Year $ 9,527 $ 14,467 $ 16,668
========== ============= =============
Supplemental Disclosures
of Cash Flow Information
Cash Paid During the
Year for:
Interest $ 16,092 $ 15,953 $ 16,516
Income Taxes $ 30,679 $ 26,439 $ 20,201
The accompanying notes to consolidated financial statements are
an integral part of these statements.
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Ruddick Corporation and subsidiaries, including its
wholly owned operating companies, Harris Teeter,
Inc. and American & Efird, Inc., collectively referred to herein
as the Company. All material intercompany amounts have been eliminated.
To the extent that non-affiliated parties held
minority equity investments in joint ventures of the Company,
such investments are classified as minority interest.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest to
September 30. The 1999 fiscal year includes 53 weeks, while 2000 and
1998 fiscal years include 52 weeks.
Cash Equivalents
For purposes of the statements of consolidated cash flows,
the Company considers all highly liquid cash investments purchased
with an initial maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market with
the cost of substantially all domestic U. S. inventories being determined
using the last-in, first-out (LIFO) method. The LIFO cost of such
inventories was $21,798,000 and $21,589,000 less than the first-in,
first-out (FIFO) cost method at October 1, 2000 and October 3, 1999,
respectively. Foreign inventories and limited categories of domestic
inventories, totaling $44,684,000 for fiscal 2000 and
$36,129,000 for fiscal 1999, are valued on the weighted average
and on the FIFO cost methods. At October 1, 2000 (October 3, 1999) the
value of finished goods inventory was $223,357,000
($203,732,000), work in progress was $5,956,000 ($7,736,000) and
raw materials and supplies were $19,310,000 ($12,226,000).
Property and Depreciation
Property is at cost and is depreciated, using principally the
straight-line method, over the following useful lives:
Land improvements 10-40 years
Buildings 10-40 years
Machinery and equipment 3-15 years
Leasehold improvements are depreciated over the lesser of
the estimated useful life or the remaining term of the lease. Assets
under capital leases are amortized on a straight-line basis
over the lesser of 20 years or the lease term. Maintenance and
repairs are charged against income when incurred. Expenditures for
major renewals, replacements and betterments are added to
property. The cost and the related accumulated depreciation of
assets retired are eliminated from the accounts; gains or losses on
disposal are added to or deducted from income. Property
categories include $36,863,000 and $12,512,000 of undepreciated
construction in progress at October 1, 2000 and October 3, 1999, respectively.
Investments
The Company holds a financial position in certain shopping
centers in which Harris Teeter, Inc., is an anchor tenant. Additionally
it makes loans to and equity investments in a number of emerging growth
companies, primarily through investments in certain venture capital
funds, which are valued at fair value. Real estate is carried at
the lower of cost or market. In management's opinion, the net aggregate
carrying value of financial instruments of $6,914,000
and $8,162,000 held for investment approximated their aggregate
fair values at October 1, 2000 and October 3, 1999, respectively.
Other Assets
Other assets include cash surrender value of Company-owned
life insurance (COLI), investment in unconsolidated foreign subsidiaries
and various acquisition costs. The cash surrender value of life insurance
is recorded net of policy loans. The net life insurance expense,
including interest expense of $3,874,000 in 2000, $9,005,000 in
1999 and $16,831,000 in 1998, is included in other expense in the
statements of consolidated income and retained earnings.
Acquisition costs allocated to other assets, including favorable
lease rights and goodwill, are being amortized over 10-15 years.
<PAGE> 29
Fair Value Disclosures
The carrying amounts for certain of the Company's financial
instruments, including cash and cash equivalents, accounts and notes
receivable, accounts payable and other accrued liabilities approximate
fair value because of their short maturities. The recorded amount of fixed
rate obligations exceeds their fair value by approximately
$9,500,000 based on borrowing rates currently available to the Company
for loans with similar terms and maturities. The Company
reviews the carrying value of property and equipment whenever
events or changes in circumstances indicate that the carrying value
may not be recoverable. Measurement of any impairment would include a
comparison of estimated future operating cash flows anticipated to
be generated during the remaining life to the net carrying value
of the asset. At October 1, 2000, in management's opinion, the carrying
value of the Company's long-lived assets and intangibles,
including goodwill, was recoverable in all material respects.
