ITEM 1. BUSINESS
Ruddick Corporation (the "Registrant") is a holding company which, through its wholly owned subsidiaries, is engaged in two primary businesses: Harris Teeter, Inc. ("Harris Teeter") operates a regional chain of supermarkets in five southeastern states and American & Efird, Inc. ("A&E") manufactures and distributes industrial and consumer sewing thread.
At September 27, 1998, the Registrant and its subsidiaries had total consolidated assets of $931,618,000 and had approximately 20,700 employees. The principal executive offices of the Registrant are located at 1800 Two First Union Center, Charlotte, North Carolina 28282.
Ruddick Corporation, which is incorporated under North Carolina law, was created in 1968 through the consolidation of the predecessor companies of A&E and Ruddick Investment Company. In 1969, the Registrant acquired Harris Teeter. Also in 1969, the Registrant acquired the predecessor of Jordan Graphics, Inc. ("Jordan Graphics"). On January 23, 1996, substantially all of the assets of Jordan Graphics were sold to The Reynolds and Reynolds Company. In addition, as of the beginning of fiscal year 1996, Ruddick Investment Company redefined its business to emphasize the development of selected sites for Harris Teeter stores. Further, in fiscal year 1998, these real estate development activities were fully made the direct and integral responsibility of Harris Teeter. Ruddick Investment Company will continue to manage its venture capital investment holdings but future equity investment will be limited and made primarily through investments in certain venture capital funds. Due to continued growth of the Harris Teeter and A&E businesses, Ruddick Investment's relative size to the consolidated Company has declined and is no longer considered an operating company. For certain other information regarding the Company's venture capital and real estate holdings, see the Note entitled "Investments" of the Notes to Consolidated Financial Statements of Ruddick Corporation and Subsidiaries in the Registrant's 1998 Annual Report to Shareholders (the "1998 Annual Report"), which information is incorporated herein by reference.
The two businesses in which the Registrant engages through its principal operating subsidiaries, together with certain financial information and competitive aspects of such businesses, are discussed separately below. For certain other information regarding industry segments, see the Note entitled "Industry Segment Information" of the Notes to Consolidated Financial Statements of Ruddick Corporation and Subsidiaries in the 1998 Annual Report, which information is incorporated herein by reference.
The only foreign operations conducted by the Registrant are through A&E. Neither of the two businesses engaged in by the Registrant would be characterized as seasonal.
The Registrant employs eighteen people, including four executives who formulate and implement overall corporate objectives and policies. The Registrant's employees perform functions in a number of areas including finance, accounting, audit, insurance, reporting, employee benefits and public and shareholder relations. The Registrant assists its subsidiaries in developing long-range goals, in strengthening management personnel and skills and in financing
operations. Management of each subsidiary is responsible for implementing operating policies and reports to management of the Registrant.
HARRIS TEETER
Harris Teeter operates supermarkets in North Carolina (93), South Carolina (22), Virginia (17), Georgia (9) and Tennessee (3) for sales of groceries, produce, meat and seafood, delicatessen items, bakery items, beer and wines and non-food items such as health and beauty care, floral and other products normally offered for sale in supermarkets. Harris Teeter has a program in place whereby each retail store will undergo a major remodel every eight years. Harris Teeter remodeled 27 stores during fiscal 1998 and expects to remodel 32 stores in fiscal 1999. In addition, ten new stores were opened and four older, less profitable, stores were sold or closed in fiscal 1998. As of fiscal year end, Harris Teeter had 144 stores in operation. Its principal offices and distribution facility containing cold storage perishable products and dry groceries are located near Charlotte, North Carolina. Another dry grocery, cold storage perishable and frozen storage facility is located in Greensboro, North Carolina. Both distribution facilities underwent major expansion during fiscal 1997 and 1998, which expansions were completed in May 1998. Harris Teeter produces dairy products, but buys most of the products it sells, including its private label brands. Harris Teeter's sales constituted 86% of the Registrant's consolidated sales in fiscal 1998 (84% in fiscal 1997 and 86% in fiscal 1996).
The supermarket industry is highly competitive. Harris Teeter competes with local, regional and national food chains, some of which are larger in terms of assets and sales, as well as with independent merchants. In the past several years, considerable consolidation of competitors has taken place in the supermarket industry and is expected to continue. As a result, Harris Teeter is likely to compete with more, larger food chains in its markets. Principal competitive factors include store location, price, service, convenience, cleanliness, product quality and product variety. No one customer or group of customers has a material effect upon the business of Harris Teeter.
