HARRIS TEETER SUPERMARKETS, INC. 10-Q 2008
Commission File Number: 1-6905
Registrant's telephone number, including area code: (704) 372-5404
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TABLE OF CONTENTS
Item 1. Financial Statements
CONSOLIDATED CONDENSED BALANCE
See Notes to Consolidated Condensed Financial Statements (unaudited)
CONSOLIDATED CONDENSED STATEMENTS OF
See Notes to Consolidated Condensed Financial Statements (unaudited)
CONSOLIDATED CONDENSED STATEMENTS OF
SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
See Notes to Consolidated Condensed Financial Statements (unaudited)
CONSOLIDATED CONDENSED STATEMENTS OF
See Notes to Consolidated Condensed Financial Statements (unaudited)
NOTES TO CONSOLIDATED CONDENSED
In the opinion of management, the information furnished reflects all adjustments (consisting only of normal recurring accruals) necessary to present fairly the results for the interim periods presented. The statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in the Companys 2007 Annual Report on Form 10-K filed with the SEC on November 28, 2007 (Companys 2007 Annual Report).
The Companys Consolidated Condensed Balance Sheet as of September 30, 2007 has been derived from the audited Consolidated Balance Sheet as of that date. The results of operations for the 13 weeks ended December 30, 2007 are not necessarily indicative of results for a full year.
Earnings Per Share
Stock awards that are based on performance are excluded from the calculation of potential common share equivalents until the performance criteria are met. Accordingly, the impact of 141,470 and 134,330 performance shares for the 13 weeks ended December 30, 2007 and December 31, 2006, respectively were excluded from the computation of diluted shares. Additionally, 40,515 common share equivalents related to stock awards were excluded from the calculation of potential common share equivalents because they were determined to be anti-dilutive. All outstanding stock options were included in the calculation of potential common share equivalents for the 13 weeks ended December 30, 2007 and December 31, 2006.
The following table summarizes the components of the net periodic pension expense for the Company-sponsored defined benefit pension plans (both the funded pension plan and the unfunded SERP) (in thousands):
As previously disclosed in the Notes to the Consolidated Financial Statements in the Companys 2007 Annual Report, the Companys current funding policy for its qualified funded pension plan is to contribute annually the amount required by regulatory authorities to meet minimum funding requirements and an amount to increase the funding ratios over future years to a level determined by the Companys actuaries to be effective in reducing the volatility of contributions. The Company presently anticipates contributing approximately $7.5 million to its pension plan in the third quarter of fiscal 2008. This amount is based on preliminary information and the actual contribution will be determined based on the final actuarial calculations, plan asset performance, possible changes in law and other factors.
Contributions to the Companys SERP are equal to the benefit payments made during the year. The Company has contributed $358,000 during the 13 weeks ended December 30, 2007, and anticipates contributing approximately $1,073,000 more for expected future benefit payments during the remainder of fiscal 2008.
Expense related to the Companys defined contribution retirement plan amounted to $4,461,000 and $4,334,000 for the 13 weeks ended December 30, 2007 and December 31, 2006, respectively.
A summary of the status of the Company's stock awards as of the balance sheet dates, changes during the periods ending on those dates and weighted average grant-date fair value (WAGFV) is presented below (shares in thousands):
The total fair value of stock awards vested during the 13 weeks ended December 30, 2007 and December 31, 2006 was $3,190,000 and $1,354,000, respectively.
The stock awards are being expensed over the employees five-year requisite service period in accordance with the graded vesting schedule, resulting in more expense being recognized in the early years. Compensation expense related to restricted awards amounted to $1,296,000 and $809,000 for the 13 weeks ended December 30, 2007 and December 31, 2006, respectively. Unamortized expense related to these awards as of December 30, 2007 amounted to $13,590,000, with a weighted average recognition period of 2.56 years.
A summary of the status of the Company's stock option plans as of the balance sheet dates, changes during the periods ending on those dates and related weighted average exercise price is presented below (shares in thousands):
The option price per share for stock options outstanding as of December 30, 2007 ranged from $11.50 to $19.94 and the average remaining life was 0.89 years. The total cash received from stock options exercised for the exercise price and related tax deductions is included in the Consolidated Condensed Statements of Shareholders Equity and Comprehensive Income. The Company has historically issued new shares to satisfy the stock options exercised.