Revenue Recognition
The Company recognizes revenue from retail operations at the
point of sale to its customers and from manufacturing operations at
the point of shipment to its customers.
Advertising
Costs incurred to produce media advertising are expensed in
the period in which the advertising first takes place. All other
advertising costs are also expensed when incurred.
Cooperative advertising income from vendors is recorded in the
period in which the related expense is incurred. Net advertising
expenses of $22,680,000, $22,696,000 and $20,721,000 were included in
the Company's results of operations for fiscal 2000, 1999 and 1998,
respectively.
Foreign Currency
Assets and liabilities of foreign operations are translated
at the current exchange rates as of the end of the accounting period,
and revenues and expenses are translated using average
exchange rates. The resulting translation adjustments are
accumulated as a component of non-owner changes in equity.
Income Taxes
Ruddick and its subsidiaries file a consolidated federal
income tax return. Tax credits are recorded as a reduction of income
taxes in the years in which they are generated. Deferred tax
liabilities or assets at the end of each period are determined
using the tax rate expected to be in effect when taxes are actually paid
or recovered. Accordingly, income tax expense will increase
or decrease in the same period in which a change in tax rates is
enacted.
Per Share Amounts
Basic and diluted net income per share amounts are
determined based on the weighted average number of shares of common
stock and common stock equivalents (non-cumulative,
voting $.56 convertible preference stock and stock options)
outstanding. The weighted average basic shares outstanding were
46,274,479 in 2000, 46,511,523 in 1999 and 46,667,416 in 1998.
As the result of outstanding stock options the weighted average
diluted shares outstanding were 46,349,694 in 2000, 46,746,650 in
1999 and 46,964,423 in 1998. Common stock equivalents had
no effect on per share earnings in fiscal year 2000 and 1998, and
reduced earnings per share by $.01 in 1999.
Stock Options
As permitted by Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company
continues to record compensation cost for stock option plans in
accordance with Accounting Principles Board Opinion No. 25.
Accordingly, compensation cost of stock options is measured as
the excess, if any, of the market price of the Company's stock at the
date of the grant over the option exercise price and is charged
to operations over the vesting period. Income tax benefits
attributable to stock options exercised are credited to capital stock.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.
<PAGE> 30
Reclassifications
To conform with classifications adopted in the current year,
the financial statements for prior years reflect certain reclassifications,
which have no effect on net income.
New Accounting Standards
Derivative Instruments and Hedging: SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137 and SFAS No. 138, will be effective for the
Company's fiscal year 2001. The Statement established accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded
in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met and requires
that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company
will adopt SFAS No. 133, as amended, beginning the first quarter of
fiscal 2001. Management does not expect the impact of adoption of this
statement on the Company's financial position and results of operations
to be material.
