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Harris Teeter Supermarkets, Inc. (HTSI) SEC Filing 10-Q Quarterly report for the period ending Sunday, April 1, 2012

Harris Teeter Supermarkets, Inc.

CIK: 85704 Ticker: HTSI


Exhibit 99.1



FOR IMMEDIATE RELEASE

May 3, 2012

    

Contact:

 

John B. Woodlief

 

 

Executive Vice President

and Chief Financial Officer

                                     

           704-372-5404





Harris Teeter Supermarkets, Inc. Reports Results for the Second Quarter of Fiscal 2012


CHARLOTTE, N.C.—May 3, 2012—Harris Teeter Supermarkets, Inc. (NYSE:HTSI) (the “Company”) today reported that sales for the second quarter of fiscal 2012 ended April 1, 2012 increased by 6.7% to $1.12 billion from $1.05 billion in the second quarter of fiscal 2011. For the 26 weeks ended April 1, 2012, sales increased by 7.6% to $2.24 billion from $2.08 billion for the comparable period of fiscal 2011. The increase in sales for the quarter and 26-week period was driven by an increase in comparable store sales and sales from new stores, partially offset by store closings. Comparable store sales increased by 3.91% for the quarter, and 4.62% for the 26-week period ended April 1, 2012, from the respective comparable periods of fiscal 2011.  During the first half of fiscal 2012, the Company opened three new stores and closed one store. Since the end of the second quarter of fiscal 2011, the Company has opened six new stores and closed two stores, for a net addition of four stores. The Company operated 206 stores as of the end of the second quarter of fiscal 2012.


As previously disclosed, the Company sold all of its ownership interest in its wholly-owned industrial thread manufacturing company American & Efird, Inc. (“A&E”) on November 7, 2011.  As such, A&E’s results of operations and financial position are reported as discontinued operations.


The Company reported net earnings of $30.3 million for the second quarter of fiscal 2012, compared to net earnings of $29.9 million for the second quarter of fiscal 2011.  Net earnings for the second quarter of fiscal 2012 was comprised of earnings from continuing operations of $30.5 million, or $0.62 per diluted share, and a loss from discontinued operations of $0.2 million.  Net earnings for the second quarter of fiscal 2011 was comprised of earnings from continuing operations of $26.2 million, or $0.54 per diluted share, and earnings from discontinued operations of $3.7 million.  


Net earnings for the 26 weeks ended April 1, 2012 totaled $43.9 million and was comprised of earnings from continuing operations of $56.3 million, or $1.15 per diluted share and a loss from discontinued operations of $12.4 million. Net earnings for the 26




The following information was filed by Harris Teeter Supermarkets, Inc. (HTSI) on Friday, May 4, 2012 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark one)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: April 1, 2012

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 1-6905

HARRIS TEETER SUPERMARKETS, INC.

(Exact name of registrant as specified in its charter)

                 
  North Carolina           56-0905940  
  (State or other jurisdiction of
incorporation or organization)
          (I.R.S. Employer
Identification Number)
 
                 
  701 Crestdale Road, Matthews, North Carolina           28105  
  (Address of principal executive offices)           (Zip Code)  

Registrant's telephone number, including area code: (704) 372-5404

RUDDICK CORPORATION
301 South Tryon Street, Suite 1800
Charlotte, North Carolina 28202
(Former name or former address, if changed since last report)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x             No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):

           
  Large accelerated filer x     Accelerated filer o  
  Non-accelerated filer o
(Do not check if a smaller reporting company)
    Smaller reporting company o  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o             No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

                 
  Class           Outstanding Shares
as of April 27, 2012     Common Stock           49,295,977 shares  