At fiscal year end, Harris Teeter employed approximately 9,500 persons full-time and 7,800 part-time. Warehouse employees and drivers at Harris Teeter's warehouse near Charlotte, North Carolina are represented by a union, but Harris Teeter is not party to a collective bargaining agreement covering such employees. Harris Teeter considers its employee relations to be good.
A & E
A&E is a leading manufacturer and distributor of sewing thread, produced from natural and synthetic fibers, for worldwide industrial and consumer markets. Manufacturers of apparel, automotive materials, home furnishings, medical supplies and footwear rely on A&E industrial sewing thread to manufacture their products. The company's sales are primarily for industrial sewing thread products, which are sold to manufacturers through A&E's employed sales representatives, commissioned agents and distributors. In addition, A&E produces the Signature line of consumer sewing thread, which is sold through independent retail outlets. A&E also distributes sewing supplies manufactured by other companies. A&E's sales constituted 14% of the Registrant's consolidated sales in fiscal 1998 (16% in fiscal 1997 and 14% in fiscal 1996).
Over 70% of A&E's sales are industrial thread for use in apparel products. The apparel market is made up of many categories, servicing both genders and diverse age groups, including
jeanswear, underwear, menswear, womenswear, outerwear, intimate apparel, workwear and childrenswear. A&E also manufacturers industrial thread for use in a wide variety of non-apparel products including home furnishings, automotive, footwear, upholstered furniture, sporting goods, caps and hats, gloves, leather products, medical products and tea bag strings.
Headquartered in Mt. Holly, North Carolina, the company operates 13 modern manufacturing facilities in North Carolina. These facilities have been designed for flexibility and efficiency to accommodate changing customer product demands. In addition to manufacturing, A&E operates 16 distribution centers in the U. S. and one in Puerto Rico.
A&E also has wholly owned operations in Belgium, Canada, Costa Rica, England, Guatemala, Honduras, Hong Kong, Ireland, Mexico and Malaysia, a majority-owned joint venture in China and minority interest in ventures in the Dominican Republic and Italy. The company's value of assets in these operations totals approximately $74 million. Management expects to continue to expand foreign production and distribution operations, through joint ventures, acquisitions or wholly owned start-up companies.
The domestic order backlog, believed to be firm, as of the end of the 1998 fiscal year was approximately $14,329,000 versus $13,941,000 at the end of the preceding fiscal year. The majority of the order backlog is expected to be filled within three weeks of fiscal year end. The international order backlog is not material. A&E has approximately 9,300 domestic and 4,700 international customer accounts which are active. In fiscal 1998, no single customer accounted for more than 8% of total net sales, and the ten largest accounted for 22% of total net sales.
A&E purchases cotton from farmers and domestic cotton merchants. There is presently a sufficient supply of cotton worldwide and in the domestic market. Synthetic fibers are bought from the principal American synthetic fiber producers and are currently available in an adequate supply.
A&E has been issued two patents and has a patent application pending in several jurisdictions. There are no material licenses, franchises or concessions held by A&E. Research and Development expenditures were $405,000 and $328,000 in fiscal 1998 and fiscal 1997, respectively, none of which were sponsored by customers. Three employees are engaged in this activity on a full-time basis.
The industrial sewing thread industry is highly competitive. A&E is believed to be one of the largest producers in the domestic industrial thread market. Principal competitors include Coats American, Inc., Barbour Threads, Inc. and imported products sold primarily through distributors. Principal competitive factors include quality, service, and price. In the consumer thread market, A&E competes with a number of large, well-established companies, including Coats American, Inc.
A&E employed approximately 3,400 persons worldwide as of the end of fiscal 1998. A&E considers its employee relations to be good.
ITEM 2.
ITEM 2. PROPERTIES
The executive offices of the Registrant are located in approximately 8,000 square feet of leased space in a downtown office tower at 1800 Two First Union Center, Charlotte, North Carolina, 28282.