Leases
The Company leases certain equipment under agreements
expiring during the next four years. Harris Teeter leases most of its
stores under leases that expire during the next 22 years. It
is expected that such leases will be renewed by exercising
options or replaced by leases of other properties. Most store leases
provide for additional rentals based on sales, and certain store
facilities are sublet under leases expiring during the next 17
years. Rent expenses were as follows:
(In thousands) 2000 1999 1998
--------------------------------------------------------------
Operating Leases:
Minimum $ 70,785 $ 65,791 $ 59,720
Contingent 1,278 1,218 1,157
--------- -------- ---------
Total $ 72,063 $ 67,009 $ 60,877
Future minimum lease commitments at October 1, 2000 (excluding
leases assigned or expected to be assigned - see below) were as follows:
Operating
(In thousands) Leases
------------------------------------------------
2001 $ 69,986
2002 64,166
2003 60,973
2004 58,676
2005 57,211
Later years 516,862
----------
Total minimum lease payments $ 827,874
----------
Total minimum sublease rentals
to be received under
noncancelable subleases $ 18,026
In connection with the closing of certain store locations, Harris Teeter
has assigned leases to other merchants with recourse. These leases expire
over the next 18 years and the future minimum lease payments of $43,347,000
over this period have been assumed by these merchants. Leases related to
certain closed store locations have been subleased to other merchants. The
future minimum lease payments related to these stores totaled $28,843,000 at
October 1, 2000. In addition, Harris Teeter leases certain store locations
which are not currently in use but are expected to be assigned to other
merchants. These leases expire over the next 15 years and the future
minimum lease payments related to these locations total $15,310,000
(approximating $1,580,000 per year for each of the next five years). The
Company has provided reserves for the estimated net liability associated
with stores subleased, or expected to be subleased, at rental amounts
below the related minimum lease payments.
<PAGE> 31
Long-Term Debt
Long-term debt at October 1, 2000 and October 3, 1999 was as follows:
(In thousands) 2000 1999
---------------------------------------------------------
6.48% Senior Note due $7,143,
annually March, 2005 through 2011 $ 50,000 $ 50,000
7.72% Senior Note due April, 2017 50,000 50,000
7.55% Senior Note due July, 2017 50,000 50,000
Revolving lines of credit, variable rate
($23,400 due February 2004;
$46,800 due February 2005) 70,200 40,800
Industrial revenue bond,
variable rate, due November 2000 2,500 2,500
Other obligations 5,240 5,661
--------- --------
Total 227,940 198,961
Less current portion 2,944 429
--------- --------
Total long-term debt $ 224,996 $198,532
Long-term debt maturities in each of the next five fiscal
years are as follows: 2001 -
$2,944,000; 2002 - $411,000;
2003 - $416,000; 2004 - $23,699,000; 2005 - $323,000.
Additionally in fiscal 2005, certain revolving lines of credit
($46,800,000 as of October 1, 2000) would mature; however,
management expects to obtain the one-year extension of term upon
receipt of the mutual consent of lenders under the "evergreen"
provisions of the loan agreement.
During 2000 and 1999 the maximum outstanding borrowing under
the revolving line of credit was $99,900,000 and $82,800,000, respectively,
and the average outstanding for the fiscal years was $62,663,000 and
$57,669,000, respectively. The daily weighted average interest rate (a
variable rate related to the current published CD rate) was 6.8%
and 5.6% and a commitment fee of .15% of the unused line was charged
during 2000 and 1999. As of October 1, 2000, the Company had available
$29,800,000 of committed capacity under its revolving credit facility.
In addition, the Company has a short-term, uncommitted bank
line of credit for $10 million on which no borrowing was outstanding
at year end. Further, the Company has the capacity to borrow up to an
aggregate $27 million from two major U.S. life insurance companies
utilizing certain insurance assets as collateral.
Various loan agreements provide, among other things, for
maintenance of minimum levels of consolidated shareholders' equity or
tangible net worth. At October 1, 2000, consolidated tangible net worth
exceeded by $115,100,000 the balance which, under the most
restrictive provisions, must be maintained through September 30,
2001. The requirement shall increase annually by 40% of consolidated
net income for such year.
Total interest expense on long-term debt was $16,694,000,
$14,997,000 and $16,596,000 in 2000, 1999 and 1998, respectively.
Capital Stock
The capital stock of the Company authorized at October 1,
2000 was 1,000,000 shares of Additional Preferred, 4,000,000 shares of
Preference-noncumulative $.56 convertible, voting ($10 liquidation value),
and 75,000,000 shares of no par value Common. No shares of Additional
Preferred or Preference-noncumulative convertible were issued or
outstanding at October 1, 2000.