HARRIS TEETER SUPERMARKETS, INC.
AND CONSOLIDATED SUBSIDIARIES

TABLE OF CONTENTS

                 
  PART I     FINANCIAL INFORMATION        
              Page  
  Item 1.     Financial Statements        
        Consolidated Condensed Balance Sheets (unaudited) -
April 1, 2012 and October 2, 2011
    1  
        Consolidated Condensed Statements of Operations (unaudited) - 13 and 26 Weeks
Ended April 1, 2012 and April 3, 2011
    2  
        Consolidated Condensed Statements of Equity and Comprehensive Income (unaudited) -
26 Weeks Ended April 1, 2012 and April 3, 2011
    3  
        Consolidated Condensed Statements of Cash Flows (unaudited) -
26 Weeks Ended April 1, 2012 and April 3, 2011
    4  
        Notes to Consolidated Condensed Financial Statements (unaudited)     5  
  Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations     12  
  Item 3.     Quantitative and Qualitative Disclosures About Market Risk     21  
  Item 4.     Controls and Procedures     21  
                 
  PART II     OTHER INFORMATION        
  Item 1.     Legal Proceedings     22  
  Item 1A.     Risk Factors     22  
  Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds     22  
  Item 6.     Exhibits     23  
                 
  Signatures     24  

PART I

Item 1. Financial Statements

CONSOLIDATED CONDENSED BALANCE SHEETS
HARRIS TEETER SUPERMARKETS, INC. AND SUBSIDIARIES
(dollars in thousands) (unaudited)

                 
          April 1, 2012     October 2, 2011  
  ASSETS              
  Current Assets              
  Cash and Cash Equivalents   $ 232,476   $ 164,479  
  Accounts Receivable, Net of Allowance For Doubtful Accounts of $1,549 and $1,471     52,784     47,088  
  Refundable Income Taxes     10,042     15,055  
  Inventories     290,659     287,137  
  Deferred Income Taxes     5,023     1,321  
  Prepaid Expenses and Other Current Assets     26,772     24,576  
  Current Assets of Discontinued Operations     -     220,017  
  Total Current Assets     617,756     759,673  
  Property, Net     1,040,048     1,019,468  
  Investments     104,735     112,556  
  Intangible Assets     13,073     13,609  
  Other Long-Term Assets     82,440     79,118  
  Total Assets   $ 1,858,052   $ 1,984,424  
  LIABILITIES AND SHAREHOLDERS' EQUITY              
  Current Liabilities              
  Current Portion of Long-Term Debt and Capital Lease Obligations   $ 4,137   $ 3,902  
  Accounts Payable     246,032     252,859  
  Accrued Compensation     57,072     63,236  
  Other Current Liabilities     79,410     87,805  
  Current Liabilities of Discontinued Operations     -     71,571  
  Total Current Liabilities     386,651     479,373  
  Long-Term Debt and Capital Lease Obligations     210,702     283,428  
  Deferred Income Taxes     23,175     19,674  
  Pension Liabilities     104,459     113,617  
  Other Long-Term Liabilities     111,397     113,250  
  Commitments and Contingencies     -     -  
  Shareholders’ Equity              
  Common Stock, no par value - Shares Outstanding: 2012 - 49,295,977;              
  2011 - 49,147,817     107,940     104,211  
  Retained Earnings     1,015,140     984,535  
  Accumulated Other Comprehensive Loss     (101,412 )   (100,423 )
  Accumulated Other Comprehensive Loss of Discontinued Operations     -     (19,048 )
  Total Shareholders’ Equity of Harris Teeter Supermarkets, Inc.     1,021,668     969,275  
  Noncontrolling Interest of Discontinued Operations     -     5,807  
  Total Shareholders’ Equity     1,021,668     975,082  
  Total Liabilities and Equity   $ 1,858,052   $ 1,984,424  
     
  See Notes to Consolidated Condensed Financial Statements (unaudited)  

1


CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
HARRIS TEETER SUPERMARKETS, INC. AND SUBSIDIARIES
(in thousands, except per share data) (unaudited)