The aggregate intrinsic value of stock options as of the balance sheet dates and stock options exercised during the periods ending on those dates is presented below (in thousands):
Compensation costs related to stock options amounted to a credit of $112,000 and a charge of $117,000 for the 13 weeks ended December 30, 2007 and December 31, 2006, respectively. The fair value of the stock options was estimated at the date of grant using the Black-Scholes option pricing model. The Company used historical data to estimate the expected life, volatility and expected forfeitures of the stock option value. The risk-free rate was based on the U.S. Treasury rate in effect at the time of grant. There were no stock options granted in fiscal 2008 or fiscal 2007.
Acquired favorable operating leases are recorded at Harris Teeter. All other amortizing intangible assets are recorded by A&E. Amortization expense for intangible assets was $644,000 and $612,000 for the 13 weeks ended December 30, 2007 and December 31, 2006, respectively. Amortizing intangible assets have remaining useful lives from 1 year to 48 years. Projected amortization expense for intangible assets existing as of December 30, 2007 is: $1,810,000 for the remainder of fiscal 2008 and $2,519,000, $2,286,000, $1,848,000 and $1,570,000 for fiscal years 2009, 2010, 2011 and 2012, respectively.
At the date of adoption of FIN 48, the Companys consolidated balance sheet included $6.7 million of tax positions that are highly certain but for which there is uncertainty about the timing. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of these positions would not affect the annual effective tax rate but would accelerate the payment of cash to the tax authority to an earlier period. Also as of the adoption date, the Company had accrued interest expense related to the unrecognized tax benefits of approximately $1.2 million. The Company has elected to record interest expense related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recorded as a component of income tax expense. Due to the timing nature of the tax positions and the amount of related interest previously accrued, there was no cumulative effect of adopting FIN 48 required to be recorded against retained earnings or material effect on the Companys financial position, results of operations or cash flows.
The Company and its subsidiaries file a consolidated U.S. federal income tax return. The U.S. federal statute of limitations remains open for the fiscal year 1999 and onward with fiscal years 1999 to 2004 under examination by the Internal Revenue Service (the IRS). In connection with the fiscal years under examination, the Company has filed a protest with respect to certain IRS-proposed adjustments with which it does not agree. Those adjustments will be addressed with the Appeals Division of the IRS. The hearing with the Appeals Division and timing of any resolution is currently uncertain. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from 3 to 5 years.
The Company does not expect the tax matters for those years currently in appeals to settle with the IRS within the next 12 months. Any outcomes and the timing of audit settlement are subject to significant uncertainty; however, management believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open tax years.
The Company utilizes various standby letters of credit and bonds as required from time to time by certain programs, most significantly for self-insured programs such as workers compensation and various casualty insurance. These letters of credit and bonds do not represent additional obligations of the Company since the underlying liabilities are recorded as insurance reserves and included with other current liabilities on the Companys consolidated balance sheets. In addition, the Company occasionally utilizes documentary letters of credit for the purchase of merchandise in the normal course of business. Issued and outstanding letters of credit totaled $22.2 million at December 30, 2007.
Statements of Consolidated Cash
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Harris Teeters supermarket environment is highly competitive, characterized by competition from other traditional grocery retailers, as well as other competitors including, but not limited to, discount retailers such as supercenters and club and warehouse stores, specialty supermarkets and drug stores. Generally, the markets in the southeastern United States continue to experience new store opening activity and aggressive feature pricing by competitors. In response, Harris Teeter utilizes information gathered from various sources, including its Very Important Customer ("VIC") loyalty card program, and works with suppliers to deliver effective retail pricing and targeted promotional spending programs that drive customer traffic and create value for Harris Teeter customers. In addition, Harris Teeter differentiates itself from its competitors with its product assortment, variety and focus on customer service. These efforts have resulted in overall gains in market share within Harris Teeters primary markets.
Harris Teeter continued with its aggressive new store development program. Since the end of the first quarter of fiscal 2007, Harris Teeter has opened sixteen new stores while closing or divesting five stores for a net addition of eleven stores. Harris Teeter operated 166 stores at December 30, 2007. Much of Harris Teeters new store growth is focused on its expanding Washington, D.C. metro market area which incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. The aggressive new store activity has utilized the Companys excess cash, required borrowings under the Companys revolving credit facility and resulted in higher pre-opening and incremental start-up costs.