<PAGE> 32
Changes in shares issued and outstanding and in shareholders'
equity accounts, other than retained earnings and other non-owner
changes in equity, are summarized as follows:
Common
(In thousands except share amounts) Shares Amount
----------------------------------------------------------------
Balance at September 28, 1997 46,599,301 $ 56,779
------------ ----------
Shares issued under exercised
stock options 223,710 2,107
Shares purchased and retired (268,420) (4,676)
Tax effect of disqualifying
option stocks - 381
Other - 95
------------- ----------
Balance at September 27, 1998 46,554,591 $ 54,686
------------- ----------
Shares issued under exercised
stock options 135,149 1,359
Shares purchased and retired (238,500) (4,233)
Tax effect of disqualifying
option stocks - 282
Other - 43
------------- -----------
Balance at October 3, 1999 46,451,240 $ 52,137
------------- -----------
Shares issued under exercised
stock options 57,836 625
Shares purchased and retired (288,200) (4,408)
Tax effect of disqualifying
option stocks - 44
Other - -
------------ -----------
Balance at October 1, 2000 46,220,876 $ 48,398
------------ -----------
One preferred share purchase right is attached to each
outstanding share of common stock, which rights expire on November 15,
2000. Each right entitles the holder to purchase one
four-hundredth of a share of a new Series A Junior Participating
Additional Preferred Stock at $26.25. The rights will become exercisable
only under certain circumstances related to a person or group acquiring
or offering to acquire a substantial portion of the
Company's common stock. If certain additional events then occur,
each right would entitle the rightholder to acquire common stock of the
Company, or in some cases of an acquiring entity,
having a value equal to twice the exercise price. Under certain
circumstances the Board of Directors may exchange all or part of the
outstanding rights at an exchange ratio per right of one
share of common stock, or one four-hundredth of a share of Series
A Junior Participating Additional Preferred Stock, or may redeem each
right at a price of $.0025. There are 200,000
shares of Series A Junior Participating Additional Preferred
Stock reserved for issuance upon exercise of the rights.
Management expects such rights to be renewed and amended to
be in effect beyond November 15, 2000.
Stock Options
At October 1, 2000, the Company has 1988, 1993, 1995 and
1997 stock option plans which authorized options for 3,100,000 shares
of common stock. Under the plans, the Company may grant to officers
and management personnel incentive stock options which become
exercisable in installments of 20% per year at each of the first
through fifth anniversaries from grant date and which expire seven
years from grant date. Additionally under the 1995 plan, the
Company grants a single, one-time nonqualified stock option of
10,000 shares, generally vested immediately, to each of its outside
directors. Further, under the 1997 plan the Company may
grant performance shares, stock awards, restricted stock and
nonqualified stock options to employees and outside directors as well
as incentive stock options to employees. Under each of
the plans the exercise price of each option shall be no less than
the market price of the Company's stock on the date of grant, and an
option's maximum term is ten years. At the discretion of the Company,
under certain plans a stock appreciation right may be granted and
exercised in lieu of the exercise of the related option (which is
then forfeited). Under the plans, as of October 1, 2000, the Company
may grant additional options for the purchase of 424,500 shares.