                             
        13 Weeks Ended     26 Weeks Ended  
        April 1,     April 3,     April 1,     April 3,  
        2012     2011     2012     2011  
  Net Sales   $ 1,120,379   $ 1,050,146   $ 2,239,945   $ 2,082,427  
  Cost of Sales     776,822     733,070     1,569,568     1,458,928  
  Selling, General and Administrative Expenses     291,071     269,420     571,629     534,044  
  Operating Profit     52,486     47,656     98,748     89,455  
  Interest Expense     3,334     5,069     8,072     9,529  
  Interest Income     (34 )   (33 )   (82 )   (56 )
  Net Investment Loss (Gain)     -     114     -     (19,392 )
  Earnings From Continuing Operations Before Income Taxes     49,186     42,506     90,758     99,374  
  Income Tax Expense     18,730     16,333     34,486     38,795  
  Earnings From Continuing Operations, Net of Income Taxes     30,456     26,173     56,272     60,579  
  (Loss) Earnings From Operations of Discontinued Operations     (344 )   6,504     (18,344 )   12,094  
  Income Tax (Benefit) Expense     (142 )   2,771     (5,985 )   4,634  
  (Loss) Earnings on Discontinued Operations, Net of                          
  Income Taxes     (202 )   3,733     (12,359 )   7,460  
  Net Earnings   $ 30,254   $ 29,906   $ 43,913   $ 68,039  
                             
  Net Earnings (Loss) Per Share - Basic:                          
  Continuing Operations   $ 0.62   $ 0.54   $ 1.16   $ 1.25  
  Discontinued Operations     -   0.08     (0.25 )   0.15  
  Total   $ 0.62   $ 0.62   $ 0.90   $ 1.40  
                             
  Net Earnings (Loss) Per Share - Diluted:                          
  Continuing Operations   $ 0.62   $ 0.54   $ 1.15   $ 1.24  
  Discontinued Operations     -   0.08     (0.25 )   0.15  
  Total   $ 0.62   $ 0.61   $ 0.90   $ 1.39  
                             
  Weighted Average Number of Shares of Common                          
  Stock Outstanding:                          
  Basic     48,780     48,481     48,714     48,446  
  Diluted     49,034     48,818     49,016     48,806  
 
  Dividends Declared Per Common Share   $ 0.14   $ 0.13   $ 0.27   $ 0.26  
                             
  See Notes to Consolidated Condensed Financial Statements (unaudited)  

2


CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
HARRIS TEETER SUPERMARKETS, INC. AND SUBSIDIARIES
(dollars in thousands, except share and per share amounts) (unaudited)

                                               
           Common
Stock
Shares
(no par value)
    Common
Stock
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Equity of
Harris Teeter Supermarkets, Inc.
    Non-
controlling
Interest
    Total
Equity
 
  Balance as of October 3, 2010     48,901,482   $ 98,285   $ 918,843   $ (124,679 ) $ 892,449   $ 6,474   $ 898,923  
  Comprehensive Income:                                            
  Net earnings     -     -     68,039     -     68,039     443     68,482  
  Unrealized gain on cash flow hedge, net of income taxes     -     -     -     766     766     -     766  
  Foreign currency translation adjustment, net of tax benefits     -     -     -     505     505     123     628  
  Total Comprehensive Income                             69,310     566     69,876  
  Dividends ($0.26 a share)     -     -     (12,776 )   -     (12,776 )   -     (12,776 )
  Exercise of stock options, including tax benefits of $926     21,745     1,286     -     -     1,286     -     1,286  
  Share-based compensation     278,783     3,999     -     -     3,999     -     3,999  
  Shares effectively purchased and retired for withholding taxes     (65,765 )   (2,485 )   -     -     (2,485 )   -     (2,485 )
  Directors stock plan and other     -     3     -     -     3     -     3  
  Acquisition from noncontrolling interest     -     (1,444 )   -     -     (1,444 )   (806 )   (2,250 )
  Distributions to noncontrolling interest     -     -     -     -     -     (485 )   (485 )
  Balance as of April 3, 2011     49,136,245   $ 99,644   $ 974,106   $ (123,408 ) $ 950,342   $ 5,749   $ 956,091  
                                               