Business conditions for A&Es customers in the textile and apparel industry remain difficult in the Americas due to the continued shift of apparel sourcing outside the Americas and the challenging retail environment faced in many parts of the world due to general economic conditions. Additionally, A&E continues to face increased operating costs and highly competitive pricing in its markets. In response, A&E has focused on strategic initiatives that enhance its global footprint and diversify its product lines. A&E has completed or continues to make good progress towards the integration and consolidation of the strategic investments made in the past few years. A&E also continues to expand its sales and distribution capabilities in Asia. Sales of premium apparel and non-apparel threads continue to increase in China along with A&Es expanding customer base in this key market.
As depicted in the table above, the increase in consolidated sales was attributable to sales increases at the Companys Harris Teeter supermarket subsidiary and was offset, in part, by a decrease in sales at A&E when compared to the prior year. A&Es foreign sales for the first quarter of fiscal 2008 represented 4.5% of the consolidated net sales of the Company compared to 5.3% in the same period last year. Refer to the discussion of segment operations under the captions Harris Teeter, Retail Grocery Segment and American & Efird, Industrial Thread Segment for a further analysis of the segment operating results.
Gross profit increased during the first quarter of fiscal 2008 over the prior year period as a result of sales increases at Harris Teeter. Refer to the discussion of segment operations under the captions Harris Teeter, Retail Grocery Segment and American & Efird, Industrial Thread Segment for a further analysis of the segment operating results.
Selling, general & administrative (SG&A) expenses as a percent to sales decreased when compared to the prior year period as a result of the fixed costs leverage created by the consolidated sales increase and lower operating costs at Corporate. Refer to the discussion of segment operations under the caption Harris Teeter, Retail Grocery Segment and American & Efird, Industrial Thread Segment for a further analysis of the segment operating results.
Other expense, net includes interest expense, interest income, investment gains and losses, and minority interest. Net interest expense (interest expense less interest income) increased over the prior year period by $0.5 million as a result of increased borrowings under the Companys credit facility in support of Harris Teeters new store development program.
The effective income tax rate for the first quarter of fiscal 2008 was 38.4% as compared to 37.6% in the first quarter of fiscal 2007. The rate for the current period increased over the prior year as a result of an increase in the Companys estimated blended annual state tax rate and estimated taxes associated with foreign operations. The current period rate represents the Companys expected annual effective rate for fiscal 2008.
As a result of the items discussed above, consolidated net income for the first quarter of fiscal 2008 increased by $5.1 million, or 27.6%, over the prior year period and earnings per diluted share increased by 26.3% to $0.48 per share in fiscal 2008 from $0.38 per share in fiscal 2007.
Harris Teeter, Retail Grocery
Net sales increased by 12.6% in the first quarter of fiscal 2008 as compared to the prior year period. The increase in net sales was attributable to new store activity, partially offset by store closings and divestitures, and comparable store sales increases. The increase in net sales from new stores exceeded the loss of sales from closed and divested stores by $64.4 million for the comparable periods. Comparable store sales (see definition below) increased 4.40% ($33.6 million) in the first quarter of fiscal 2008 as compared to 3.31% ($22.7 million) in the first quarter of fiscal 2007. The increase in comparable store sales was driven by higher customer counts and higher average transaction size. Comparable store sales are negatively impacted by Harris Teeters strategy of opening additional stores in its core markets that have proximity to existing stores. However, management expects these close proximity stores, and any similar new additions in the foreseeable future, to have a strategic benefit of enabling Harris Teeter to capture sales and expand market share as the markets it serves continue to grow.
Harris Teeter considers its reporting of comparable store sales growth to be effective in determining core sales growth during periods of fluctuations in the number of stores in operation, their locations and their sizes. While there is no standard industry definition of "comparable store sales," Harris Teeter has been consistently applying the following definition. Comparable store sales are computed using corresponding calendar weeks to account for the occasional extra week included in a fiscal year. A new store must be in operation for 14 months before it enters into the calculation of comparable store sales. A closed store is removed from the calculation in the month in which its closure is announced. A new store opening within an approximate two-mile radius of an existing store that is to be closed upon the new store opening is included as a replacement store in the comparable store sales measurement as if it were the same store. Sales increases resulting from existing comparable stores that are expanded in size are included in the calculations of comparable store sales if the store remains open during the construction.
Gross profit as a percent to sales in the first quarter of fiscal 2008 remained consistent with the prior year period. Harris Teeter has maintained its gross profit margins through effective retail pricing, targeted promotional spending programs and private label branding which offset an increase in promotional spending to support new stores. Gross profit margins are also maintained by managements emphasis on distribution, manufacturing and store level productivity efforts, assortment and product mix.