Harris Teeter owns its principal offices, which consist of 116,000 square feet of space located on a 10-acre tract of land near Charlotte, North Carolina. Harris Teeter also owns a 104-acre tract east of Charlotte where a cold storage and dry grocery distribution facility is located. This facility was expanded during fiscal 1997 and 1998 to include approximately 338,000 square feet of dry grocery warehouse and approximately 252,000 square feet of storage for refrigerated or perishable goods. Harris Teeter also owns a 49-acre tract in Greensboro, North Carolina, which was also expanded during fiscal 1997 and 1998 to contain approximately 550,000 square feet of dry grocery warehousing, approximately 138,000 square feet of perishable warehouse and approximately 139,000 square feet of frozen goods storage. Harris Teeter owns an 18,050 square foot milk processing plant located on 8.3 acres of land in Charlotte, North Carolina and an 81,900 square foot milk processing and ice cream manufacturing facility located on 4.7 acres of land in High Point, North Carolina. Harris Teeter operates its retail stores primarily from leased properties. The base annual rentals on leased store and warehouse properties as of September 27, 1998 aggregated approximately $54,473,000 net of sublease rentals of approximately $1,095,000. In addition to the base rentals, the majority of the lease agreements provide for additional annual rentals based on 1% of the amount by which annual store sales exceed a predetermined amount. During the fiscal year ended September 27, 1998, the additional rental amounted to approximately $1,157,000. Harris Teeter's supermarkets range in size from approximately 12,000 square feet to 66,000 square feet, with an average size of approximately 39,000 square feet. The following table sets forth selected statistics with respect to Harris Teeter stores for each of the last three fiscal years.
*Computed on the basis of aggregate sales of stores open for a full year.
A&E's principal offices and thirteen domestic manufacturing plants are all owned by A&E and are all located in North Carolina. Manufacturing and related warehouse facilities have an aggregate of 2,225,093 square feet of floor space and an insured value of $569,874,000. A&E has the capacity to produce annually approximately 42,750,000 pounds of industrial sewing thread and has a dyeing capacity of approximately 48,500,000 pounds per year. Capacities are based on 168 hours of operations per week.
A&E leases sixteen distribution centers scattered throughout its domestic markets with an aggregate of 391,441 square feet of floor space and an approximate annual rent of $1,485,000.
Through subsidiaries, A&E also owns 4 international manufacturing and/or distribution facilities with an aggregate of 289,608 square feet of floor space and an approximate insured value of $20,200,000. A&E leases another 19 international facilities with an aggregate of 345,336 square feet of floor space and an approximate annual rent of $1,300,000. The subsidiaries which are engaged in manufacturing have a sewing thread dyeing capacity of approximately 14,400,000 pounds per year. Capacities are based on 168 hours of operations per week. In addition to its subsidiaries, A&E also has a minority interest in certain joint ventures.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Registrant has entered into an Administrative Order on Consent with Region IV of the United States Environmental Protection Agency, together with 14 other parties who have been designated potentially responsible parties, to perform a remedial investigation/feasibility study at the Leonard Chemical Company Superfund site in Rock Hill, South Carolina. The Registrant's potential liability is based on the alleged disposal of waste material at this Superfund site by Pargo, Inc. Pargo, Inc. was a wholly owned subsidiary of the Registrant from 1969 to 1972. The Registrant has agreed to participate in the remedial investigation/feasibility study on the condition that its share of the costs does not exceed 1.8% of the total plus an additional payment of $4,680 for costs previously incurred by other parties. The Registrant estimates that, based on current information, the total cost of the remedial investigation/feasibility study should be approximately $1,500,000. Under the interim allocation of costs agreed to by the parties to the Administrative Order on Consent, the Registrant's share is 1.155% of the total cost. The Registrant does not believe that this proceeding will have a material effect on its business or financial condition.
The Registrant and its subsidiaries are involved in various lawsuits and environmental and patent matters arising from time to time in the normal course of business. These matters considered in the aggregate have not had, nor does the Registrant expect them to have, a material effect on the Registrant's business or financial condition.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following list contains the name, age, positions and offices held, and period served in such positions or offices for each of the executive officers of the Registrant.
R. Stuart Dickson, age 69, has been Chairman of the Executive Committee since February 1994. Prior to that time he had been Chairman of the Board of the Registrant since its formation in October 1968.
Alan T. Dickson, age 67, has been Chairman of the Board since February 1994. Prior to that time he had been President of the Registrant since its formation in October 1968.
Thomas W. Dickson, age 43, has been President of the Registrant since February 1997. Prior to that time, and beginning in February 1996, he served as Executive Vice President of the Registrant. He also served as A&E's President from February 1994 to August 1996 and Executive Vice President from 1991 to 1994.
Richard N. Brigden, age 59, has been Vice President-Finance of the Registrant since December 1983.