  Balance as of October 2, 2011     49,147,817   $ 104,211   $ 984,535   $ (119,471 ) $ 969,275   $ 5,807   $ 975,082  
  Comprehensive Income:                                            
  Net earnings     -     -     43,913     -     43,913     -     43,913  
  Unrealized gain on cash flow hedge, net of income taxes     -     -     -     858     858     -     858  
  Postemployment benefits adjustment, net of income taxes     -     -     -     26     26     -     26  
  Pension liability adjustment, net of income taxes     -     -     -     21,100     21,100     -     21,100  
  Foreign currency translation adjustment, net of income taxes     -     -     -     870     870     56     926  
  Total Comprehensive Income                             66,767     56     66,823  
  Dividends ($0.27 a share)     -     -     (13,308 )   -     (13,308 )   -     (13,308 )
  Exercise of stock options, including tax benefits of $1,838     19,506     2,152     -     -     2,152     -     2,152  
  Share-based compensation     250,946     6,703     -     -     6,703     -     6,703  
  Shares effectively purchased and retired for withholding taxes     (122,292 )   (5,129 )   -     -     (5,129 )   -     (5,129 )
  Directors stock plan and other     -     3     -     -     3     -     3  
  Distributions to noncontrolling interest     -     -     -     -     -     (176 )   (176 )
  Disposition of Subsidiary     -     -     -     (4,795 )   (4,795 )   (5,687 )   (10,482 )
  Balance as of April 1, 2012     49,295,977   $ 107,940   $ 1,015,140   $ (101,412 ) $ 1,021,668   $ -   $ 1,021,668  
 
See Notes to Consolidated Condensed Financial Statements (unaudited)
 

3


CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
HARRIS TEETER SUPERMARKETS, INC. AND SUBSIDIARIES
(dollars in thousands) (unaudited)

                       
              26 Weeks Ended     26 Weeks Ended  
                  April 1, 2012     April 3, 2011  
  CASH FLOW FROM OPERATING ACTIVITIES:                    
  Net Earnings         $ 43,913   $ 68,039  
  Loss (Earnings) From Discontinued Operations           12,359     (7,460 )
  Non-Cash Items Included in Net Income:                    
  Depreciation and Amortization           66,885     63,652  
  Deferred Income Taxes           2,153     146  
  Net Gain on Property and Investment Sales           (162 )   (19,343 )
  Share-Based Compensation           3,808     3,999  
  Other, Net           (2,020 )   (1,350 )
  Changes in Operating Accounts Providing (Utilizing) Cash:                    
  Accounts Receivable           (5,696 )   (3,242 )
  Inventories           (3,522 )   1,957  
  Prepaid Expenses and Other Current Assets           (1,304 )   4,268  
  Accounts Payable           (10,055 )   3,105  
  Other Current Liabilities           (8,439 )   1,043  
  Other Long-Term Operating Accounts           (30,191 )   (32,571 )
  Net Cash Used by Operating Activities of Discontinued Operations           -     (576 )
  Net Cash Provided by Operating Activities           67,729     81,667  
  INVESTING ACTIVITIES:                    
  Capital Expenditures           (70,393 )   (71,553 )
  Purchase of Other Investments           (591 )   (14,402 )
  Proceeds from Sale of Property and Investments           170,418     50,297  
  Investments in Company-Owned Life Insurance           (611 )   (1,073 )
  Other, Net           (28 )   (127 )
  Net Cash Used by Investing Activities of Discontinued Operations           -     (1,285 )
  Net Cash Provided (Used) by Investing Activities           98,795     (38,143 )
  FINANCING ACTIVITIES:                    
  Payments on Long-Term Debt and Capital Lease Obligations           (81,357 )   (28,267 )
  Dividends Paid           (13,308 )   (12,776 )
  Proceeds from Stock Issued           314     360  
  Share-Based Compensation Tax Benefits           1,838     762  
  Shares Effectively Purchased and Retired for Withholding Taxes           (5,129 )   (2,485 )
  Other, Net           (885 )   70  
  Net Cash Used by Financing Activities of Discontinued Operations           -     (570 )
  Net Cash Used by Financing Activities           (98,527 )   (42,906 )
  Increase in Cash and Cash Equivalents           67,997     618  
  Effect of Foreign Currency Fluctuations on Cash of Discontinued Operations           -     81  
  Cash and Cash Equivalents at Beginning of Year           164,479     73,612  
  Cash and Cash Equivalents at End of Year         $ 232,476   $ 74,311  
                       