SG&A expenses as a percent to sales for the first quarter of fiscal 2008 decreased from the prior year period, as a result of the leverage created through sales gains that apply against fixed costs. The sales increases along with a continued emphasis on operational efficiencies and cost controls have provided the savings that offset the incremental costs associated with Harris Teeters new store program (pre-opening costs and incremental start-up costs) and increased associate benefit costs, credit and debit card fees and occupancy costs. Pre-opening costs, included with SG&A expenses, consist of rent, labor and associated fringe benefits, and recruiting and relocation costs incurred prior to a new store opening and amounted to $3.7 million (0.41% to sales) for the first quarter of fiscal 2008 as compared to $5.0 million (0.62% to sales) for the first quarter of fiscal 2007. Pre-opening costs fluctuate between periods depending on the new store opening schedule.
The improvement in operating profit over the prior year period resulted from the sales and cost elements described above. Harris Teeter continues to concentrate on expanding within its core markets, which management believes have greater potential for improved returns on investment in the foreseeable future.
American & Efird, Industrial
Net sales decreased 5.2% in the first quarter of fiscal 2008 as compared to the prior year period. The decrease was driven primarily by sales declines in the Americas between the first quarters of fiscal 2008 and fiscal 2007. Sales gains in A&Es Asian and European operations for the current year period were offset by the sales declines realized in the Americas. Foreign sales accounted for approximately 55% of total A&E sales in the first quarter of both fiscal 2008 and fiscal 2007. Foreign sales, especially in the Asian markets, will continue to be a significant proportion of total A&E sales as a result of the shifting global production of its customers and A&E's strategy of increasing its presence in such global markets. Management recognizes that a major challenge facing A&E is the geographic shift of its customer base and, as a result, A&E will continue to pursue business acquisitions that will diversify its product lines and build upon its global footprint by way of joint ventures and other investments.
Gross profit as a percent to sales in the first quarter of fiscal 2008 remained consistent with the prior year period even though gross profit dollars declined. The shifting of apparel production from the Americas to Asia has continued and management is focused on optimizing costs and manufacturing capacities through the integration of acquired businesses in its domestic and foreign operations.
SG&A expenses as a percent to sales increased slightly in the first quarter of fiscal 2008 from the prior year period even though the total actual expenses declined. SG&A expenses for the first quarter of fiscal 2008 were offset by an expense reversal of approximately $0.9 million for costs associated with certain import duties levied against A&Es Mexico operations and previously accrued by A&E. During the first quarter of fiscal 2008, A&E resolved the dispute through an amnesty program provided by the Mexican authorities.
The decrease in A&Es operating profit for the first quarter of fiscal 2008 as compared to the prior year period resulted from a challenging retail apparel environment in many parts of the world and its impact on A&Es operating results discussed above. A&E continued to realize increased sales and improved operating profits in its Asian operations during the first quarter of fiscal 2008.
Harris Teeters capital expenditures for fiscal 2008 are presently estimated at approximately $202 million. The new store program anticipates the continued expansion of Harris Teeters existing markets including the Washington, D.C. metro market area which incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. Real estate development by its nature is both unpredictable and subject to external factors including weather, construction schedules and costs. Any change in the amount and timing of new store development would impact the expected capital expenditures, sales and operating results.
Startup costs associated with opening new stores under Harris Teeters store development program can negatively impact operating margins and net income. In the current competitive environment, promotional costs to maintain market share could also negatively impact operating margins and net income in future periods. The continued execution of productivity initiatives implemented throughout all stores, maintaining controls over waste, implementation of operating efficiencies and effective merchandising strategies will dictate the pace at which Harris Teeters operating results could improve, if at all.
A&E has been able to diversify its customer base, product mix and geographical locations through acquisitions and joint venture agreements completed in recent years. In addition, A&E continues to increase its investment in China to support the rapidly growing apparel production in Asia. A&E will find it difficult to generate significant improvements in profitability in the absence of a more favorable retail environment. A&E management continues to focus on providing best-in-class service to its customers and expanding its product lines throughout A&Es global supply chain. In addition, A&E continues to evaluate opportunities to expand its global footprint through acquisitions or additional investments in joint ventures.
The Companys management remains cautious in its expectations for the remainder of fiscal 2008 due to the intensely competitive retail grocery market and challenging textile and apparel environment. Pre-opening and start-up costs associated with the record number of new stores opened in fiscal 2007 and planned for fiscal 2008 could prove challenging. Further operating improvement will be dependent on the Companys ability to offset increased operating costs with additional operating efficiencies, and to effectively execute the Companys strategic expansion plans.
