-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FJBwKrgbkalBU/Y+1WrKM7sbbFJ1j5oymHZLZysUS7Rfsbse/BTrNMsuyLZRSz7T 7ijXmZh4aX7zE35UQ21zhw== 0000950168-98-003953.txt : 19981229 0000950168-98-003953.hdr.sgml : 19981229 ACCESSION NUMBER: 0000950168-98-003953 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUDDICK CORP CENTRAL INDEX KEY: 0000085704 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 560905940 STATE OF INCORPORATION: NC FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06905 FILM NUMBER: 98775904 BUSINESS ADDRESS: STREET 1: 2000 TWO FIRST UNION CTR CITY: CHARLOTTE STATE: NC ZIP: 28282 BUSINESS PHONE: 7043725404 MAIL ADDRESS: STREET 1: 2000 TWO FIRST UNION CTR CITY: CHARLOTTE STATE: NC ZIP: 28282 10-K 1 RUDDICK CORP. 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: September 27, 1998 ------------------ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ----------- COMMISSION FILE NUMBER: 1-6905 RUDDICK CORPORATION ------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NORTH CAROLINA 56-0905940 -------------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 1800 TWO FIRST UNION CENTER, CHARLOTTE, NORTH CAROLINA 28282 ------------------------------------------------------ ----- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (704) 372-5404 --------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS: NAME OF EXCHANGE ON WHICH REGISTERED: - ---------------------------- ------------------------------------- COMMON STOCK NEW YORK STOCK EXCHANGE, INC. RIGHTS TO PURCHASE SERIES A JUNIOR PARTICIPATING ADDITIONAL PREFERRED STOCK NEW YORK STOCK EXCHANGE, INC. SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ----- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ x ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of December 11, 1998, was $587,770,504. As of December 11, 1998, the Registrant had outstanding 46,613,607 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Parts I and II: Certain portions of the Annual Report to Shareholders for the fiscal year ended September 27, 1998 (with the exception of those portions which are specifically incorporated by reference in this Form 10-K and included as Exhibit 13 hereto, the Annual Report to Shareholders for the fiscal year ended September 27, 1998, is not deemed to be filed or incorporated by reference as part of this report). Part III: Definitive Proxy Statement dated January 4, 1999, as filed pursuant to Section 14 of the Securities Exchange Act of 1934 in connection with the 1999 Annual Meeting of Shareholders. (With the exception of those portions which are specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed or incorporated by reference as part of this report.) RUDDICK CORPORATION AND CONSOLIDATED SUBSIDIARIES Form 10-K for the Fiscal Year ended September 27, 1998 TABLE OF CONTENTS
PAGE ---- PART I Page ---- Item 1. Business ................................................................................ 1 Item 2. Properties .............................................................................. 3 Item 3. Legal Proceedings ....................................................................... 5 Item 4. Submission of Matters to a Vote of Security Holders ..................................... 5 Item 4A.Executive Officers of the Registrant .................................................... 5 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.................... 6 Item 6. Selected Financial Data ................................................................. 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ... 6 Item 7A. Quantitative and Qualitative Discussion about Market Risk .............................. 7 Item 8. Financial Statements and Supplementary Data ............................................. 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .... 7 PART III Item 10. Directors and Executive Officers of the Registrant ..................................... 7 Item 11. Executive Compensation ................................................................. 7 Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 7 Item 13. Certain Relationships and Related Transactions ......................................... 8 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............................................................................ 8
PART I 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 1 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 2 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. 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. 3 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.
HARRIS TEETER STORE DATA 1996 1997 1998 ---- ---- ---- Stores Open at End of Period 134 138 144 Average Weekly Net Sales Per Store* $ 259,160 $ 272,924 $ 292,124 Average Square Footage Per Store 36,273 38,076 39,155 Average Square Footage Per New Store Opened During Period 57,610 50,191 45,966 Total Square Footage at End of Period 4,860,546 5,254,457 5,638,261
*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. 4 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. 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. 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. 5 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. 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. 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. 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. 6 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. 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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III 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. 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. 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. 7 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV 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, 1997 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. 8
Sequentially Exhibit Numbered Number Description of Exhibit Page - ------ ---------------------- ---- 3.1 Restated Articles of Incorporation of the Registrant, incorporated * herein by reference to Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 29, 1992 (Commission File No. 1-6905). 3.2 Amended and Restated Bylaws of the Registrant. + 4.1 Revolving Credit Agreements for an aggregate of $100,000,000, * entered into as of February 15, 1995, by and between the Registrant and each of First Union National Bank of North Carolina, NationsBank, National Association (formerly NationsBank, National Association (Carolinas)) and Wachovia Bank of North Carolina, N.A., incorporated herein by reference to Exhibits 4.1, 4.2 and 4.3 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 1995 (Commission File No. 1-6905). 4.2 $50,000,000 6.48% Series A Senior Notes due March 1, 2011 and * $50,000,000 Private Shelf Facility dated March 1, 1996 between Ruddick Corporation and The Prudential Insurance Company of America, incorporated herein by reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 (Commission File No. 1-6905). 4.3 $50,000,000 7.55% Senior Series B Notes due July 15, 2017 and * $50,000,000 7.72% Series B Senior Notes due April 15, 2017 under the Note Purchase and Private Shelf Agreement dated April 15, 1997 between Ruddick Corporation and The Prudential Insurance Company of America, incorporated herein by reference to Exhibit 4.3 of the Registrant's Annual Report on Form 10-K for the fiscal year period ended September 28, 1997 (Commission File No. 1-6905). The Registrant has certain other long-term debt, but has not filed the instruments evidencing such debt as part of Exhibit 4 as none of such instruments authorize the issuance of debt exceeding 10 percent of the total consolidated assets of the Registrant. The Registrant agrees to furnish a copy of each such agreement to the Commission upon request. 10.1 Description of Incentive Compensation Plans, incorporated herein by * reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended September 29, 1996 (Commission No. 1-6905).**
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Sequentially Exhibit Numbered Number Description of Exhibit Page - ------ ---------------------- ---- 10.2 Supplemental Executive Retirement Plan of Ruddick Corporation, as * amended and restated, incorporated herein by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1990 (Commission File No. 1-6905).** 10.3 Resolutions adopted by the Board of Directors of the Registrant and * the Plan's Administrative Committee with respect to benefits payable under the Registrant's Supplemental Executive Retirement Plan to Alan T. Dickson and R. Stuart Dickson, incorporated herein by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the fiscal year ended September 29, 1991 (Commission File No. 1-6905).** 10.4 Deferred Compensation Plan for Key Employees of Ruddick Corporation * and subsidiaries, as amended and restated, incorporated herein by reference to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1990 (Commission File No. 1-6905).** 10.5 1982 Incentive Stock Option Plan, as amended and restated, * incorporated herein by reference to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 2, 1994 (Commission File No. 1-6905).** 10.6 1988 Incentive Stock Option Plan, incorporated herein by reference * to Exhibit 10.6 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 2, 1994 (Commission File No. 1-6905).** 10.7 1993 Incentive Stock Option and Stock Appreciation Rights Plan, * incorporated herein by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the fiscal year ended October 3, 1993 (Commission File No. 1-6905).** 10.8 Description of the Registrant's Long Term Key Management Incentive * Program, incorporated herein by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the fiscal year ended September 29, 1991 (Commission File No. 1-6905).**
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Sequentially Exhibit Numbered Number Description of Exhibit Page - ------ ---------------------- ---- 10.9 Ruddick Corporation Irrevocable Trust for the Benefit of * Participants in the Long Term Key Management Incentive Program, incorporated herein by reference to Exhibit 10.9 of the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1990 (Commission File No. 1-6905).** 10.10 Rights Agreement dated November 15, 1990 by and between the * Registrant and Wachovia Bank of North Carolina, N.A., incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated November 21, 1990 (Commission File No. 1-6905). 10.11 Ruddick Corporation Senior Officers Insurance Program Plan * Document and Summary Plan Description, incorporated herein by reference to Exhibit 10.10 of the Registrant's Annual Report on Form 10-K for the fiscal year ended September 27, 1992 (Commission File No. 1-6905).** 10.12 Ruddick Corporation Nonstatutory Stock Option Agreement * Between the Registrant and Edwin B. Borden, Jr., incorporated herein by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996 (Commission File No. 1-6905).** 10.13 Ruddick Corporation Nonstatutory Stock Option Agreement * Between the Registrant and Beverly F. Dolan, incorporated herein by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996 (Commission File No. 1-6905).** 10.14 Ruddick Corporation Nonstatutory Stock Option Agreement * Between the Registrant and Roddey Dowd, Sr., incorporated herein by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996 (Commission File No. 1-6905).** 10.15 Ruddick Corporation Nonstatutory Stock Option Agreement * Between the Registrant and James E.S. Hynes, incorporated herein by reference to Exhibit 10.5 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996 (Commission File No. 1-6905).**
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Sequentially Exhibit Numbered Number Description of Exhibit Page - ------ ---------------------- ---- 10.16 Ruddick Corporation Nonstatutory Stock Option Agreement Between the * Registrant and Hugh L. McColl, Jr., incorporated herein by reference to Exhibit 10.6 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 29, 1996 (Commission File No. 1-6905).** 10.17 Ruddick Corporation 1995 Comprehensive Stock Option Plan, * incorporated herein by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-6905).** 10.18 Ruddick Corporation 1997 Comprehensive Stock Option and Award Plan, * incorporated herein by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 28, 1997 (Commission File No. 1-6905).** 10.19 Ruddick Corporation Director Deferred Plan, incorporated herein by * reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 29, 1998 (Commission File No. 1-6905).** 10.20 Ruddick Corporation Senior Officers Insurance Program, incorporated * herein by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 29, 1998 (Commission File No. 1-6905).** 11 Statement Regarding the Computation of Per Share Earnings. + 13 Ruddick Corporation 1998 Annual Report to Shareholders: Consolidated + Financial Statements on pages 24 to 37 and sections headed "Management's Discussion and Analysis of Financial Condition and Results of Operations" (pages 20 to 23) and "Eleven-Year Financial and Operating Summary" (pages 38 and 39) only. 21 List of Subsidiaries of the Registrant. + 23 Consent of Independent Public Accountants. + 27 Financial Data Schedule. +
12 - ------------------------ * 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. 13 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:
Name Title Date ---- ----- ---- /s/ Thomas W. Dickson President and Director December 28, 1998 - ------------------------- (Principal Executive Officer) Thomas W. Dickson /s/ Richard N. Brigden Vice President-Finance December 28, 1998 - ------------------------- (Principal Financial Officer) Richard N. Brigden /s/ Douglas A. Stephenson Vice President and Treasurer December 28, 1998 - -------------------------- (Principal Accounting Officer) Douglas A. Stephenson /s/ John R. Belk Director December 28, 1998 - -------------------------- John R. Belk /s/ Edwin B. Borden, Jr. Director December 28, 1998 - -------------------------- Edwin B. Borden, Jr. /s/ John W. Copeland Director December 28, 1998 - -------------------------- John W. Copeland /s/ Alan T. Dickson Chairman of the Board December 28, 1998 - -------------------------- and Director Alan T. Dickson /s/ R. Stuart Dickson Chairman of the Executive December 28, 1998 - -------------------------- Committee and Director R. Stuart Dickson
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Name Title Date ---- ----- ---- /s/ Roddey Dowd, Sr. Director December 28, 1998 - -------------------- Roddey Dowd, Sr. - -------------------- Director James E. S. Hynes - -------------------- Director Hugh L. McColl, Jr. /s/ Anna S. Nelson Director December 28, 1998 - ------------------ Anna S. Nelson /s/ Harold C. Stowe Director December 28, 1998 - ------------------- Harold C. Stowe
15 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) --------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E --------------------------------------------------------------------------------------- BALANCE ADDITIONS AT BEGINNING CHARGED TO BALANCE OF FISCAL COSTS AND AT END DESCRIPTION YEAR EXPENSES DEDUCTIONS OF PERIOD - ------------------------------------------------------------------------------------------ Fiscal Year Ended September 29, 1996: Reserves deducted from assets to which they apply - Allowance For Doubtful Accounts.......... $1,727 $428 $757* $1,398 ======================================================== Fiscal Year Ended September 28, 1997: Reserves deducted from assets to which they apply - Allowance For Doubtful Accounts.......... $1,398 $1,704 $1,097* $2,005 ======================================================== Fiscal Year Ended September 27, 1998: Reserves deducted from assets to which they apply - Allowance For Doubtful Accounts.......... $2,005 $2,145 $2,104* $2,046 ========================================================