<PAGE> 33
A summary of the status of the Company's stock option plans
as of October 1, 2000, October 3, 1999 and September 27, 1998,
changes during the years ending on those dates and
related weighted average exercise price is presented below:
2000 1999 1998
(Shares in
thousands) Shares Price Shares Price Shares Price
-------------------------------------- -------------- ----------------
Outstanding at
beginning of year 1,488 $16.36 1,343 $14.85 1,011 $10.99
Granted 408 17.27 387 19.85 610 19.29
Exercised (59) 10.95 (140) 10.36 (235) 9.89
Forfeited (140) 18.08 (102) 17.79 (43) 14.10
------------- -------------- ----------------
Outstanding at end
of year 1,697 16.64 1,488 16.36 1,343 14.85
------------- -------------- ----------------
Options exercisable
at year end 707 $14.74 519 $13.59 399 $11.50
The following table summarizes options outstanding and options
exercisable as of October 1, 2000, and the related weighted average
remaining contractual life (years) and weighted average exercise price
(shares in thousands):
Options Outstanding Options Exercisable
Shares Remaining Shares
Option Price Outstanding Life Price Exercisable Price
per Share
----------------- ---------------------------- ------------------------
$ 9.72 to $13.38 496 2.2 $11.55 402 $11.43
14.38 to 18.47 428 6.3 17.23 49 17.06
19.31 to 20.28 773 4.8 19.57 256 19.50
--------------------------- -------------------------
$ 9.72 to $20.28 1,697 4.4 $16.64 707 $14.74
The weighted average fair value at date of grant for options granted
during fiscal 2000, 1999 and 1998 was $4.71, $5.12 and $5.44 per option,
respectively. The fair value of options at date of grant was estimated
using the Black-Scholes model with the following weighted average
assumptions:
2000 1999 1998
------------------------------------------------------------
Expected life (years) 4.8 4.8 5.1
Risk-free interest rate 6.06% 4.67% 5.80%
Volatility 28.18% 28.66% 28.44%
Dividend yield 2.30% 2.10% 2.20%
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the stock options granted in fiscal 2000,
1999 or 1998. Had compensation cost been determined based on the fair
value at the grant date consistent with the provisions of this statement,
the Company's pro forma net income and basic and diluted net income per
share would have been as follows:
(In thousands, except
per share data) 2000 1999 1998
---------------------------------------------------------------
Net income -as reported $51,002 $50,714 $46,772
-pro forma 50,098 49,727 45,846
Net income per share:
Basic -as reported $ 1.10 $ 1.09 $ 1.00
-pro forma 1.08 1.07 .98
Diluted -as reported $ 1.10 $ 1.08 $ 1.00
-pro forma 1.08 1.06 .98
The pro forma effect on net income for fiscal 2000, 1999 and 1998 is
not representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation
expense related to grants made prior to fiscal year 1996.
<PAGE> 34
Income Taxes
The provision for income taxes consisted of the following:
(In thousands) 2000 1999 1998
--------------------------------------------------------------
Current
Federal $ 30,469 $ 24,320 $ 15,903
State and other 5,442 4,921 4,955
-------- --------- -----------
35,911 29,241 20,858
-------- --------- -----------
Deferred
Federal (2,804) 1,129 3,004
State and other 284 305 60
--------- ---------- ------------
(2,520) 1,434 3,064
--------- ---------- ------------
Provision for income taxes $ 33,391 $ 30,675 $ 23,922
Income from foreign operations before income taxes in fiscal 2000,
1999 and 1998 was $1,376,000, $1,249,000 and $1,402,000, respectively.
Income tax expense differed from an amount computed by applying the
statutory tax rates to pre-tax income as follows:
(In thousands) 2000 1999 1998
-------------------------------------------------------------
Income tax on pre-tax income
at the statutory federal
rate of 35% $29,538 $28,486 $24,743
Increase (decrease)
attributable to:
State and other income
taxes, net of federal
income tax benefit 4,080 4,331 3,748
Employee Stock Ownership
Plan (ESOP) (1,313) (1,610) (1,349)
COLI (486) (1,066) (3,528)
Other items, net 1,572 534 308
-------- ---------- ----------
Income tax expense $33,391 $30,675 $23,922
The tax effects of temporary differences giving rise to the Company's
consolidated deferred tax liability at October 1, 2000 and October 3,
1999 are as follows:
(In thousands) 2000 1999
--------------------------------------------------------
Deferred Tax Assets
Employee benefits $ 6,757 $ 6,963
Reserves not currently deductible 9,473 9,091
Other 5,217 6,081
--------- --------
Total deferred tax assets $21,447 $22,135
--------- --------
Deferred Tax Liabilities
Property, plant and equipment $(60,765) $(60,479)
Other capitalized costs (4,786) (4,579)
Undistributed profit on foreign
Subsidiaries (1,442) (5,049)
Other (4,260) (4,354)
---------- ----------
Total deferred tax liabilities $(71,253) $(74,461)
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $19,313,000 at October 1, 2000. $15,194,000 of those earnings
are considered to be indefinitely reinvested and, accordingly, no provision
for U.S. federal and state income taxes has been provided thereon. If those
earnings were distributed, the Company would be subject to U.S. federal and
state taxes, net of foreign credits, of approximately $5,303,000 and
withholding taxes payable to the various foreign countries.