Capital Resources and Liquidity
The Company is a holding company which, through its wholly-owned operating subsidiaries, Harris Teeter and A&E, is engaged in the primary businesses of retail grocery and the manufacturing and distribution of industrial thread, embroidery thread and technical textiles, respectively. The Company has no material independent operations, nor material assets, other than the investments in its operating subsidiaries, as well as investments in certain fixed assets and life insurance contracts to support corporate-wide operations and benefit programs. The Company provides a variety of services to its subsidiaries and is dependent upon income and upstream dividends from its operating subsidiaries. There are no restrictions on the subsidiary dividends, which have historically been determined as a percentage of net income of each subsidiary.
The Company's principal source of liquidity has been cash generated from operating activities and borrowings available under the Companys credit facility. During the 13 weeks ended December 30, 2007, operating activities utilized $3.1 million of cash as compared to generating $10.3 million in the comparable period last year. The decrease in cash provided by operations was driven by changes in the payable leverage on inventory during the comparable periods and its impact on the working capital requirements. Investing activities during the 13 weeks ended December 30, 2007 required net cash of $44.0 million, up $4.9 million from the comparable prior year period. Financing activities during the 13 weeks ended December 30, 2007 provided $35.1 million of cash and included a net addition of $40.8 million of borrowings under the Companys credit facility.
During the 13 weeks ended December 30, 2007, consolidated capital expenditures totaled $42.8 million. During this period, Harris Teeters capital expenditures were $40.9 million and A&Es capital expenditures were $1.9 million. Fiscal 2008 consolidated capital expenditures are expected to total approximately $214 million, consisting of approximately $202 million for Harris Teeter and approximately $12 million for A&E. Harris Teeter anticipates that its capital for new store growth and store remodels will be concentrated in its existing markets in fiscal 2008 as well as the foreseeable future. A&E expects to invest in the expansion and modernization of its global operations. Such capital investment is expected to be financed by internally generated funds, liquid assets and borrowings under the Companys revolving credit facility.
On December 20, 2007, the Company and eleven banks entered into a new credit agreement that provides for a five-year revolving credit facility (Revolving Credit Facility) in the aggregate amount of up to $350 million and a non-amortizing term loan of $100 million due December 20, 2012. The new credit agreement also provides for an optional increase of the Revolving Credit Facility by an additional amount of up to $100 million and two 1-year maturity extension options, both of which require consent of the lenders. The new credit agreement replaced a previously existing $350 million revolving credit facility dated June 7, 2006. The amount which may be borrowed from time to time and the interest rate on any outstanding borrowings are each dependent on a leverage factor. The leverage factor is based on a ratio of rent-adjusted consolidated funded debt divided by earnings before interest, taxes, depreciation, amortization and operating rents, as set forth in the new credit agreement. The more significant of the financial covenants which the Company must meet during the term of the new credit agreement remained consistent with the financial covenants of the previously existing revolving credit facility dated June 7, 2006, and include a maximum leverage ratio and a minimum fixed charge coverage ratio. As of December 30, 2007, the Company was in compliance with all financial covenants of the new credit agreement and $31.8 million of borrowings were outstanding under the Revolving Credit Facility. Issued letters of credit reduce the amount available for borrowings under the Revolving Credit Facility and amounted to $22.2 million as of December 30, 2007. In addition to the $296.0 million of borrowings available under the Revolving Credit Facility as of December 30, 2007, the Company has the capacity to borrow up to an aggregate amount of $41.8 million from two major U.S. life insurance companies utilizing certain insurance assets as collateral. In the normal course of business, the Company will continue to evaluate other financing opportunities based on the Companys needs and market conditions.
Covenants in certain of the Company's long-term debt agreements limit the total indebtedness that the Company may incur. Management believes that the limit on indebtedness does not significantly restrict the Company's ability to meet future liquidity requirements.
Contractual Obligations and Commercial Commitments
The Company has assumed various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements, such as debt and lease agreements. A table representing the scheduled maturities of the Companys contractual obligations as of September 30, 2007 was included under the heading Contractual Obligations and Commercial Commitments on page 19 of the Company's 2007 Annual Report. There have been no significant changes in the Companys contractual obligations as disclosed in this table except as discussed below.