*Represents accounts receivable balances written off as uncollectible, less recoveries. S-2 EX-3 2 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF RUDDICK CORPORATION TABLE OF CONTENTS Page ARTICLE I Definitions............................................................1 Section 1. Definitions................................................1 Section 2. Cross-Reference to the Act.................................1 ARTICLE II Offices................................................................2 Section 1. Principal Office...........................................2 Section 2. Other Offices..............................................2 Section 3. Registered Office..........................................2 ARTICLE III Shareholders...........................................................2 Section 1. Annual Meeting............................................2 Section 2. Substitute Annual Meeting.................................2 Section 3. Special Meetings..........................................2 Section 4. Place of Meeting..........................................2 Section 5. Notice of Meeting.........................................3 Section 6. Fixing of Record Date.....................................3 Section 7. Shareholders List.........................................4 Section 8. Quorum....................................................4 Section 9. Proxies...................................................4 Section 10. Voting of Shares..........................................5 Section 11. Voting for Directors......................................5 Section 12. Notice of Shareholder Business and Nominees for Election as Directors .............................................5 Section 13. Conduct of Meetings.......................................6 Section 14. Inapplicability of the North Carolina Control Share Acquisition Act...........................................7 ARTICLE IV Board of Directors.....................................................7 Section 1. General Powers.............................................7 Section 2. Number, Term, Qualification, and Removal...................7 Section 3. Vacancies..................................................8 Section 4. Compensation...............................................8 Section 5. Executive Committee........................................8 i Section 6. Other Committees...........................................8 ARTICLE V Meetings of Directors..................................................9 Section 1. Regular Meetings..........................................9 Section 2. Special Meetings..........................................9 Section 3. Notice....................................................9 Section 4. Waiver of Notice.........................................10 Section 5. Quorum...................................................10 Section 6. Manner of Acting.........................................10 Section 7. Presumption of Assent....................................10 Section 8. Conduct of Meetings......................................10 Section 9. Action Without a Meeting.................................11 Section 10. Participation Other Than in Person.......................11 ARTICLE VI Officers..............................................................11 Section 1. Officers of the Corporation..............................11 Section 2. Appointment and Term.....................................12 Section 3. Compensation.............................................12 Section 4. Resignation and Removal of Officers......................12 Section 5. Contract Rights of Officers..............................12 Section 6. Bonds....................................................12 Section 7. Chairman of the Board....................................12 Section 8. President................................................12 Section 9. Vice Presidents..........................................13 Section 10. Secretary................................................13 Section 11. Treasurer................................................13 Section 12. Assistant Vice Presidents, Secretaries and Treasurers....13 ARTICLE VII Contracts, Loans, Checks and Deposits.................................14 Section 1. Contracts.................................................14 Section 2. Loans.....................................................14 Section 3. Checks and Drafts.........................................14 Section 4. Deposits..................................................14 ARTICLE VIII Shares and Their Transfer.............................................14 Section 1. Shares....................................................14 ii Section 2. Stock Transfer Books and Transfer of Shares...............15 Section 3. Lost Certificates.........................................15 Section 4. Holder of Record..........................................15 Section 5. Transfer Agent and Registrar; Regulations.................15 ARTICLE IX Indemnification.......................................................16 Section 1. General...................................................16 Section 2. Determination Requirement.................................16 Section 3. Expenses..................................................16 Section 4. Constituent Corporations..................................16 ARTICLE X General Provisions....................................................17 Section 1. Fiscal Year...............................................17 Section 2. Distributions.............................................17 Section 3. Seal......................................................17 Section 4. Amendments................................................17 iii ARTICLE I Definitions Section 1. Definitions. In these Bylaws, unless otherwise specifically provided: (a) "Act" shall mean the North Carolina Business Corporation Act, as contained in Chapter 55 of the North Carolina General Statutes, as the same now exists or may hereafter be amended. (b) "Articles of Incorporation" means the Articles of Incorporation of the Corporation, as amended and restated from time to time, including any Articles of Merger and any amendments or statements of classification adopted in connection with the Corporation's authorized preferred stock. (c) "Common Stock" means the common stock of the Corporation. (d) "Corporation" shall mean Ruddick Corporation, a North Carolina corporation, and any successor thereto. (e) "Preference Stock" means the Non-cumulative, Voting $.56 Convertible Preference Stock of the Corporation. (f) "Principal office" means the office (in or out of the State of North Carolina) so designated in the Corporation's annual report filed pursuant to the Act where the principal executive offices of the Corporation are located. (g) "Shares" means the Common Stock, the Preference Stock and other units into which the proprietary interests in the Corporation are divided. (h) "Shareholder" means the person in whose name shares are registered in the records of the Corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with the Corporation. (i) "Voting group" means all shares of one or more classes or series that under the Articles of Incorporation or the Act are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled by the Articles of Incorporation or the Act to vote generally on a matter are for that purpose a single voting group. Section 2. Cross-Reference to the Act. If any term used in these Bylaws and not otherwise defined herein is defined for purposes of the Act, such definition shall apply for purposes of these Bylaws, unless the context shall otherwise clearly require. ARTICLE II OFFICES Section 1. Principal Office. The principal office of the Corporation shall be located in the City of Charlotte, County of Mecklenburg, State of North Carolina, or such other place as the Board of Directors may determine from time to time. Section 2. Other Offices. The Corporation may have offices at such other places, either within or without the State of North Carolina, as the Board of Directors may from time to time determine or as the affairs of the Corporation may require from time to time. Section 3. Registered Office. The registered office of the Corporation required by the Act to be maintained in the State of North Carolina may be, but need not be, identical with the principal office of the Corporation, and the address of the registered office may be changed from time to time as provided in the Act. ARTICLE III SHAREHOLDERS Section 1. Annual Meeting. The annual meeting of the shareholders shall be held on the first Thursday in February of each year at 11:00 a.m. for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of North Carolina, such meeting shall be held on the next succeeding business day. Section 2. Substitute Annual Meeting. If the annual meeting shall not be held within the period designated by these Bylaws, a substitute annual meeting may be called in accordance with the provisions of Section 3 of this Article III. A meeting so called shall be designated and treated for all purposes as the annual meeting. Section 3. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by the Act, may be called by the Chairman of the Board or the President of the Corporation, or by the Secretary acting under instructions of the Chairman of the Board or the President, or by the Board of Directors. Section 4. Place of Meeting. The Board of Directors or the Chairman of the Board or the President of the Corporation, or the Secretary acting under instructions of the Chairman of the Board or the President, may designate any place, either within or without the State of North Carolina, as the place of meeting for any annual meeting of shareholders or for any special meeting of shareholders called by the Board of Directors, the Chairman of the Board, the President or the Secretary. If no designation is made, or if a special meeting of shareholders is 2 otherwise called, the place of meeting shall be the principal office of the Corporation in the State of North Carolina. Section 5. Notice of Meeting. Written or printed notice stating the date, time and place of the meeting shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board or the President or the Secretary, or the other person calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be effective when deposited in the United States mail, with postage thereon prepaid and correctly addressed to the shareholder at such shareholder's address as shown in the Corporation's current record of shareholders. In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless it is a matter, other than election of directors, on which the vote of shareholders is expressly required by the provisions of the Act. In the case of a special meeting, the notice of meeting shall state the purpose or purposes for which the meeting is called. If a meeting is adjourned to a date more than 120 days after the date fixed for the original meeting, or if a new record date is fixed for the adjourned meeting, or if the new date, time or place for an adjourned meeting is not announced at the meeting before adjournment, notice of the adjourned meeting shall be given as in the case of an original meeting. Otherwise, it is not necessary to give any notice of the adjourned meeting other than by announcement at the meeting at which the adjournment is taken. Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend or other distribution, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date for any such determination of shareholders, such date in any case to be not more than 70 days and, in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or for determination of the shareholders entitled to receive payment of a dividend or other distribution, the close of business on the day before the first notice is delivered to shareholders or the date on which the resolution of the Board of Directors declaring or authorizing such dividend or distribution is adopted, as the case may be, shall be the record date for such determination. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 3 Section 7. Shareholders List. After the record date for a meeting of shareholders is fixed or determined, the officer or agent having charge of the stock transfer books for shares of the Corporation shall prepare an alphabetical list of the names of all shareholders of the Corporation who are entitled to notice of such shareholders meeting. The list will be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder. Such shareholders list will be available for inspection by any shareholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder, or a shareholder's agent or attorney, is entitled on written demand to inspect and, subject to compliance with the applicable provisions of the Act, to copy the list, during regular business hours and at the shareholder's expense, during the period it is available for inspection. Such list shall also be available at the meeting of shareholders, and any shareholder, or such shareholder's agent or attorney, is entitled to inspect the list at any time during the meeting or any adjournment thereof. Section 8. Quorum. A majority of the votes entitled to be cast on a particular matter by a voting group constitutes a quorum of that voting group for action on that matter, unless the Articles of Incorporation or the Act provides otherwise. Shares entitled to vote as a separate voting group may take action on a matter at a meeting of shareholders only if a quorum of those shares exists with respect to that matter, except that, in the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time by the vote of a majority of the shares voting on the motion to adjourn. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. Section 9. Proxies. A shareholder may vote his or her shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by such shareholder's attorney-in-fact. A telegram, telex, facsimile or other form of wire or wireless communication appearing to have been transmitted by a shareholder, or a photocopy or equivalent reproduction of a writing appointing one or more proxies, shall be deemed a valid appointment form within the meaning of these Bylaws. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes. An appointment is valid for 11 months unless a different period is expressly provided in the appointment form. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest, which may include any such interest specified in the Act. 4 Section 10. Voting of Shares. Each outstanding share of Common Stock and Preference Stock is entitled to one vote on each matter voted on at a shareholders meeting. Other shares, if any, are entitled to vote only as provided in the Articles of Incorporation or the Act. If a quorum exists, action on a matter (other than election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the Act requires a greater number of affirmative votes. Classes or series of shares shall not be entitled to vote separately by voting group unless expressly required by the Articles of Incorporation or as otherwise provided by the Act. Section 11. Voting for Directors. The directors of the Corporation shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present, unless otherwise provided in the Articles of Incorporation or in an agreement valid under the Act. The shareholders do not have a right to cumulate their votes for directors. Section 12. Notice of Shareholder Business and Nominees for Election as Directors. In addition to the requirements of any applicable securities laws with respect to any proposal presented by a shareholder for action at a meeting of the shareholders of the Corporation, any shareholder desiring to introduce any new business before any meeting, annual or special, of the shareholders of the Corporation shall be required to deliver timely notice to the Secretary of the Corporation, in writing, containing the following information: the shareholder's name and address; number of shares of each class of capital stock owned by the shareholder; a description of the business to be introduced to the shareholders; and any material interest, direct or indirect, that the shareholder may have in the business described in the notice. Any shareholder desiring to nominate a person for election as a director of the Corporation shall be required to deliver timely notice to the Secretary of the Corporation, in writing, containing such information as set forth in the immediately preceding paragraph and such additional information concerning the nominee for election as a director of the Corporation as is disclosed in the proxy materials concerning all persons nominated by the Board of Directors for election as a director of the Corporation. With respect to an annual meeting of shareholders, to be timely, notice must be delivered to the Secretary of the Corporation not later than the 45th day prior to the first anniversary of the date the Corporation first mailed its proxy materials for the preceding year's annual meeting of shareholders; provided, however, that in the event that the date of the annual meeting of shareholders is more than 30 days before the first anniversary date of the prior years annual meeting of shareholders, to be timely, notice must be delivered not later than the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. With respect to a special meeting of shareholders, to be timely, notice must be delivered to the Secretary of the Corporation not later than the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of a shareholder meeting commence a new time period for the giving of a shareholder's notice as described above. For 5 purposes of this section, "public announcement" shall mean disclosure in a press release reported on a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. Failure of any shareholder to provide timely notice as set forth herein shall authorize the presiding officer at the meeting of shareholders before which such business is to be introduced or at which such nominee is to be considered for election as a director to rule such proposal or nomination out of order and not to be introduced or considered. Section 13. Conduct of Meetings. The Chairman of the Board shall preside at each meeting of shareholders or, in the absence or at the request of the Chairman of the Board, the President shall preside. At the request of the Chairman of the Board or the President, in both their absences, such other officer as the Board of Directors shall designate shall preside at any such meeting. In the absence of a presiding officer determined in accordance with the preceding sentence, any person may be designated to preside at a shareholders meeting by a plurality vote of the shares represented and entitled to vote at the meeting. The Secretary or, in the absence or at the request of the Secretary, any person designated by the person presiding at a shareholders meeting shall act as secretary of such meeting. So far as applicable, and unless otherwise determined by the presiding officer, the order of business at each meeting of the shareholders shall be as follows: 1. Call to order. 2. Proof of due notice of meeting or waiver thereof. 3. Call of roll or other method of ascertaining the amount of stock entitled to voting rights that is represented in person or by proxy. 4. Declaration of presence or absence of a quorum. 5. Presentation and approval or other disposition of any unapproved minutes. 6. Reports of officers. 7. Election of directors. 8. Unfinished business. 9. New business. 10. Adjournment. 6 Any item of business not included in the foregoing order of business may be taken up at such time during the meeting as may be determined by the officer presiding at the meeting. Section 14. Inapplicability of the North Carolina Control Share Acquisition Act. The provisions of the North Carolina Control Share Acquisition Act, being Article 9A of Chapter 55 of the North Carolina Business Corporation Act, shall not be applicable to the Corporation. ARTICLE IV BOARD OF DIRECTORS Section 1. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, its Board of Directors, except as otherwise provided in the Articles of Incorporation or permitted under the Act. Section 2. Number, Term, Qualification, and Removal. The Board shall consist of not less than nine nor more than thirteen members and the number of members shall be fixed and determined from time to time by resolution of the shareholders at any meeting thereof. The Directors shall be divided into three classes, as nearly equal in number as possible, with respect to the time for which they shall severally hold office. Directors of one of the classes first elected shall hold office until the first annual meeting of shareholders following their election; Directors of another of the classes first elected shall hold office until the second annual meeting of shareholders following their election; and Directors of the remaining class first elected shall hold office until the third annual meeting of shareholders following their election. At each annual meeting of the shareholders after the meeting at which the three classes are first elected, the successors of the Directors of the class the terms of which shall expire at the meeting shall be elected to hold office until the third annual meeting of shareholders following their election, so that the term of one class of Directors shall expire at each annual meeting of shareholders. Each Director shall hold office until his death, resignation, retirement, removal, disqualification, or his successor is elected and qualified. If the size of the Board is increased, the Directors elected by the shareholders in the year of increase shall be elected to serve until the first, second, or third annual meeting thereafter so that the three classes shall remain as nearly equal as possible. Directors need not be residents of the State of North Carolina or shareholders of the Corporation. Directors may be removed from office only for cause and only by a vote of shareholders holding a majority of the shares entitled to vote at an election of directors. However, unless the entire board is removed, an individual director may not be removed when the number of shares voting against the proposal for removal would be sufficient to elect a director if such shares could 7 be voted cumulatively at an annual election. If any or all directors are so removed, new directors may be elected at the same meeting. Section 3. Vacancies. Except in those instances where the Articles of Incorporation or the Act provides otherwise, the Board of Directors may fill a vacancy on the Board of Directors. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. Section 4. Compensation. The Board of Directors may provide for the compensation of directors for their services as such and may provide for the payment or reimbursement of any or all expenses reasonably incurred by them in attending meetings of the Board or of any committee of the Board or in the performance of their other duties as directors. Nothing herein contained, however, shall prevent any director from serving the Corporation in any other capacity or receiving compensation therefor. Section 5. Executive Committee. The Board of Directors, by resolution adopted by a majority of the number of directors fixed in the manner provided in Section 2 of this Article IV, may designate 3 or more directors who shall constitute the Executive Committee of the Corporation. The Executive Committee, between meetings of the Board of Directors and subject to such limitations as may be required by law or imposed by resolution of the Board of Directors, shall have and may exercise all of the authority of the Board of Directors in the management of the Corporation. The designation of the Executive Committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility or liability imposed upon it or such director by law. Meetings of the Executive Committee may be held at any time on call of the President or its Chairman or any two members of the Committee. A majority of the members shall constitute a quorum at all meetings. The Executive Committee shall keep minutes of its proceedings and shall report its actions to the next succeeding meeting of the Board of Directors. Section 6. Other Committees. The Board of Directors may create one or more additional committees and appoint members of the Board of Directors to serve on them. Each committee must have two or more members, who serve at the pleasure of the Board of Directors. The creation of a committee and appointment of members of the Board of Directors to it must be approved by the greater of a majority of all of the directors in office when the action is taken or the number of directors required by the Articles of Incorporation for the taking of action by the Board of Directors. The provisions of the Act and these Bylaws that govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors, shall apply to committees and their members as well. To the extent specified by the Board of Directors or in the Articles of Incorporation, each committee may exercise the authority of the Board of Directors, except as to the matters which the Act specifically excepts from the authority of such committees. Nothing contained in this Section shall preclude the Board of Directors from establishing and appointing any committee, whether of directors or otherwise, not having or exercising the authority of the Board of Directors. 8 ARTICLE V MEETINGS OF DIRECTORS Section 1. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of the shareholders. In addition, the Board of Directors may provide, by resolution, the date, time and place, either within or without the State of North Carolina, for the holding of additional regular meetings. Section 2. Special Meetings. Special meetings of the Board of Directors may be held at any date, time and place upon the call of the Chairman of the Board or the President or of the Secretary acting under instructions from the Chairman of the Board or the President, or upon the call of any 3 directors. Special meetings may be held at any date, time and place and without special notice by unanimous consent of the directors. Section 3. Notice. The person or persons calling a special meeting of the Board of Directors shall, at least 2 days before the meeting, give notice thereof by any usual means of communication. Such notice may be communicated, without limitation, in person; by telephone, telegraph, teletype or other form of wire or wireless communication, or by facsimile transmission; or by mail or private carrier. Written notice of a directors meeting is effective at the earliest of the following: (a) When received; (b) Upon its deposit in the United States mail, as evidenced by the postmark, if mailed with postage thereon prepaid and correctly addressed; (c) If by facsimile, by acknowledgment of the facsimile; (d) On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or (e) On the date shown on the confirmation of delivery issued by a private carrier, if sent by private carrier to the address of the director last known to the Corporation. Oral notice is effective when actually communicated to the director. Notice of an adjourned meeting of directors need not be given if the time and place are fixed at the meeting adjourning and if the period of adjournment does not exceed 10 days in any one adjournment. The notice of any meeting of directors need not describe the purpose of the meeting unless otherwise required by the Act or the Articles of Incorporation. 9 Section 4. Waiver of Notice. A director may waive any notice required by the Act, the Articles of Incorporation or these Bylaws before or after the date and time stated in the notice. The waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records, except that, notwithstanding the foregoing requirement of written notice, a director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting (or promptly upon the director's arrival) expressly objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Section 5. Quorum. A majority of the number of directors prescribed pursuant to Section 2 of Article IV, or if no number is prescribed, the number of directors in office immediately before the meeting begins, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of directors present may adjourn the meeting from time to time without further notice. Section 6. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except as otherwise provided by the Act. Notwithstanding the foregoing, the vote of a majority of all of the directors in office when the action is taken shall be required for the creation of a committee and the appointment of members of the Board of Directors to it. Section 7. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken shall be deemed to have assented to the action taken unless (i) the director expressly objects at the beginning of the meeting (or promptly upon the director's arrival) to holding it or transacting business at the meeting, (ii) the director's contrary vote is recorded or such director's dissent or abstention from the action shall be entered in the minutes of the meeting or (iii) the director shall file written notice of dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after adjournment of the meeting. Such right of dissent or abstention shall not apply to a director who voted in favor of the action taken. Section 8. Conduct of Meetings. The Chairman of the Board shall preside at all meetings of the Board of Directors; provided, however, that in the absence or at the request of the Chairman of the Board, or if there shall not be a person holding such office, the person selected to preside at a meeting of directors by a vote of a majority of the directors present shall preside at such meeting. The Secretary, or in the absence or at the request of the Secretary, any person designated by the person presiding at a meeting of the Board of Directors, shall act as secretary of such meeting. So far as applicable, and unless otherwise determined by the person presiding at such meeting, the order of business at each meeting of the Board of Directors shall be as follows: 1. Call to order. 10 2. Proof of notice of meeting or waiver thereof. 3. Determination of presence or absence of a quorum. 4. Presentation and approval or other disposition of any unapproved minutes. 5. Reports of officers. 6. Unfinished business. 7. New business. 8. Adjournment. Any item of business not included in the foregoing order of business may be taken up at such time during the meeting as the directors may determine. Section 9. Action Without a Meeting. Any action required or permitted to be taken at a Board of Directors meeting may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents signed by each director before or after such action, describing the action taken, which consent or consents shall be included in the minutes or filed with the corporate records. Action taken as provided in this Section is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed pursuant to this Section has the effect of a meeting vote and may be described as such in any document. Section 10. Participation Other Than in Person. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at such meeting. ARTICLE VI OFFICERS Section 1. Officers of the Corporation. The officers of the Corporation may include a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers, assistant officers and agents as may be appointed from time to time by or under the authority of the Board of Directors. The same individual may simultaneously hold more than one office in the Corporation, but no individual may act in more than one capacity where action of two or more officers is required. The title of any officer may include any additional designation descriptive of such officer's duties as the Board of Directors may prescribe. 