  Cash and Cash Equivalents of Continuing Operations         $ 232,476   $ 64,010  
  Cash and Cash Equivalents of Discontinued Operations               10,301  
  Cash Paid During the Year For:                    
  Interest, Net of Amounts Capitalized           9,357     9,701  
  Income Taxes           21,716     20,767  
  Non-Cash Activity - Assets Acquired under Capital Leases           8,866     12,144  
  Non-Cash Activity - Note Received in Connection with Sale of Investments               2,855  
     
  See Notes to Condensed Consolidated Financial Statements  

4


NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
HARRIS TEETER SUPERMARKETS, INC. AND SUBSIDIARIES
(unaudited)

1. Summary of Significant Accounting Policies

Description of Business

Harris Teeter Supermarkets, Inc. (the "Company"), through its primary subsidiary Harris Teeter, Inc. ("Harris Teeter"), operates a regional chain of supermarkets in eight states primarily in the southeastern and mid-Atlantic United States, and the District of Columbia. Until November 7, 2011, the Company was also engaged in the manufacturing and distribution of industrial sewing thread through its American & Efird business ("A&E"). Pursuant to the authorization granted by its shareholders at the 2012 Annual Meeting of Shareholders and by the Company's board of directors, the Company filed Articles of Amendment to the Company's Restated Articles of Incorporation to change the name of the Company from "Ruddick Corporation" to "Harris Teeter Supermarkets, Inc." The name change became effective on April 2, 2012.

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements include the accounts of Harris Teeter Supermarkets, Inc. and subsidiaries, including its wholly-owned operating company, Harris Teeter, collectively referred to herein as the Company. All material intercompany amounts have been eliminated.

On November 7, 2011, the Company completed the sale of all of its ownership interest in A&E to two newly formed affiliates of KPS Capital Partners, LP. The purchase price was $180.0 million in cash consideration, subject to adjustments for working capital and certain liabilities, including under funded pension liabilities and foreign debt. A&E's results of operations and financial position are reported as discontinued operations in these financial statements.

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 Company's 2011 Annual Report on Form 10-K filed with the SEC on December 1, 2011 ("Company's 2011 Annual Report").

The Company's Consolidated Condensed Balance Sheet as of October 2, 2011 has been derived from the audited Consolidated Balance Sheet as of that date. The results of operations for the 26 weeks ended April 1, 2012 are not necessarily indicative of results for a full year.

Reporting Periods

The Company's quarterly reporting periods are generally 13 weeks and periodically consist of 14 weeks because the Company's fiscal 2012 year ends on the Tuesday nearest to September 30.

Derivatives

The Company utilizes derivative financial instruments to hedge its exposure to changes in interest rates. All derivative financial instruments are recorded on the balance sheet at their respective fair value. The Company does not use financial instruments or derivatives for any trading or other speculative purposes. In addition, from time to time the Company will enter into commodity forward contracts related to the purchase of ingredients used in production processes. These contracts generally qualify for the normal purchase exception under guidance for derivative instruments and hedging activity.

The Company enters into purchase commitments for a portion of the fuel utilized in its distribution operations. The Company expects to take delivery of and to utilize these resources in a reasonable period of time and in the conduct of normal business. Accordingly, these fuel purchase commitments qualify as normal purchases. The Company also utilizes derivative financial instruments to hedge its exposure in the price variations of fuel.

5


Reclassifications

To conform with classifications used in the current year, the financial statements for the prior year reflect certain reclassifications.