<PAGE> 35
Industry Segment Information
The Company operates primarily in two businesses: industrial thread
(textile primarily) - American & Efird, and retail grocery (including the
real estate and store development activities of the Company) - Harris Teeter.
American & Efird manufactures sewing thread for the apparel and other
markets. Harris Teeter operates a regional chain of supermarkets. The Company
evaluates performance of its two businesses utilizing various measures
which are based on operating profit.
Summarized information for fiscal 2000, 1999 and 1998 is as follows:
Industrial Retail
(In millions Thread Grocery Corporate(1) Consolidated
-------------------------------------------------------------------
2000
Net Sales $ 349.9 $ 2,332.9 $ 2,682.8
--------- --------- ---------- ------------
Gross Profit 103.9 648.7 752.6
--------- --------- ---------- ------------
Operating Profit 47.5 59.1 106.6
--------- --------- ---------- ------------
Assets Employed at
Year End $ 288.1 $ 665.5 $ 67.4 $ 1,021.0
Depreciation and
Amortization 18.6 57.0 1.4 77.0
Capital Expenditures 19.8 99.0 - 118.8
-------- ---------- --------- -----------
1999
Net Sales $ 351.6 $ 2,273.2 $ 2,624.8
-------- ---------- --------- -----------
Gross Profit 106.1 621.3 727.4
-------- ---------- --------- -----------
Operating Profit 48.6 55.5 104.1
-------- ---------- --------- -----------
Assets Employed at
Year End $ 284.4 $ 614.3 $ 71.4 $ 970.1
Depreciation and
Amortization 17.3 52.2 1.1 70.6
Capital Expenditures 15.6 77.5 3.8 96.9
1998
Net Sales $ 355.2 $ 2,132.2 $ 2,487.4
-------- --------- -------- ----------
Gross Profit 101.0 581.3 682.3
-------- --------- -------- ----------
Operating Profit 42.1 52.1 94.2
-------- --------- -------- ----------
Assets Employed at
Year End $ 285.7 $ 578.9 $ 67.0 $ 931.6
Depreciation and
Amortization 16.6 48.6 1.0 66.2
Capital Expenditures 20.2 75.1 0.2 95.5
(1) Corporate Assets Employed include investment assets and net cash
surrender value of Company-owned life insurance.
Geographic information as required by SFAS No. 131 is as follows:
Net revenue received from domestic United States customers was
$2,563,809,000 in fiscal 2000 ($2,520,502,000 in 1999 and $2,394,821,000
in 1998), and net revenue received from customers in foreign countries
was $119,024,000 for 2000 ($104,272,000 in 1999 and $92,549,000 in 1998).
Net long-lived assets located in the domestic United States were
$560,700,000 in 2000 ($524,200,000 in 1999 and $497,700,000 in 1998), and
net long-lived assets located in foreign countries were $24,700,000,
$20,600,000 and $20,300,000 in 2000, 1999 and 1998, respectively.
<PAGE> 36
Commitments and Contingencies
Substantially all domestic full-time employees of the Company and
its subsidiaries participate in non-contributory defined benefit pension
plans. Employees in foreign subsidiaries participate to varying degrees in
local pension plans, which, in the aggregate, are not significant.
The Company also has an unfunded, non-qualified supplemental executive
retirement plan for certain officers. Employee retirement benefits under the
various plans are a function of both the years of service and compensation
for a specified period of time before retirement. The Company's current
funding policy for its qualified pension plans is to contribute annually the
minimum amount required by regulatory authorities.