11 Section 2. Appointment and Term. The officers of the Corporation shall be appointed by the Board of Directors or by a duly appointed officer authorized by the Board of Directors to appoint one or more officers or assistant officers; provided, however, that no officer may be authorized to appoint the Chairman of the Board, or the President. Each officer shall hold office until his or her death, resignation, retirement, removal or disqualification or until such officer's successor is elected and qualified. Section 3. Compensation. The compensation of all officers of the Corporation shall be fixed by or under the authority of the Board of Directors. No officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director. Section 4. Resignation and Removal of Officers. An officer may resign at any time by communicating such officer's resignation to the Corporation. A resignation is effective when it is communicated unless it specifies in writing a later effective date. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor does not take office until the effective date. The Board of Directors, by the affirmative vote of a majority of its members, may remove the Chairman of the Board, or the President whenever in its judgment the best interests of the Corporation would be served thereby. In addition, the Board of Directors or an officer authorized by the Board of Directors may remove any other officer at any time with or without cause. Section 5. Contract Rights of Officers. The appointment of an officer does not itself create contract rights. An officer's removal does not itself affect the officer's contract rights, if any, with the Corporation, and an officer's resignation does not itself affect the Corporation's contract rights, if any, with the officer. Section 6. Bonds. The Board of Directors may by resolution require any officer, agent or employee of the Corporation to give bond to the Corporation, with sufficient sureties, conditioned on the faithful performance of the duties of the applicable office or position, and to comply with such other conditions as may from time to time be required by the Board of Directors. Section 7. Chairman of the Board. The Board of Directors may appoint from among its members an officer designated as the Chairman of the Board, but the appointment of a Chairman of the Board shall not be required. If a Chairman of the Board shall be appointed, then the Chairman of the Board shall, when present, preside at meetings of the shareholders and of the Board of Directors. In general the Chairman of the Board shall perform all duties incident to the position of chairman of the board and shall have such other duties and authority as may be prescribed by the Board of Directors or these Bylaws from time to time. Section 8. President. The Board of Directors may appoint a President, who shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. In 12 addition, in the absence of the Chairman of the Board or in the event of the Chairman's death or inability or refusal to act, the President shall perform the duties and exercise the powers of that office. The Board of Directors shall, if it deems such action necessary or desirable, designate the officer of the Corporation who is to perform the duties of President in the event of such officer's absence or inability to act. In general the President shall perform the duties incident to the office of the president or as may be prescribed by the Board of Directors or these Bylaws from time to time. Section 9. Vice Presidents. In the absence of the President or in the event of the President's death, inability or refusal to act, the Vice Presidents, in the order of their length of service as such, unless otherwise determined by the Board of Directors, shall have the authority and perform the duties of the President. In addition, each Vice President shall perform such other duties and shall have such other powers as are normally incident to the office of vice president or as shall be prescribed by the President, the Board of Directors or these Bylaws from time to time. Section 10. Secretary. The Secretary shall: (a) keep the minutes of meetings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) have the responsibility and authority to maintain and authenticate the records of the Corporation; (c) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (d) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (e) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (f) sign with the Chairman of the Board or President certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (g) have general charge of the stock transfer books of the Corporation; and (h) in general perform all duties incident to the office of the Secretary and such other duties as from time to time may be assigned to the Secretary by the President, the Board of Directors or these Bylaws from time to time. Section 11. Treasurer. The Treasurer shall: (a) have charge and custody of all funds and securities of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Section 4 of Article VII; and (b) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to the Treasurer by the President, the Board of Directors or these Bylaws from time to time. Section 12. Assistant Vice Presidents, Secretaries and Treasurers. The Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, if any, shall, in the event of the death or inability or refusal to act of any Vice Presidents, the Secretary or the Treasurer, respectively, have all the powers and perform all of the duties of those offices, and they shall, in general, perform such duties as shall be assigned to them by any Vice President, the Secretary or the Treasurer, respectively, or by the President of the Corporation or the Board of Directors. The 13 Assistant Secretaries, when authorized by the Board of Directors, may sign documents with the Chairman of the Board or the President or any Vice President. ARTICLE VII CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instruments in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. The Chairman of the Board and the President and any Vice President shall have the authority to execute deeds, mortgages, bonds, contracts or other instruments in the name of and on behalf of the Corporation, except in those cases where execution has been delegated expressly by the Board of Directors to some other officer or agent of the Corporation. Any resolution of the Board of Directors authorizing the execution of any contract or other document by the proper officers of the Corporation or by the officers of the Corporation generally and not specifying particular officers shall be deemed to authorize such execution by the Chairman of the Board, the President or any Vice President, or by any other officer if such execution is within the scope of the duties of such other officer. Section 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 3. Checks and Drafts. All checks, drafts or other orders for the payment of money and notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as may be selected by or under the authority of the Board of Directors. ARTICLE VIII SHARES AND THEIR TRANSFER Section 1. Shares. Shares of the Corporation may but need not be represented by certificates. When shares are represented by certificates, the Corporation shall issue such certificates in such form as shall be required by the Act and as determined by the Board of Directors to every shareholder for the fully paid shares owned by such shareholder. Each certificate shall be signed by, or shall bear the facsimile signature of, the Chairman of the Board or the President and the Secretary or an Assistant Secretary of the Corporation and may bear the corporate seal of the Corporation or its facsimile. All certificates for the Corporation's shares 14 shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented by a certificate are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. Such information may be stored or retained on discs, tapes, cards or any other approved storage device relating to data processing equipment; provided, however, that such device shall be capable of reproducing all information contained therein in legible and understandable form, for inspection by shareholders or for any other corporate purpose. When shares are not represented by certificates, then within a reasonable time after the issuance or transfer of such shares, the Corporation shall send the shareholder to whom such shares have been issued or transferred a written statement of the information required by the Act to be on certificates. Section 2. Stock Transfer Books and Transfer of Shares. The Corporation or its agent shall keep a book or set of books to be known as the stock transfer books of the Corporation, containing the name of each shareholder of record, together with such shareholder's address and the number and class or series of shares held by such shareholder. Transfer of shares of the Corporation represented by certificates shall be made on the stock transfer books of the Corporation only upon surrender of the certificates for the shares sought to be transferred by the holder of record thereof or by such holder's duly authorized agent, transferee or legal representative, who shall furnish proper evidence of authority to transfer. All certificates surrendered for transfer shall be canceled before new certificates for the transferred shares shall be issued. Section 3. Lost Certificates. The Board of Directors or an officer so authorized by the Board may authorize the issuance of a new certificate in place of a certificate claimed to have been lost, destroyed or mutilated, upon receipt of an affidavit of such fact from the persons claiming the loss or destruction and any other documentation satisfactory to the Board of Directors or such officer. At the discretion of the party reviewing such claim, any such claimant may be required to give the Corporation a bond in such sum as it may direct to indemnify the Corporation against loss from any claim with respect to the certificate claimed to have been lost or destroyed. Section 4. Holder of Record. Except as otherwise required by the Act, the Corporation may treat the person in whose name the shares stand of record on its books as the absolute owner of the shares and the person exclusively entitled to receive notification and distributions, to vote, and to otherwise exercise the rights, powers and privileges of ownership of such shares. Section 5. Transfer Agent and Registrar; Regulations. The Corporation may, if and whenever the Board of Directors so determines, maintain in the State of North Carolina or any other state of the United States, one or more transfer offices or agencies and also one or more registry offices, which offices and agencies may establish rules and regulations for the issue, transfer and registration of certificates. No certificates for shares of stock of the Corporation in respect of which a Transfer Agent and Registrar shall have been designed shall be valid unless countersigned by such Transfer Agent and registered by such Registrar. The Board may also 15 make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates. ARTICLE IX INDEMNIFICATION Section 1. General. In addition to the indemnification provided in Sections 55-8-50 to 55-8-56 of the General Statutes of North Carolina, the Corporation shall indemnify its directors, officers, employees or agents against liability and expenses, including reasonable attorneys' fees, arising out of their status as such or their activities in any of the foregoing capacities; provided, however, that the Corporation shall not indemnify a person against liability or expenses he or she may incur on account of his or her activities which were at the time taken known or believed by him or her to be clearly in conflict with the best interests of the Corporation. The Corporation shall likewise and to the same extent indemnify any person who, at the request of the Corporation, is or was serving as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or as a trustee or administrator under an employee benefit plan. The Corporation shall also indemnify any such person for reasonable costs, expenses, and attorneys' fees in connection with the enforcement of rights to indemnification granted herein, if it is determined, by judicial decision or by agreement of the parties, that such person is entitled to indemnification hereunder. Section 2. Determination Requirement. Any indemnification under Section 1 of this Article IX shall be paid by the Corporation in any specific case only after a determination that the person did not act in a manner, at the time the activities were taken, known or believed by him or her to be clearly in conflict with the best interests of the Corporation. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the vote of a majority of all of the voting shares other than those owned or controlled by the adversely interested directors, or by a unanimous vote of all of the voting shares, or (d) by a court of competent jurisdiction. Section 3. Expenses. Expenses incurred by a director or officer in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified against such expenses by the Corporation. Section 4. Constituent Corporations. For purposes of this Article IX, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director or officer of such a corporation or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise shall stand 16 in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as he or she would if he or she had served the resulting or surviving corporation in the same capacity. ARTICLE X GENERAL PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall begin on the Monday nearest to October 1 and shall end on the Sunday nearest to September 30 in each year. Section 2. Distributions. The Board of Directors may from time to time authorize, and the Corporation may pay or distribute, dividends or other distributions on its outstanding shares in such manner and upon such terms and conditions as are permitted by the Articles of Incorporation or the Act. Section 3. Seal. The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation and the word "Seal". Section 4. Amendments. Except as hereinafter otherwise provided, these Bylaws may be amended or repealed and new Bylaws may be adopted by the affirmative vote of a majority of the Directors then holding office at any regular or special meeting of the Board of Directors. The Board of Directors shall have no power to adopt a bylaw: (a) requiring more than a majority of the voting shares for a quorum at a meeting of shareholders or more than a majority of the votes cast to constitute action by the shareholders, except where higher percentages are required by law; (b) providing for the management of the Corporation otherwise than by the Board of Directors or its Executive Committee; or (c) increasing or decreasing the number of Directors. No bylaw adopted or amended by the shareholders may be altered or repealed by the Board of Directors. The affirmative vote of two-thirds of the total number of voting shares outstanding shall be required to amend, alter, change, or repeal Section 2 of Article IV or this Section 4 of Article X of these Bylaws. 17 EX-11 3 EXHIBIT 11 EXHIBIT 11 RUDDICK CORPORATION STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FISCAL YEAR ENDED SEPTEMBER 27, SEPTEMBER 28 1998 1997 -------------- ------------- NET INCOME PER SHARE COMPUTED AS FOLLOWS: BASIC: 1. Net Income available to common shareholders $ 46,771,696 $ 47,730,519 ============== ============= 2. Weighted Average Common Shares Outstanding - Basic 46,667,416 46,542,505 3. Basic net income per share (Item 1 divided by Item 2) $ 1.00 $ 1.02 ============== ============= DILUTED: 1. Net Income available to common shareholders $ 46,771,696 $ 47,730,519 ============== ============= 2. Weighted Average Common Shares Outstanding - Basic 46,667,416 46,542,505 3. Weighted potential shares under stock options for the periods using the Treasury Stock Method. 297,007 282,964 4. Weighted Average Common Shares Outstanding - Diluted Common Equivalent Shares Outstanding ============== ============= 46,964,423 46,825,469 ============== ============= 5. Net Income Per Share (Item 1 divided by Item 4) $ 1.00 $ 1.02 ============== =============