In December 2007, the Company entered into a new credit agreement that replaced a previously existing 5-year revolving credit facility dated June 7, 2006. The replaced revolving credit facility had outstanding borrowings of $91.0 million included with Long-Term Debt (3-5 year column) in the table referenced above. Outstanding borrowings under the new credit agreement as of December 30, 2007, amounted to $131.8 million, an increase of $40.8 million from September 30, 2007. The ultimate maturity of these borrowings is deemed to be December 20, 2012, the termination date of the credit agreement, which would fall within the more than 5 years column per the referenced table.
Refer to the Note entitled Guarantor Obligations of Item 1 herein for a discussion of other contractual obligations and commitments.
Off Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Companys financial condition, results of operations or cash flows.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, management's determination of estimates and judgments about the carrying value of assets and liabilities requires exercising judgment in the selection and application of assumptions based on various factors, including historical experience, current and expected economic conditions, and other factors believed to be reasonable under the circumstances. Actual results could differ from those estimates. Management has identified the following accounting policies as the most critical in the preparation of the Company's financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain: vendor rebates, credits and promotional allowances; inventory valuation; self-insurance reserves for workers' compensation, healthcare and general liability; impairment of long-lived assets and closed store obligations; and retirement plans and post-retirement benefit plans. For additional discussion of these critical accounting policies, see the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's 2007 Annual Report. There have been no material changes to any of the critical accounting policies contained therein.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 becomes effective for the Companys 2009 fiscal year beginning on September 29, 2008. The Company continues to evaluate the impact of SFAS No. 157 on its consolidated financial statements, but at this time does not expect the potential impact of adopting this standard to have a material effect on the Companys financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115. SFAS No. 159 permits companies to measure many financial instruments and certain other items at fair value at specified election dates. Unrealized gains and losses on these items will be reported in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument (with a few exceptions), is irrevocable and is applied only to entire instruments and not to portions of instruments. This new standard becomes effective for the Companys 2009 fiscal year beginning on September 29, 2008. The Company continues to evaluate the impact of SFAS No. 159 on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. SFAS No. 141R is a revision of SFAS No. 141 that requires most identifiable assets, liabilities, noncontrolling interest, and goodwill acquired in a business combination to be recorded at full fair value. This new standard applies to all business combinations, including combinations among mutual entities and combinations by contract alone. SFAS No. 141R becomes effective for the Companys 2010 fiscal year beginning on September 28, 2009 and will be applied to business combinations occurring after the effective date.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 160 requires noncontrolling interest (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. This new standard applies to the accounting for noncontrolling interest and transactions with noncontrolling interest holders in consolidated financial statements and will become effective for the Companys 2010 fiscal year beginning on September 28, 2009. The Company is currently evaluating the impact of SFAS No. 160 on its consolidated financial statements.
Regarding Forward-Looking Statements
This report contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as expects, anticipates, believes, estimates and other similar expressions or future or conditional verbs such as will, should, would and could are intended to identify such forward-looking statements. Readers of this report should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report as well as those discussed under Item 1A Risk Factors of the Companys 2007 Annual Report. The statements are representative only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. We face risks that are inherent in the businesses and the market places in which Harris Teeter and A&E operate. While management believes these forward-looking statements are accurate and reasonable, uncertainties, risks and factors, including those described below, could cause actual results to differ materially from those reflected in the forward-looking statements.
Factors that could cause the Companys actual results to differ materially from those anticipated in the forward-looking statements in this report include the following:
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and also could cause actual results to differ materially from those included, contemplated or implied by the forward-looking statements made in this report, and the reader should not consider the above list of factors to be a complete set of all potential risks or uncertainties.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes regarding the Companys market risk position from the information provided under Item 7A Quantitative and Qualitative Disclosures about Market Risk in the Company's 2007 Annual Report.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. As of December 30, 2007, an evaluation of the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)) was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
(b) Changes in internal control over financial reporting. During the Companys first quarter of fiscal 2008, there has been no change in the Companys internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in various matters from time to time in connection with their operations, including various lawsuits, patent and environmental matters. These matters considered in the aggregate have not had, nor does the Company expect them to have, a material effect on the Companys business or financial condition.
Item 1A. Risk Factors
There are no material changes from the risk factors set forth under Part I, Item 1A. Risk Factors in the Companys 2007 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not have any unregistered sales of its equity securities during the quarter ended December 30, 2007.
The following table summarizes the Companys purchases of its common stock during the quarter ended December 30, 2007.
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Pursuant to the requirements of Section 13 or 15(d) 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.