The following table sets forth the change in benefit obligation and
plan assets, as well as the defined benefit plans' funded status and
amounts recognized in the Company's consolidated balance sheets at
October 1, 2000 and October 3, 1999 for the pension plans and the
supplemental retirement plans:
Pension Plan Supplemental Plan
(In thousands) 2000 1999 2000 1999
-----------------------------------------------------------------
Change in benefit obligation:
Benefit obligation
at the beginning
of year $ 125,309 $ 128,922 $ 14,944 $ 11,701
Service cost 5,775 6,446 164 170
Interest cost 9,631 9,013 1,101 1,049
Actuarial loss(gain) (3,658) (13,221) (218) 2,795
Benefits paid (6,084) (5,851) (849) (771)
---------- --------- --------- ---------
Pension benefit obligation
at end of year 130,973 125,309 15,142 14,944
========== ========= ========= =========
Change in plan assets:
Fair value of assets
at the beginning
of year 106,559 98,412 - -
Actual return on
plan assets 9,139 5,611 - -
Employer contribution 7,524 8,387 849 771
Benefits paid (6,084) (5,851) (849) (771)
--------- --------- ---------- ---------
Fair value of assets
at end of year 117,138 106,559 - -
========= ========= ========== =========
Funded status (13,835) (18,750) (15,142) (14,944)
Unrecognized net
actuarial loss 10,371 13,596 2,112 2,448
Unrecognized prior
service cost 1,254 1,657 2,668 2,801
Unrecognized transi-
tion asset (359) (753) - -
-------- --------- -------- ---------
Accrued benefit cost $(2,569) $(4,250) $(10,362) $(9,695)
======== ========= ======== =========
Amounts recognized in the statement of
financial position consist of:
Accrued benefit
Liability $ (2,569) $(4,250) $(13,016) $(9,695)
Intangible pension
Asset - - 2,654 -
The pension plans' assets consist primarily of U. S. government
securities, corporate bonds, cash equivalents and domestic equities,
managed primarily by two banks. The pension plan contribution payable at
October 1, 2000 and October 3, 1999, required to be paid by due
date of the federal income tax return, was $1,989,000 and $1,686,000,
respectively.
In 2000 (1999), for the pension plan, a 7.7% (7.5%) weighted average
discount rate and 4.5% (4.5%) rate of increase in future payroll costs
were used in determining the actuarial present value of the projected
benefit obligations. The expected long-term rate of return on assets
was 8.75% for both 2000 and 1999.
For the supplemental plan, a 7.7% and 7.5% weighted average discount
rate was used for 2000 and 1999, respectively. A 6.0% rate of increase
in future payroll costs was used in 2000 and 1999 in determining the
actuarial present value of the projected benefit obligations.
<PAGE> 37
Net periodic pension expense for defined benefit plans for fiscal 2000,
1999 and 1998 included the following components:
Pension Plan
(In thousands) 2000 1999 1998
----------------------------------------------------------------------
Service cost $ 5,775 $ 6,446 $ 5,592
Interest cost 9,631 9,013 8,531
Expected return on plan assets (9,572) (8,750) (7,907)
Amortization of transition asset (394) (394) (394)
Amortization of prior service cost 403 403 403
Recognized net actuarial loss - 1,024 390
---------- ----------- ----------
Net periodic benefit cost $ 5,843 $ 7,742 $ 6,615
========== =========== ==========
Supplemental Plan
(In thousands) 2000 1999 1998
----------------------------------------------------------------------
Service cost $ 164 $ 170 $ 190
Interest cost 1,101 1,049 883
Amortization of prior service cost 133 133 133
Recognized net actuarial loss 117 20 (34)
-------- ---------- ----------
Net periodic benefit cost $ 1,515 $ 1,372 $ 1,172
======== ========== ===========
The Company also has an ESOP for eligible employees. Under the
ESOP the Company provides discretionary cash contributions, as determined
by the Board of Directors, to a trust for the purpose of purchasing shares
of the Company's common stock. At October 1, 2000, approximately 22% of
the Company's common shares were owned by employees as participants in the
ESOP. Expenses under the ESOP, as well as profit-sharing and certain
other plans, were as follows:
(In thousands) 2000 1999 1998
------------------------------------------------------------
ESOP $ 6,769 $ 7,540 $ 8,043
----------------------------
Profit-sharing and other 4,558 3,637 2,962
The Company is involved in various lawsuits and environmental and
patent matters arising in the normal course of business. Management
believes that such matters will not have a material effect on the
financial condition or results of operations of the Company.