EX-13 4 EXHIBIT 13 EXHIBIT 13 RUDDICK CORPORATION 1998 ANNUAL REPORT TO SHAREHOLDERS: CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FISCAL 1998 COMPARED TO FISCAL 1997 For fiscal year 1998, consolidated sales of $2.5 billion increased 8% over the $2.3 billion reported in fiscal 1997. Consolidated net income of $46.8 million fell 2% from the $47.7 million reported last year. Basic and diluted earnings per share were $1.00 in fiscal 1998 compared to $1.02 in fiscal 1997. 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 decrease in net income for fiscal 1998 was primarily due to lower operating profits at American & Efird (A&E), the Company's industrial thread subsidiary, which related largely to its Korean operations, not fully offset by the increased operating profit of Harris Teeter, the retail grocery subsidiary. Further, in fiscal 1998, the Company's effective income tax rate rose to 33.8% (33.0% in 1997), driven by reduced tax benefits from Company owned life insurance (COLI). HARRIS TEETER, INC. Sales advanced by 10% in fiscal 1998 to $2.1 billion. Despite the highly competitive environment for the supermarket industry in general, Harris Teeter sales for stores in operation in both periods increased by 4.8% in fiscal 1998, compared to .1% in fiscal 1997. Sales increases were due to the 7% expansion in store square footage over the course of the year and the favorable comparable store sales growth which was primarily attributable to successful promotional and merchandising activities related to the Very Important Customer (VIC) loyalty card program. Grocery sales grew by 10% and accounted for 49% of the sales increase. Dairy, meat, produce and frozen products had sales increases ranging from 8% to 14% and accounted for 39% of the sales increase. Gross profit increased by 11% to $581.3 million in fiscal 1998 from $525.4 million in the prior year. Operating profit expanded by 14%, to $52.1 million in fiscal 1998 from $45.7 million in fiscal 1997. These results were primarily due to the very specific productivity enhancement and cost management initiatives put in place during 1997 and 1998, and the higher sales level in fiscal 1998. At the end of fiscal 1998, 144 stores were in operation, compared to 138 a year ago. During the year, ten new stores were opened, one of which was a replacement, and four less profitable stores were closed. A similar number of store openings planned for fiscal 1999 will include two stores in Jacksonville, Florida, the company's first operations in that state. AMERICAN & EFIRD, INC. Sales fell by 4% from fiscal 1997 to $355.2 million. This sales decline was primarily due to a relative softness in demand for thread in U.S. markets and a reduction in exports, offset in part by strong growth in A&E's foreign sales. In fiscal 1997, sales growth was driven by good market conditions in most major industries served by A&E, while in fiscal 1998 U.S. sales were impacted by the shift of business to Latin America and Mexico, the growth of low-priced Asian imports and a shift in consumer buying trends to more designer apparel, resulting in fewer units sold. In A&E's foreign operations, sales increases were achieved in all markets except Korea and Hong Kong, and were especially strong in Mexico and Central America. In fiscal 1998, the sales decline was primarily in industrial sewing thread, while consumer thread and notions sales increased. In addition to the anticipated continuation of growth in international sales, A&E expects that its ability to meet the increasing demands of its customers for top quality, high performance industrial thread in both the apparel and home furnishings markets should provide an opportunity for future growth. Gross profit declined by 5% to $101 million in fiscal 1998 from $106.8 million in the prior year as a result of lower sales and the pressure on margins in the very competitive environment. Operating profit fell by 14% to $42.1 million in fiscal 1998 compared to $49.1 million in the prior year and was negatively impacted by the decrease in volume, the deterioration of business conditions in Korea and costs associated with the withdrawal from that country. In total, Korean operations and withdrawal reduced operating profit for the fiscal year by $5.4 million, or $3.8 million after tax. In addition to the $3.1 million pre-tax charge for the costs of withdrawal, Korean losses were affected by currency translation, bad debt write-offs and inventory adjustments. A&E Korea's sales were $3.8 million in nine months in 1998 and $5.8 million in 1997. Further, A&E's profitability declined as improved manufacturing productivity from the completion of the integration of Threads USA was more than offset by the unfavorable effects of reduced manufacturing schedules. A new customer support center, which opened at year end 1998, consolidated all customer interface functions, including sales support and administration, customer service, credit and marketing. A&E expects further streamlining of its distribution process and continued improvements in customer service during fiscal 1999. Excluding Korea, sales by foreign operations made up 25% of A&E's total sales and 8% of its operating profit in 20 fiscal 1998. While foreign sales and profits were still not material to the Company's consolidated results of operations, international sales continued to build significantly. NAFTA and the Caribbean Basin Initiative continued to drive strong performances in Canada, Mexico and the Caribbean, and apparel manufacturing continued to increase in Latin America. The A&E majority-owned joint venture in China also evidenced growth. RESULTS OF OPERATIONS - FISCAL 1997 COMPARED TO FISCAL 1996 For fiscal year 1997, consolidated sales of $2.3 billion increased 7% over the $2.1 billion reported in fiscal 1996. Consolidated net income of $47.7 million was up 12% from the $42.8 million reported last year. Basic and diluted earnings per share were $1.02 for fiscal 1997, an increase of 11% when compared to $.92 reported in fiscal 1996. Fiscal 1997 consolidated operating profit increased 14% due to record profitability at American & Efird. In fiscal 1997, the 12% increase in net income was achieved despite a rise in the Company's effective income tax rate to 33% (31% in 1996), driven by a combination of reduced tax benefits from COLI and higher relative pre-tax income from operations. HARRIS TEETER, INC. Sales advanced by 5% in fiscal 1997. In an intensely competitive environment, which showed no signs of abating, for the supermarket industry in general, Harris Teeter sales for stores in operation in both periods were marginally ahead by .1% in fiscal 1997, compared to 3.9% in fiscal 1996. Sales increases were primarily due to an 8% expansion in store square footage over the course of the year, increased advertising and promotion and the successful system-wide rollout of the new customer loyalty card introduced in 1996. Grocery sales grew by 4% and accounted for 36% of the sales increase. Dairy, meat, produce and frozen products had sales increases ranging from 4% to 10% and accounted for 44% of the sales increase. Operating profit fell by 6% to $45.7 million in fiscal 1997, primarily as a result of expenses related to the opening of a record number of new stores, as well as several major store remodels during the year and higher fixed costs associated with those stores. These costs were partially offset by greater sales volume and a favorable product mix of higher margin items. At the end of fiscal 1997, 138 stores were in operation, compared to 134 at the end of fiscal 1996. During fiscal 1997 thirteen new stores were opened, five of which were replacements, and four additional, less profitable stores were sold or closed. During fiscal 1997, charges to a $5.3 million reserve established in 1993 for the closing of specified stores to be replaced, which stores have been closed, totaled $1.3 million, for a cumulative total of $4.4 million for all periods to date. AMERICAN & EFIRD, INC. Sales increased 19% over fiscal 1996. This sales growth was primarily due to the inclusion of a full year's sales from the June 1996 acquisition of certain assets of Threads USA, moderate additions to business with existing U.S. customers and an increase in foreign sales. Further, sales growth was driven by good market conditions in most major industries served by A&E, while during the prior year relative weakness in thread sales was related to weak apparel sales at retail. Sales increases were primarily in industrial sewing thread, and consumer thread and notions sales declined modestly. A&E expected that its ability to meet the increasing demands of its customers for top quality, high performance industrial thread in both the apparel and home furnishings markets would provide an opportunity for significant future growth. Operating profit advanced by 42% to $49.1 million in fiscal 1997 compared to $34.7 million in the prior year. Operating profit was positively impacted by additional sales volume and the successful integration of the Threads USA business into existing facilities, which resulted in improved operating efficiency, by the renovation and upgrading of a Threads USA manufacturing facility and by the improved performance in a number of foreign operations. The integration of Threads USA was near completion, including the consolidation of manufacturing and administrative operations, customer conversion and sales force reorganization. A new customer support center was also planned, with construction expected to begin by early 1998. Sales by foreign operations made up 20% of A&E's total sales and 14% of its operating profit. While foreign sales and profits were still not material to the Company's consolidated results of operations, they continued to build significantly. NAFTA and the Caribbean Basin Initiative continued to drive strong performances in Mexico and the Caribbean, due to the growth of apparel manufacturing in Central and South America. The A&E majority-owned joint venture in China also evidenced strong growth, and export sales continued to expand. Slightly offsetting such improvements were weak financial results in the Korean and Malaysian operations, due to poor economic conditions and currency devaluation. Lastly, A&E had begun the process of establishing operations in India. OTHER EFFECTS ON RESULTS OF OPERATIONS During the second fiscal 1996 quarter, the Company elected to begin paying directly to its ESOP employee-shareholders the cash dividends on ESOP shares. Favorable tax treatment of the ESOP dividend pass-through under the applicable income tax statutes along with favorable tax attributes of COLI reduced the effective income tax rate of the Company. The favorable tax attributes of COLI, however, were significantly diminished as of January 1, 1996 as a 21 result of federal legislation which will phase out interest deductions completely on policy loans by January 1, 1999. On January 23, 1996, certain assets of Jordan Graphics, Inc. were sold to The Reynolds and Reynolds Company. The revenues of the discontinued operations for the fiscal year prior to the sale were $17.3 million (16 weeks). The operating results for fiscal year 1996 were not significant. Substantially all the value of assets of Jordan was realized during fiscal year 1996 by collection or sale. The disposition had no significant impact on the consolidated earnings or the financial condition of Ruddick. CAPITAL RESOURCES AND LIQUIDITY Ruddick Corporation is a holding company which, through its wholly owned subsidiaries, American & Efird, Inc. and Harris Teeter, Inc., is engaged in the primary businesses of industrial sewing thread manufacture and distribution, and regional supermarket operations, respectively. Ruddick has no material independent operations, nor material assets, other than the investments in its operating subsidiaries. Ruddick provides a variety of services to its subsidiaries and is dependent upon income and upstream dividends from its subsidiaries. There exist no 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. In fiscal 1998, the return on beginning equity was 12.3%, compared to 13.8% in the prior year. 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 1998, this percentage was 31.6%, a decrease from last year's 33.1%. 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 1998 was $86.7 million, and $36.0 million was outstanding at year end. 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. On April 15, 1997, the Company executed unsecured 7.72% Senior Notes in the amount of $50 million, due April 15, 2017, and an additional uncommitted $50 million Private Shelf Facility with a major insurance company. Subsequently, on July 15, 1997, the Company executed unsecured 7.55% Senior Notes in the amount of $50 million due July 15, 2017, under the Private Shelf Facility. Proceeds from these notes were used to repay an 8.57% Term Note and reduce the amount borrowed under the revolving lines of credit, which borrowings and term debt had been primarily undertaken for capital expenditures. Working capital as of the fiscal years ended 1998, 1997 and 1996 was $87.3 million, $88.9 million and $65.1 million, respectively. The decrease of $1.6 million in fiscal 1998 was primarily the result of a rise in accounts payable and other accrued liabilities approximately commensurate with the increase in inventories, corresponding to sales levels. The current ratio was 1.4 at both September 27, 1998 and September 28, 1997. 