Fred J. Morganthall, II, age 47, was elected President of Harris Teeter on October 30, 1997. Prior to that time, and beginning in October 1996, he served as Executive Vice President of Harris Teeter. He was also Harris Teeter's Senior Vice President of Operations from October 1995 to October 1996, Vice President of Operations from April 1994 to October 1995 and Vice President of Sales and Distribution from October 1992 to April 1994.
Fred A. Jackson, age 48, has been President of A&E since August 1996. Prior to that time, for more than five years, he served as its Senior Vice President-Industrial Thread Sales.
The executive officers of the Registrant and its subsidiaries are elected annually by their respective Boards of Directors. R. Stuart Dickson and Alan T. Dickson are brothers. Thomas W. Dickson is the son of R. Stuart Dickson and the nephew of Alan T. Dickson. No other executive officer has a family relationship with any other executive officer or director or nominee for director as close as first cousin.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required for this item is incorporated herein by reference to the following sections of the Registrant's 1998 Annual Report: information regarding the principal market for Common Stock, number of shareholders of record, market price information per share of Common Stock and dividends declared per share of Common Stock for each quarterly period in the 1998 and 1997 fiscal years is incorporated by reference to the Note headed "Quarterly Information (Unaudited)" to the Notes to Consolidated Financial Statements; and information regarding restrictions on the ability of the Registrant to pay cash dividends is incorporated by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Capital Resources and Liquidity" and the Note headed "Long-Term Debt" to the Notes to Consolidated Financial Statements.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required for this item, for each of the last five fiscal years, is incorporated herein by reference to the section headed "Eleven-Year Financial and Operating Summary" in the Registrant's 1998 Annual Report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required for this item is incorporated herein by reference to the section headed "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 1998 Annual Report.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Registrant's market risk sensitive instruments do not subject the Registrant to material market risk exposures.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Registrant, including the Report of Independent Public Accountants thereon, are incorporated herein by reference from the Registrant's 1998 Annual Report.
The required supplementary financial information is incorporated herein by reference from the Note headed "Quarterly Information (Unaudited)" of the Notes to Consolidated Financial Statements in the Registrant's 1998 Annual Report.
The financial statement schedules required to be filed herewith, and the Report of Independent Public Accountants thereon, are listed under Item 14(a) of this Report and filed herewith pursuant to Item 14(d) of this Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to executive officers is set forth above in Part I, Item 4A. The other information required by this item is incorporated herein by reference to the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's Proxy Statement dated January 4, 1999, filed with the Securities and Exchange Commission with respect to the Registrant's 1999 Annual Meeting of Shareholders (the "1999 Proxy Statement").
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the sections entitled "Election of Directors -Directors' Fees and Attendance" and "Executive Compensation" in the Registrant's 1999 Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the sections entitled "Principal Shareholders" and "Election of Directors-Beneficial Ownership of Company Stock" in the Registrant's 1999 Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements: The following report and financial statements are incorporated herein by reference to the Registrant's 1998 Annual Report:
Consolidated Balance Sheets, September 27, 1998 and September 28,
Statements of Consolidated Income and Retained Earnings for the fiscal years ended September 27, 1998, September 28, 1997 and September 29, 1996
Statements of Consolidated Cash Flows for the fiscal years ended September 27, 1998, September 28, 1997 and September 29, 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) Financial Statement Schedules: The following report and financial statement schedules are filed herewith:
Report of Independent Public Accountants for each of the fiscal years in the three year period ended September 27, 1998 Page S-1
Schedule II - Valuation and Qualifying Accounts and Reserves Page S-2
All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes thereto.
(3) Index to Exhibits: The following exhibits are filed with this report or, as noted, incorporated by reference herein.
- ------------------------
* Incorporated by reference. ** Indicates management contract or compensatory plan required to be filed as an Exhibit. + Indicates exhibits filed herewith and follow the signature pages.
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the three months ended September 27, 1998.
(c) Exhibits See (a ) (3) above.
(d) Financial Statement Schedules See (a) (2) above.
SIGNATURES
Pursuant to the requirements of Section 13 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 (Registrant)
By: /s/ Thomas W. Dickson ----------------------- Thomas W. Dickson, President
Dated: December 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Ruddick Corporation:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Ruddick Corporation's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated October 23, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Charlotte, North Carolina October 23, 1998
S-1
RUDDICK CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED
SEPTEMBER 29, 1996, SEPTEMBER 28, 1997 SCHEDULE II AND SEPTEMBER 27, 1998 (in thousands)
*Represents accounts receivable balances written off as uncollectible, less recoveries.
S-2