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 COLI, the Company's
effective income tax rate, in comparison to the prior fiscal year, has
risen to a level approximating 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 pursuing an adverse position regarding the deductibility of
COLI policy loan interest for years prior to January 1, 1999. The IRS
issued Technical Advice Memoranda regarding COLI deductibility to
taxpayers unrelated to the Company. Further, on October 19, 1999, the Tax
Court ruled, in a single judge's decision, that Winn-Dixie Stores, Inc.
was not entitled to deduct interest on policy loans from its COLI program,
finding that the program lacked economic substance. On October 16, 2000, the
U.S. District Court of Delaware issued an opinion disallowing the COLI
interest deductions of Camelot Music, Inc. Management expects that the
adverse position taken by the IRS will be subjected to extensive further
challenges in the courts, not only by Winn-Dixie and Camelot but also by
many other large corporations with similar life insurance programs. 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. If the IRS were to prevail, the income tax payable
(including federal and state amounts) would total approximately $7.4
million, for 1994 and 1995, and for all years a total of approximately
$31.0 million, including interest thereon. The Company strongly
disagrees with the position of the IRS, has begun the appeal of the
assessment 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 would result in a material impact
upon the Company's future income taxes and results of operations.
See Leases for additional commitments and contingencies.
<PAGE> 38
Quarterly Information (Unaudited)
The following table sets forth certain financial information, the high
and low sales prices and dividends declared for the common stock for the
periods indicated. The Company's common stock is listed and traded on the
New York Stock Exchange. As of October 1, 2000, there were
6,235 holders of record of common stock.
(In millions, except First Second Third Fourth
per share data) Quarter Quarter Quarter Quarter
------------------------------------------------------------------
2000 Operating Results
Net Sales $ 665.5 $ 662.3 $ 682.9 $ 672.1
Net Income 13.3 13.4 12.3 12.0
Net Income Per Share .29 .29 .27 .26
Dividend Per Share .09 .09 .09 .09
Market Price Per Share
High 18-1/4 15-15/16 14-11/16 13-7/8
Low 15-1/8 10-1/2 10-1/4 10-5/8
1999 Operating Results
Net Sales $ 652.1 $ 645.7 $ 636.6 $ 690.4
Net Income 12.6 12.7 12.3 13.1
Net Income Per Share .27 .27 .26 .28
Dividend Per Share .08 .08 .08 .09
Market Price Per Share
High 22 23 19-5/8 20
Low 15-5/8 16-1/2 16-1/8 15-1/4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Ruddick Corporation:
We have audited the accompanying consolidated balance sheets of
Ruddick Corporation (a North Carolina corporation) and subsidiaries as of
October 1, 2000 and October 3, 1999, and the related statements of
consolidated income and retained earnings, consolidated total
non-owner changes in equity and consolidated cash flows for each of the
three years in the period ended October 1, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ruddick Corporation and subsidiaries as of October 1, 2000 and October 3,
1999, and the results of their operations and their cash flows for each of
three years in the period ended October 1, 2000 in conformity with
accounting principles generally accepted in the United States.
Charlotte, North Carolina
October 30, 2000
/S/ ARTHUR ANDERSEN LLP
<PAGE> 39