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 1998, capital expenditures were $95.5 million. In fiscal 1999, capital expenditures are expected to be not more than $130 million. For further modernization and expansion, American & Efird expects to spend $31 million. In the very competitive Southeast U.S. grocery market, Harris Teeter has capital expenditure plans totaling $99 million. The Harris Teeter estimates include the fiscal 1999 opening of nine new stores. New store locations include six in North Carolina, one in northern Virginia and two in Jacksonville, Florida, a new market for Harris Teeter and its sixth state. Management expects that internally generated funds, supplemented by available borrowing capacity, will be adequate to finance such expenditures. The expansion of Harris Teeter's two distribution centers that began in 1997 to increase capacity for future growth and improve distribution efficiency was completed in mid 1998. OTHER MATTERS The Company is in the process of the modification or conversion of Company computer (IT) systems, as well as non-IT systems which have embedded technology such as microcontrollers, to provide for proper functioning beyond calendar year 1999. During the fiscal year ended September 28, 1997, the Company instituted plans and initiated its Year 2000 remediation programs by which it would complete such remediation by the end of April 1999 in the U.S. and June 1999 in its foreign operations. Routine periodic reports have displayed that the project activities are on schedule with 22 the requirements of the Year 2000 remediation plan. At both Harris Teeter and A&E, the assessment and technical plan development phases have been completed and the companies are at various levels of completion of the remediation implementation and testing phases. As of September 27, 1998, Harris Teeter remediation was 70% complete and A&E remediation was 97% complete in the U.S. in their respective mission-critical, IT and non-IT systems. A&E has foreign operations which are not material to the Company as a whole; and still, the programming for just the Latin American IT system model is 93% complete and all foreign entities are scheduled for completion between December 31, 1998 and June 30, 1999. At both Harris Teeter and A&E, the integration testing of most U.S. systems is already underway and testing will proceed on a priority basis throughout much of 1999. A current assessment of the total amount of Year 2000 remediation expenditures over the fiscal years 1997 through completion in 1999 yielded an estimate of $2.9 to $3.1 million. The combined companies have spent $1.2 million prior to September 27, 1998, and expect to spend $1.7 million more in fiscal year 1999 in order to complete the Year 2000 remediation and testing. Maintenance and modification costs will be expensed as incurred, while the costs of new software will be capitalized and amortized over the software's useful life. The Company has formal correspondence programs with its major suppliers and thread customers, of which no single customer exceeds 8% of A&E sales, for inquiry, monitoring and assessing their Year 2000 remediation plans and efforts. All costs of their remediation will be borne by the suppliers and customers. Management expects that the costs of the Company's Year 2000 remediation will have no material impact on its results of operations, liquidity and capital resources and further, that resources are available to complete the modification and conversion as planned. It must be recognized, however, that failure to do so could have a material adverse effect on the Company's future results of operations. The Company is currently developing contingency plans to address the potential worst-case scenarios which could conceivably evolve in mission-critical systems, presumably as a result of the lack of readiness of outside parties. This will include temporary and manual procedures to follow in the event of a system or subsystem failure. In reference to the supply of goods and services by vendors, the contingency plans will largely take into account the vendors' progress to adequately address the Year 2000 issue. The contingency plans are scheduled to be completed by the end of the second calendar quarter of 1999. As a result of federal legislation which will phase out interest deductions on certain policy loans and thereby significantly diminish the favorable tax attributes of COLI as of January 1, 1999, the Company expects that its effective income tax rate will rise to a level slightly below statutory rates domestically. The Company has recorded income tax reductions of approximately $24 million cumulatively as the result of COLI interest deductions from October 1993 through fiscal year ending September 27, 1998. The Internal Revenue Service, on a comprehensive national level, is evaluating its position regarding the deductibility of COLI policy loan interest for years prior to January 1, 1999. In March 1998, the IRS issued a Technical Advice Memorandum regarding the COLI deductibility of a taxpayer unrelated to the Company. Management understands that the adverse position taken by the IRS will be subjected to extensive challenges in the courts. In the event that the IRS prevails, this outcome could result in a material impact upon the Company's future income taxes and results of operations. 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: o 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, o changes in the competitive environment, including increased competition in our primary geographic markets, the entry of new competitors and consolidation in the supermarket industry, o economic or political changes in the countries in which we operate overseas or adverse trade regulations, o the passage of future tax legislation or any regulatory position which prevails, if any, that could have an adverse impact on the tax benefits of the ESOP dividends and the COLI, o management's ability to accurately predict the adequacy of the Company's present liquidity to meet future requirements, o changes in the Company's capital expenditures, new store openings and store closings, and o changes in the availability of computer programming resources required to complete the Year 2000 compliance effectively. 23 CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27 SEPTEMBER 28 (Dollars in thousands) 1998 1997 - ---------------------------------------------------------------------------------- ASSETS Current Assets Cash and Cash Equivalents $16,668 $17,150 Accounts Receivable, Less Allowance For Doubtful Accounts: 1998, $2,046; 1997, $2,005 76,948 77,852 Inventories 211,404 196,049 Other Current Assets 27,733 32,249 - ---------------------------------------------------------------------------------- Total Current Assets 332,753 323,300 - ---------------------------------------------------------------------------------- Property Land and Buildings 166,334 127,600 Machinery and Equipment 568,078 522,627 Leasehold Improvements 146,926 130,078 Assets Under Capital Leases 1,920 1,920 - ---------------------------------------------------------------------------------- Total, at Cost 883,258 782,225 Accumulated Depreciation and Amortization 369,470 315,666 - ---------------------------------------------------------------------------------- Property, Net 513,788 466,559 - ---------------------------------------------------------------------------------- Investments and Other Assets Investments 17,675 27,529 Other Assets 67,402 67,855 - ---------------------------------------------------------------------------------- Total Assets $931,618 $885,243 ================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes Payable $2,411 $8,100 Current Portion of Long-term Debt 571 575 Dividends Payable 3,726 3,727 Accounts Payable 146,149 139,085 Federal and State Income Taxes 5,456 5,758 Accrued Compensation 28,033 28,349 Accrued Interest 19,602 21,217 Other Accrued Liabilities 39,472 27,596 - ---------------------------------------------------------------------------------- Total Current Liabilities 245,420 234,407 - ---------------------------------------------------------------------------------- Non-Current Liabilities Long-term Debt 191,360 189,919 Deferred Income Taxes 55,906 52,447 Other Liabilities 23,694 23,376 Minority Interest 4,513 4,587 - ---------------------------------------------------------------------------------- Commitments and Contingencies - ---------------------------------------------------------------------------------- Shareholders' Equity Common Stock - Shares Outstanding: 1998 - 46,554,591; 1997 - 46,599,301 54,686 56,779 Retained Earnings 358,328 326,488 Cumulative Translation Adjustments (2,289) (2,760) - ---------------------------------------------------------------------------------- Shareholders' Equity 410,725 380,507 - ---------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 931,618 $ 885,243 ==================================================================================
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 24 STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS
FOR THE FISCAL YEARS ENDED, ------------------------------------- SEPTEMBER 27 SEPTEMBER 28 SEPTEMBER 29 (Dollars in thousands except per share data) 1998 1997 1996 - ---------------------------------------------------------------------------------------- Net Sales $2,487,370 $2,300,089 $2,142,501 - ---------------------------------------------------------------------------------------- Cost of Sales 1,805,088 1,667,858 1,561,098 Selling, General and Administrative Expenses 588,086 537,395 498,260 - ---------------------------------------------------------------------------------------- Operating Profit 94,196 94,836 83,143 - ---------------------------------------------------------------------------------------- Net Interest Expense 15,973 14,558 12,155 Other Administrative Expense, Net 7,529 8,976 8,979 - ---------------------------------------------------------------------------------------- Income Before Taxes 70,694 71,302 62,009 Taxes 23,922 23,571 19,207 - ---------------------------------------------------------------------------------------- Net Income 46,772 47,731 42,802 Retained Earnings at Beginning of Fiscal Year 326,488 293,654 262,921 Common Dividend: 1998 and 1997 - $.32 a share; 1996 - $.26 a share 14,932 14,897 12,069 - ---------------------------------------------------------------------------------------- Retained Earnings at End of Fiscal Year $ 358,328 $ 326,488 $ 293,654 ======================================================================================== Net Income Per Share - Basic and Diluted $ 1.00 $ 1.02 $ .92 ========================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 25 STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE FISCAL YEARS ENDED, -------------------------------------- SEPTEMBER 27 SEPTEMBER 28 SEPTEMBER 29 (Dollars in thousands) 1998 1997 1996 - -------------------------------------------------------------------------------------------- Cash Flow from Operating Activities Net Income $ 46,772 $ 47,731 $ 42,802 Non-cash Items Included in Net Income Depreciation and Amortization 66,184 58,723 51,226 Deferred Taxes 3,064 6,133 6,863 Restructuring Charge (846) (1,298) (1,512) Other, Net 6,668 4,459 (49) Decrease (Increase) in Accounts Receivable 904 (7,043) (12,903) Decrease (Increase) in Inventories (15,356) (12,400) (6,254) Decrease (Increase) in Other Current Assets 4,911 (6,965) 11,466 Increase (Decrease) in Current Liabilities 11,018 5,742 11,874 - -------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 123,319 95,082 103,513 - -------------------------------------------------------------------------------------------- Net Cash Provided by Discontinued Activities -- 413 12,650 - -------------------------------------------------------------------------------------------- Investing Activities Capital Expenditures (95,473) (115,299) (123,280) Cash Proceeds from Sale of Property 1,719 1,038 4,127 COLI, Net (1,405) (2,883) (9,098) Other, Net (13,860) 5,492 (10,668) - -------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (109,019) (111,652) (138,919) - -------------------------------------------------------------------------------------------- Financing Activities Proceeds from Long-term Borrowings 2,100 87,650 44,950 Payments of Principal on Long-term Debt (508) (61,493) (8,285) Dividends Paid (14,932) (14,897) (12,069) Other, Net (1,442) 1,014 234 - -------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities (14,782) 12,274 24,830 - -------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (482) (3,883) 2,074 Cash and Cash Equivalents at Beginning of Year 17,150 21,033 18,959 - -------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 16,668 $ 17,150 $ 21,033 ============================================================================================ Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest $ 16,516 $ 13,937 $ 11,201 Income Taxes $ 20,201 $ 13,725 $ 11,056 - --------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNT POLICIES PRINCIPLES OF CONSOLDATION The accompanying consolidated financial statements include the accounts of Ruddick Corporation and its wholly owned operating companies, American & Efird, Inc. and Harris Teeter, Inc., and in fiscal 1996, Jordan Graphics, Inc. (disposed in 1996), 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. CASH EQUIVALENTS For purposes of the statements of consolidated cash flows, the Company considers all highly liquid cash investments purchased with a 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 $21,036,000 and $20,949,000 less than the first-in, first-out (FIFO) cost method at September 27, 1998 and September 28, 1997, respectively. Foreign inventories and limited categories of domestic inventories, totaling $35,186,000 for fiscal 1998 and $36,660,000 for fiscal 1997, are valued on the weighted average (foreign) and FIFO (domestic) cost methods. 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 - 50 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 $28,854,000 and $35,635,000 undepreciated construction in progress at September 27, 1998 and September 28, 1997, 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. Real estate and financial investments are carried at the lower of cost or market. In management's opinion, the net aggregate carrying value of financial instruments of $7,924,000 and $8,435,000 held for investment approximated their aggregate fair values at September 27, 1998 and September 28, 1997, 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 $16,831,000 in 1998, $18,490,000 in 1997, and $18,564,000 in 1996, is 27 included in other administrative 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. 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 fair value of fixed rate obligations exceeds their recorded amounts by approximately $10,000,000 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 September 27, 1998, the carrying value of the Company's long-lived assets and intangibles, including goodwill, was recoverable in all material respects. 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 $20,721,000, $15,555,000 and $12,839,000 were included in the Company's results of operations for fiscal 1998, 1997 and 1996, respectively. INCOME TAXES Ruddick and its subsidiaries file a consolidated federal income tax return. Tax credits are recorded as a reduction of federal income taxes in the years in which they are utilized. 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 The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," effective with the beginning of its first fiscal quarter of 1998 and, accordingly, basic and diluted net income per share amounts were 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 46,667,416 in 1998, 46,542,505 in 1997, and 46,416,242 in 1996. As a result of outstanding stock options, the weighted average diluted shares outstanding were 46,964,423 in 1998, 46,825,469 in 1997 and 46,617,837 in 1996. Common stock equivalents had no effect on the earnings for determination of per share amounts in 1998, 1997 and 1996. STOCK OPTIONS As permitted by 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. DISCONTINUED OPERATIONS In fiscal 1996, the assets of Jordan Graphics, Inc., the business forms segment, were sold. The revenues of the discontinued operation were $17,293,000 (16 weeks) in fiscal year 1996. Operating profits were $123,000 for the same period and applicable taxes were $47,000. 28 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. 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 COMPREHENSIVE INCOME: SFAS No. 130, "Reporting Comprehensive Income," will require, effective for the Company's fiscal year ending October 3, 1999, and for inclusive interim reporting periods, reporting in an additional basic financial statement the net income, as historically reported under generally accepted accounting principles, adjusted for each component of nonowner changes in shareholders' equity. BUSINESS SEGMENTS AND RELATED INFORMATION: SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," will require, effective for the Company's fiscal year ending October 3, 1999, annual financial statements, and for interim and annual reporting periods in fiscal 2000 and thereafter, new standards of disclosure for information about operating segments of the enterprise and related disclosures about products and services, geographic areas and major customers. DERIVATIVE INSTRUMENTS AND HEDGING: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," will be effective for the Company's fiscal year 2000. 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 a 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 has not yet quantified the impacts of adopting SFAS No. 133 on its consolidated financial statements and has not determined the timing of or method of adoption. 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 21 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 seven years. Rent expenses were as follows: - -------------------------------------------------------------------------------- (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Operating Leases: Minimum $59,720 $52,327 $43,282 Contingent 1,157 941 1,175 - -------------------------------------------------------------------------------- Total $60,877 $53,268 $44,457 - -------------------------------------------------------------------------------- 29 Future minimum lease commitments at September 27, 1998 (excluding leases assigned or expected to be assigned - see below) were as follows:
- ------------------------------------------------------------------------------------------ (In thousands) Capital Leases Operating Leases - ------------------------------------------------------------------------------------------ 1999 $ 268 $ 58,764 2000 268 56,119 2001 268 52,995 2002 268 51,672 2003 173 50,826 Later years 36 498,165 - ------------------------------------------------------------------------------------------ Total minimum lease payments $ 1,281 $768,541 - ------------------------------------------------------------------------------------------ Less amount representing interest (Store premises, 6.75% - 10.25%, store equipment, 8% - 15%) 600 - ------------------------------------------------------------------------------------------ Present value of minimum lease obligations 681 Less current portion 113 - ------------------------------------------------------------------------------------------ Long-term capital lease obligations $ 568 - ------------------------------------------------------------------------------------------ Total minimum sublease rentals to be received under noncancelable subleases $ 2,504 - ------------------------------------------------------------------------------------------
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 11 years and the future minimum lease payments of $10,040,000 over this period have been assumed by these merchants. 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 19 years and the future minimum lease payments related to these locations total $23,171,000 (approximating $2,074,000 per year for each of the next five years). LONG-TERM DEBT Long-term debt at September 27, 1998 and September 28, 1997 was as follows:
- ------------------------------------------------------------------------------------ (In thousands) 1998 1997 - ------------------------------------------------------------------------------------ 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 line of credit, variable rate, due February 2003 36,000 33,900 Industrial revenue bond, variable rate, due November 2000 2,500 2,500 Obligations under capital leases and other 3,431 4,094 - ------------------------------------------------------------------------------------ Total 191,931 190,494 - ------------------------------------------------------------------------------------ Less current portion 571 575 - ------------------------------------------------------------------------------------ Total long-term debt $191,360 $189,919 - ------------------------------------------------------------------------------------
Long-term debt maturities, excluding obligations under capital leases, in each of the next five fiscal years are as follows: 1999 - $458,000; 2000 - $333,000; 2001 - $2,693,000; 2002 - $137,000; 2003 - $139,000. Additionally, in fiscal 2003, the revolving line of credit ($36,000,000 as of September 27, 1998) 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. In fiscal 1997, the Company executed an unsecured $50,000,000 7.72% Senior Promissory Note due April 15, 2017 and an unsecured $50,000,000 7.55% Senior Promissory Note due July 15, 2017, with a major insurance company. Proceeds from the Notes were used to repay a term note and reduce the amount borrowed under the revolving line of credit with three banks. During 1998 and 1997 the maximum outstanding borrowing under the revolving line of credit was $86,700,000 and 30 $100,000,000, respectively, and the average for the 364 days outstanding was $63,272,000 and $70,942,000, respectively. The daily weighted average interest rate (a variable rate related to the current published CD rate) was 6.1% and a commitment fee of .15% of the unused line was charged during 1998 and 1997. As of September 27, 1998, the Company had $64,000,000 of committed capacity available under its revolving credit facility. Various loan agreements provide, among other things, for maintenance of minimum levels of consolidated shareholders' equity or tangible net worth. At September 27, 1998, consolidated tangible net worth exceeded by $87,761,000 the balance which, under the most restrictive provisions, must be maintained through October 3, 1999. The requirement shall increase annually by 40% of consolidated net income for such year. Total interest expense on long-term debt was $16,596,000, $14,615,000, and $12,748,000 in 1998, 1997 and 1996, respectively. CAPITAL STOCK The capital stock of the Company authorized at September 27, 1998 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 Common. Changes in shares issued and outstanding and in shareholders' equity accounts other than retained earnings are summarized as follows:
Common (In thousands except share amounts) Shares Amount - ------------------------------------------------------------------------ Balance at October 1, 1995 46,373,666 $ 54,816 - ------------------------------------------------------------------------ Shares issued under exercised stock options 94,424 661 Tax effect of disqualifying option stocks -- 117 Other (6,800) 5 - ------------------------------------------------------------------------ Balance at September 29, 1996 46,461,290 $ 55,599 - ------------------------------------------------------------------------ Shares issued under exercised stock options 138,011 1,008 Tax effect of disqualifying option stocks -- 106 Other -- 66 - ------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------
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. 31 STOCK OPTIONS At September 27, 1998, the Company has 1982, 1988, 1993, 1995 and 1997 stock option plans which authorized options for 4,700,000 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 September 27, 1998, the Company may grant additional options for the purchase of 992,800 shares. A summary of the status of the Company's stock option plans as of September 27, 1998, September 28, 1997 and September 29, 1996, changes during the years ending on those dates, and related weighted average exercise price is presented below:
- -------------------------------------------------------------------------------------------- (Shares in thousands) 1998 1997 1996 Shares Price Shares Price Shares Price - -------------------------------------------------------------------------------------------- Outstanding at beginning of year 1,011 $ 10.99 1,116 $ 10.40 696 $ 9.07 Granted 610 19.29 120 13.45 573 11.50 Exercised (235) 9.89 (181) 9.05 (97) 7.21 Forfeited (43) 14.10 (44) 10.64 (56) 10.81 - -------------------------------------------------------------------------------------------- Outstanding at end of year 1,343 14.85 1,011 10.99 1,116 10.40 - -------------------------------------------------------------------------------------------- Options exercisable at year-end 399 $ 11.50 422 $ 10.29 368 $ 9.14 - --------------------------------------------------------------------------------------------
The following table summarizes options outstanding and options exercisable as of September 27, 1998, and the related weighted average remaining contractual life (years) and weighted average exercise price (shares in thousands):
- --------------------------------------------------------------------------------- OPTIONS OUTSTANDING OPTIONS EXERCISEABLE Shares Remaining Shares Options Price per Share Outstanding Life Price Exercisable Price - --------------------------------------------------------------------------------- $8.13 to $ 11.44 601 3.3 $10.89 302 $ 10.58 11.94 to 18.47 166 6.3 13.70 91 13.96 19.31 to 20.28 576 6.3 19.32 6 20.28 - --------------------------------------------------------------------------------- $8.13 to $ 20.28 1,343 5.0 $14.85 399 $ 11.50 - ---------------------------------------------------------------------------------
The weighted average fair value at date of grant for options granted during fiscal 1998, 1997 and 1996 was $5.44, $3.82 and $2.95 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: - ----------------------------------------------------- 1998 1997 1996 - ----------------------------------------------------- Expected life (years) 5.1 4.9 5.0 Risk-free interest rate 5.80% 5.91% 5.74% Volatility 28.44% 28.65% 26.01% Dividend yield 2.20% 2.10% 2.40% - ----------------------------------------------------- 32 The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock options granted in fiscal 1998, 1997 or 1996. 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) 1998 1997 1996 - ------------------------------------------------------------------- Net income - as reported $46,772 $47,731 $ 42,802 - pro forma 45,846 47,381 42,375 Net income per share - as reported $1.00 $1.02 $.92 - pro forma .98 1.01 .91 - ------------------------------------------------------------------- The pro forma effect on net income for fiscal 1998, 1997 and 1996 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. INCOME TAXES The provision for income taxes consisted of the following: - -------------------------------------------------------- (In thousands) 1998 1997 1996 - -------------------------------------------------------- Current Federal $15,903 $12,803 $10,556 State and other 4,955 4,687 2,486 - -------------------------------------------------------- 20,858 17,490 13,042 - -------------------------------------------------------- Deferred Federal 3,004 5,034 5,196 State and other 60 1,047 969 - -------------------------------------------------------- 3,064 6,081 6,165 - -------------------------------------------------------- Provision for income taxes $23,922 $23,571 $19,207 - -------------------------------------------------------- Income from foreign operations before income taxes in fiscal 1998, 1997 and 1996 was $1,402,000, $4,520,000 and $1,390,000, respectively. Income tax expense differed from an amount computed by applying the statutory tax rates to pre-tax income as follows:
- --------------------------------------------------------------------------------------------------- (In thousands) 1998 1997 1996 - --------------------------------------------------------------------------------------------------- Income tax on pre-tax income at the statutory federal rate of 35% $ 24,743 $ 24,956 $ 21,703 Increase (decrease) attributable to: State and other income taxes, net of federal income tax benefit 3,748 3,265 1,806 COLI (3,528) (3,528) (4,261) Other items, net (1,041) (1,122) (41) - --------------------------------------------------------------------------------------------------- Income tax expense $ 23,922 $ 23,571 $ 19,207 - ---------------------------------------------------------------------------------------------------
33 The tax effects of temporary differences giving rise to the Company's consolidated deferred tax liability at September 27, 1998 and September 28, 1997 are as follows: - -------------------------------------------------------------------------------- (In thousands) 1998 1997 - -------------------------------------------------------------------------------- Deferred Tax Assets Employee benefits $6,483 $6,485 Reserves not currently deductible 7,344 6,888 Other 4,501 3,256 - -------------------------------------------------------------------------------- Total deferred tax assets $18,328 $16,629 - -------------------------------------------------------------------------------- Deferred Tax Liabilities Property, plant and equipment $(55,607) $(52,300) Other capitalized costs (4,337) (3,747) Other (9,276) (8,410) - -------------------------------------------------------------------------------- Total deferred tax liabilities $(69,220) $(64,457) - -------------------------------------------------------------------------------- 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. Summarized information for fiscal 1998, 1997 and 1996 is as follows:
- ------------------------------------------------------------------------------------- Industrial Retail (In millions) Thread Grocery Corporate (1) Consolidated - ------------------------------------------------------------------------------------- 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 1997 Net Sales $ 368.9 $ 1,931.2 $ 2,300.1 - ------------------------------------------------------------------------------------- Gross Profit 106.8 525.4 632.2 - ------------------------------------------------------------------------------------- Operating Profit 49.1 45.7 94.8 - ------------------------------------------------------------------------------------- Assets Employed at Year End $ 299.7 $ 521.7 $ 63.8 $ 885.2 Depreciation and Amortization 15.4 42.5 0.8 58.7 Capital Expenditures 28.9 86.2 0.2 115.3 - ------------------------------------------------------------------------------------- 1996 Net Sales $ 309.5 $ 1,833.0 $ 2,142.5 - ------------------------------------------------------------------------------------- Gross Profit 89.0 492.4 581.4 - ------------------------------------------------------------------------------------- Operating Profit 34.7 48.4 83.1 - ------------------------------------------------------------------------------------- Assets Employed at Year End $ 263.5 $ 476.9 $ 61.3 $ 801.7 Depreciation and Amortization 12.3 37.6 1.3 51.2 Capital Expenditures 35.6(2) 83.2 4.5 123.3 - -------------------------------------------------------------------------------------
(1) Corporate Assets Employed include investment assets and the net cash surrender value of Company owned life insurance. (2) Includes the purchase of certain assets of Threads USA. 34 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. Employee retirement benefits 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 is to contribute annually the minimum amount required by regulatory authorities. The following table sets forth the defined benefit plans' funded status and amounts recognized in the Company's consolidated balance sheets at September 27, 1998 and September 28, 1997:
- ---------------------------------------------------------------------------------- (In thousands) 1998 1997 - ---------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits $ 98,533 $ 82,676 Nonvested benefits 4,732 3,677 - ---------------------------------------------------------------------------------- Accumulated benefit obligations 103,265 86,353 Effect of projected future compensation levels 25,657 23,838 - ---------------------------------------------------------------------------------- Projected benefit obligations 128,922 110,191 Plans' assets at fair market value 98,412 92,611 - ---------------------------------------------------------------------------------- Projected benefit obligations in excess of plans' assets (30,510) (17,580) Unrecognized net asset at September 30, 1985, net of amortization, being amortized over 15 - 20 years 1,147 1,541 Unrecognized net loss due to past experience different from assumptions made (26,761) (14,215) - ---------------------------------------------------------------------------------- Unfunded accrued pension cost $ (4,896) $ (4,906) - ----------------------------------------------------------------------------------
The plans' assets consist primarily of U. S. government securities, corporate bonds, cash equivalents and domestic equities, all managed by two banks. The contribution payable at September 27, 1998 and September 28, 1997, required to be paid by due date of the federal income tax return, was $2,501,000 and $1,462,000, respectively. In 1998 (1997), a 6.8% (7.5%) weighted average discount rate and 4.5% (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% for both years. Pension expense for defined benefit plans for fiscal 1998, 1997, and 1996 included the following components: - ---------------------------------------------------------------------------- (In thousands) 1998 1997 1996 - ---------------------------------------------------------------------------- Benefits earned by employees $ 5,592 $ 4,464 $ 4,033 Interest on projected benefit obligations 8,531 7,789 7,135 Actual return on plan assets (4,366) (11,560) (4,635) Net amortization and deferral (3,142) 5,356 (1,143) - ---------------------------------------------------------------------------- Net pension expense $ 6,615 $ 6,049 $ 5,390 - ---------------------------------------------------------------------------- 35 The Company also has an Employee Stock Ownership Plan (ESOP), a profit-sharing plan and certain other plans. Expenses under these plans were as follows: - ---------------------------------------------------------------------------- (In thousands) 1998 1997 1996 - ---------------------------------------------------------------------------- ESOP $ 8,043 $ 8,733 $ 7,866 - ---------------------------------------------------------------------------- Profit-sharing 1,609 3,098 1,699 - ---------------------------------------------------------------------------- Other 2,525 2,517 2,266 - ---------------------------------------------------------------------------- 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 will phase out interest deductions on certain policy loans and thereby significantly diminish the favorable tax attributes of Company owned life insurance ("COLI") as of January 1, 1999, the Company expects that its effective income tax rates will be only slightly below statutory rates domestically. The Company recorded income tax reductions of approximately $24 million cumulatively as the result of COLI interest deductions from October 1993 through fiscal year ending September 27, 1998. The Internal Revenue Service, on a comprehensive national level, is evaluating its position regarding the deductibility of COLI policy loan interest for years prior to January 1, 1999. In March 1998, the IRS issued a Technical Advice Memorandum regarding the COLI deductibility of a taxpayer unrelated to the Company. Management understands that the adverse position taken by the IRS will be subjected to extensive challenges in the courts. In the event that the IRS prevails, this outcome could result in a material impact upon the Company's future income taxes and results of operations. See "Leases" for additional commitments and contingencies. 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 September 27, 1998, there were 5,517 holders of record of common stock. - -------------------------------------------------------------------------------- First Second Third Fourth (In millions, except per share data Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------- 1998 Operating Results Net Sales $ 617.6 $ 616.3 $ 620.5 $ 633.0 Net Income 12.0 11.4 10.3 13.1 Net Income Per Share .26 .24 .22 .28 Dividend Per Share .08 .08 .08 .08 Market Price Per Share High 21 3/8 19 7/8 19 1/16 18 5/16 Low 14 5/8 15 7/8 17 15 - -------------------------------------------------------------------------------- 1997 Operating Results Net Sales $ 574.1 $ 563.9 $ 579.8 $ 582.3 Net Income 11.6 11.2 13.0 11.9 Net Income Per Share .25 .24 .28 .25 Dividend Per Share .08 .08 .08 .08 Market Price Per Share High 13 7/8 17 3/4 16 3/4 16 5/8 Low 12 3/8 13 1/4 14 14 - -------------------------------------------------------------------------------- 36 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Ruddick Corporation: We have audited the accompanying consolidated balance sheets of Ruddick Corporation (a North Carolina corporation) and subsidiaries as of September 27, 1998, and September 28, 1997, and the related statements of consolidated income and retained earnings and consolidated cash flows for each of the three years in the period ended September 27, 1998. 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 generally accepted auditing standards. 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 September 27, 1998 and September 28, 1997, and the results of their operations and their cash flows for each of three years in the period ended September 27, 1998 in conformity with generally accepted accounting principles. Charlotte, North Carolina /s/ Arthur Anderson LLP October 23, 1998 37 ELEVEN-YEAR FINANCIAL AND OPERATING SUMMARY
- ---------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Net Sales American & Efird $ 355,147 $ 368,877 $ 309,459 $ 297,963 $ 277,016 Harris Teeter 2,132,223 1,931,212 1,833,042 1,711,813 1,578,880 - ---------------------------------------------------------------------------------------------------------------------------- Total Net Sales $ 2,487,370 $ 2,300,089 $ 2,142,501 $ 2,009,776 $ 1,855,896 - ---------------------------------------------------------------------------------------------------------------------------- Operating Profit American & Efird $ 42,070 $ 49,165 $ 34,684 $ 34,614 $ 26,916 Harris Teeter 52,126 45,671 48,459 42,114 37,032 - ---------------------------------------------------------------------------------------------------------------------------- Total Operating Profit $ 94,196 $ 94,836 $ 83,143 $ 76,728 $ 63,948 - ---------------------------------------------------------------------------------------------------------------------------- Net Income $ 46,772 $ 47,731 $ 42,802 $ 39,267 $ 31,811 Net Income Per Share 1.00 1.02 .92 .84 .67 Common Dividend .32 .32 .26 .25 .22 - ---------------------------------------------------------------------------------------------------------------------------- Earnings Before Interest, Taxes, Depreciation and Amortization $ 152,851 $ 144,583 $ 125,390 $ 114,385 $ 99,166 - ---------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity $ 410,725 $ 380,507 $ 346,856 $ 316,236 $ 291,209 Percent Return on Beginning Equity 12.3% 13.8% 13.5% 13.5% 11.6% Book Value Per Share $ 8.82 $ 8.17 $ 7.47 $ 6.82 $ 6.28 - ---------------------------------------------------------------------------------------------------------------------------- Capital Expenditures American & Efird $ 20,246 $ 28,878 $ 35,605(2) $ 16,359 $ 20,416 Harris Teeter 75,082 86,237 83,204 81,447 46,349 Corporate 145 184 4,471 399 35 - ---------------------------------------------------------------------------------------------------------------------------- Total Capital Expenditures $ 95,473 $ 115,299 $ 123,280 $ 98,205 $ 66,800 - ---------------------------------------------------------------------------------------------------------------------------- Working Capital $ 87,333 $ 88,893 $ 65,134 $ 73,741 $ 93,387 Total Assets $ 931,618 $ 885,243 $ 801,702 $ 715,318 $ 634,599 Long-Term Debt - Including Current Portion $ 191,931 $ 190,494 $ 164,435 $ 128,952 $ 109,567 Long-Term Debt as a Percent of Capital Employed 31.6% 33.1% 32.2% 29.0% 27.3% Number of Employees 20,700 19,700 20,100 19,850 18,610 Number of Beneficial Shareholders Including Employee/Owners 21,000 19,100 16,700 14,500 14,100 Common Shares Outstanding 46,554,591 46,599,301 46,461,290 46,373,666 46,352,214 - ----------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1993(1) 1992 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------------- Net Sales American & Efird $ 264,814 $ 243,324 $ 208,649 $ 199,115 $ 190,004 Harris Teeter 1,412,315 1,270,430 1,213,127 1,164,445 1,053,467 - -------------------------------------------------------------------------------------------------------------------------- Total Net Sales $ 1,677,129 $ 1,513,754 $ 1,421,776 $ 1,363,560 $ 1,243,471 - -------------------------------------------------------------------------------------------------------------------------- Operating Profit American & Efird $ 30,551 $ 28,510 $ 22,589 $ 18,403 $ 17,732 Harris Teeter 29,845 31,067 34,329 32,212 27,444 - -------------------------------------------------------------------------------------------------------------------------- Total Operating Profit $ 60,396 $ 59,577 $ 56,918 $ 50,615 $ 45,176 - -------------------------------------------------------------------------------------------------------------------------- Net Income $ 33,873 $ 30,789 $ 26,786 $ 24,031 $ 20,190 Net Income Per Share .71 .65 .59 .55 .47 Common Dividend .21 .20 .19 .18 .16 - -------------------------------------------------------------------------------------------------------------------------- Earnings Before Interest, Taxes, Depreciation and Amortization $ 97,490 $ 96,047 $ 89,025 $ 80,389 $ 71,927 - -------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity $ 274,740 $ 255,403 $ 233,566 $ 184,371 $ 158,921 Percent Return on Beginning Equity 13.3% 13.2% 14.5% 15.1% 14.0% Book Value Per Share $ 5.87 $ 5.44 $ 4.98 $ 4.54 $ 4.07 - -------------------------------------------------------------------------------------------------------------------------- Capital Expenditures American & Efird $ 19,433 $ 16,399 $ 11,417 $ 15,923 $ 14,742 Harris Teeter 33,683 25,910 30,903 27,376 31,611 Corporate 27 4,039 60 2,323 2,975 - -------------------------------------------------------------------------------------------------------------------------- Total Capital Expenditures $ 53,143 $ 46,348 $ 42,380 $ 45,622 $ 49,328 - -------------------------------------------------------------------------------------------------------------------------- Working Capital $ 103,191 $ 105,527 $ 79,640 $ 74,688 $ 60,724 Total Assets $ 580,807 $ 535,407 $ 498,458 $ 468,295 $ 439,104 Long-Term Debt - Including Current Portion $ 104,173 $ 97,280 $ 83,850 $ 115,266 $ 115,757 Long-Term Debt as a Percent of Capital Employed 27.5% 27.6% 26.4% 38.5% 42.1% Number of Employees 17,120 13,720 13,500 13,185 13,100 Number of Beneficial Shareholders Including Employee/Owners 14,600 12,900 11,400 11,100 11,000 Common Shares Outstanding 46,036,146 46,124,798 46,002,708 39,321,300 37,551,972 - --------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------- (Dollars in thousands, except per share data) 1988(1) - -------------------------------------------------------------- Net Sales American & Efird $ 181,733 Harris Teeter 894,035 - -------------------------------------------------------------- Total Net Sales $ 1,075,768 - -------------------------------------------------------------- Operating Profit American & Efird $ 17,645 Harris Teeter 21,102 - -------------------------------------------------------------- Total Operating Profit $ 38,747 - -------------------------------------------------------------- Net Income $ 18,379 Net Income Per Share .44 Common Dividend .15 - -------------------------------------------------------------- Earnings Before Interest, Taxes, Depreciation and Amortization $ 61,078 - -------------------------------------------------------------- Shareholders' Equity $ 144,727 Percent Return on Beginning Equity 14.0% Book Value Per Share $ 3.72 - -------------------------------------------------------------- Capital Expenditures American & Efird $ 17,219 Harris Teeter 31,168 Corporate 81 - -------------------------------------------------------------- Total Capital Expenditures $ 48,468 - -------------------------------------------------------------- Working Capital $ 52,415 Total Assets $ 419,465 Long-Term Debt - Including Current Portion $ 109,332 Long-Term Debt as a Percent of Capital Employed 43.0% Number of Employees 12,300 Number of Beneficial Shareholders Including Employee/Owners 10,500 Common Shares Outstanding 37,391,660 - --------------------------------------------------------------
(1) 53-week year (2) Includes purchase of assets of Threads USA 38 EX-21 5 EXHIBIT 21 EXHIBIT 21 RUDDICK CORPORATION Affiliated Companies as of December 28, 1998 Listed below are the domestic subsidiaries of Ruddick Corporation, (the "Registrant") all of which are wholly owned and are owned directly by the Registrant, unless otherwise indicated. American & Efird, Inc. American & Efird Services, Inc.(1) A&E Export, Inc.(1) Harris Teeter, Inc. Harris Teeter Properties, LLC(2) Harris-Teeter Services, Inc.(2) Harris Teeter Resources, Inc. (2) Ruddick of Delaware, Inc. R. S. Dickson & Company (dba Ruddick Investment Company) Ruddco Management, Inc.(3) (1) Owned by American & Efird, Inc. (2) Owned by Harris Teeter, Inc. (3) Owned by R. S. Dickson & Company Listed below are the foreign subsidiaries of the Registrant, all of which are wholly owned through American & Efird, Inc., unless otherwise indicated. American & Efird (HK) Limited (1) A&E Korea Ltd. American & Efird (GB) Limited (2) American & Efird Canada, Inc. Hilos A&E de Costa Rica, S.A. Hilos A&E de Honduras, S.A. de C.V. (3) American & Efird International (FE) Limited American & Efird de Mexico, S.A. de C.V.(4) American & Efird Mills (S) Pte. Ltd. American & Efird (Malaysia) SDN BHD Hengmei Spinning Company, Ltd. - Joint venture, 60% owned Hilos A&E Dominicana, Ltd. - Joint venture, 49% owned American & Efird Italia S.p.A. - Joint venture, 49% owned A&E Amann India Private Ltd. - Joint venture, 33 1/3% owned (5) In addition, in the normal course of business, R. S. Dickson & Company from time to time makes investments in corporations and partnerships that may result in ownership of capital stock or other interests as an investment. (1) In order to comply with Hong Kong law, one share of such entity is owned of record by a person designated by American & Efird, Inc. (2) In order to comply with British law, one share each of such entity is owned of record by two persons designated by American & Efird, Inc. (3) In order to comply with Honduran law, one share each of such entity is owned of record by four persons designated by American & Efird, Inc. (4) In order to comply with Mexican law, one share each of such entity is owned of record by three persons designated by American & Efird, Inc. (5) In order to comply with Indian law, 100 shares of such entity is owned of record by a person designated by American & Efird, Inc. EX-23 6 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in and incorporated by reference in this Form 10-K, into Ruddick Corporation's previously filed Registration Statements on Form S-8, Registration No. 33-26302, No. 33-56567, No. 333-19085, No. 333-22659 and No. 333-53671. It should be noted that we have not audited any financial statements of the Company subsequent to September 27, 1998 or performed any audit procedures subsequent to the date of our report. /s/ ARTHUR ANDERSEN LLP Charlotte, North Carolina December 28, 1998 EX-27 7 FDS -- RUDDICK CORPORATION
5 RUDDICK CORPORATION FINANCIAL DATA SCHEDULE FOR THE FISCAL YEAR ENDED 9/27/98 0000085704 RUDDICK CORPORATION YEAR SEP-27-1998 SEP-29-1997 SEP-27-1998 16,668,000 0 78,994,000 2,046,000 211,404,000 332,753,000 883,258,000 369,470,000 931,618,000 245,420,000 191,360,000 0 0 54,686,000 356,039,000 931,618,000 2,487,370,000 2,487,370,000 1,805,088,000 2,393,174,000 7,529,000 0 15,973,000 70,694,000 23,922,000 46,772,000 0 0 0 46,772,000 1.00 1.00
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