2. Discontinued Operations

The major classes of assets and liabilities of the discontinued operations that are included in the Company's Consolidated Balance Sheets were as follows (in thousands):

           
        October 2, 2011  
  Cash and Cash Equivalents   $ 10,323  
  Accounts Receivable, Net of Allowance For Doubtful Accounts of $899     52,137  
  Refundable Income Taxes     100  
  Inventories     51,967  
  Deferred Income Taxes     522  
  Prepaid Expenses and Other Current Assets     6,219  
  Current Assets of Discontinued Operations   $ 121,268  
           
  Property, Net   $ 64,834  
  Investments     63,652  
  Deferred Income Taxes     837  
  Goodwill     515  
  Intangible Assets     6,468  
  Other Long-Term Assets     4,698  
  Impairment Reserve     (42,255 )
  Long-Term Assets of Discontinued Operations   $ 98,749  
           
  Notes Payable   $ 3,674  
  Current Portion of Long-Term Debt and Capital Lease Obligations     469  
  Accounts Payable     17,400  
  Federal and State Income Taxes     973  
  Accrued Compensation     7,563  
  Deferred Income Taxes     548  
  Other Current Liabilities     6,900  
  Current Liabilities of Discontinued Operations   $ 37,527  
           
  Long-Term Debt and Capital Lease Obligations   $ 318  
  Deferred Income Taxes     3,711  
  Pension Liabilities     27,735  
  Other Long-Term Liabilities     2,280  
  Long-Term Liabilities of Discontinued Operations   $ 34,044  
           
  Accumulated Other Comprehensive Loss of Discontinued Operations   $ 19,048  
  Noncontrolling Interest of Discontinued Operations   $ 5,807  

6


The following table sets forth the components of discontinued operations (in thousands):

                             
        13 Weeks Ended     26 Weeks Ended  
        April 1,     April 3,     April 1,     April 3,  
        2012     2011     2012     2011  
  Net Sales   $ -   $ 82,627   $ 30,313   $ 155,817  
  Cost of Sales     -     62,190     23,205     117,803  
  Gross Profit     -     20,437     7,108     38,014  
  SG&A Expenses     -     13,679     4,377     25,332  
                             
  Operating Profit     -     6,758     2,731     12,682  
  Interest Expense     -     94     19     203  
  Interest Income     -     (48 )   (17 )   (58 )
  Less Net Earnings Attributable to                          
  Noncontrolling Interest     -     208     37     443  
  Loss From Operations of Discontinued Operations     344     -     21,036     -  
  (Loss) Earnings from Discontinued Operations     (344 )   6,504     (18,344 )   12,094  
  Income Tax (Benefit) Expense     (142 )   2,771     (5,985 )   4,634  
  (Loss) Earnings on Discontinued Operations, Net   $ (202 ) $ 3,733   $ (12,359 ) $ 7,460  

3. Computation of Earnings Per Share (EPS)

Basic EPS is based on the weighted average outstanding common shares. Diluted EPS is based on the weighted average outstanding common shares adjusted by the dilutive effect of potential common stock resulting from the operation of the Company's equity incentive plans.

The following table details the computation of earnings per share on Earnings From Continuing Operations (in thousands except per share data):

 

                             
        13 Weeks Ended     26 Weeks Ended  
        April 1,     April 3,     April 1,     April 3,  
        2012     2011     2012     2011  
  Basic EPS:                          
  Earnings From Continuing Operations, Net of Income Taxes   $ 30,456   $ 26,173   $ 56,272   $ 60,579  
  Weighted Average Common Shares Outstanding     48,780     48,481     48,714     48,446  
  Basic EPS   $ 0.62   $ 0.54   $ 1.16   $ 1.25  
                             
  Diluted EPS:                          
  Earnings From Continuing Operations, Net of Income Taxes   $ 30,456   $ 26,173   $ 56,272   $ 60,579  
  Weighted Average Common Shares Outstanding     48,780     48,481     48,714     48,446  
  Net Potential Common Share Equivalents - Stock Options     18     26     20     28  
  Net Potential Common Share Equivalents - Stock Awards     236     311     282     332  
  Weighted Average Common Shares Outstanding     49,034     48,818     49,016     48,806  
  Diluted EPS   $ 0.62   $ 0.54   $ 1.15   $ 1.24  
                             
  Excluded from the calculation of common share equivalents:                          
  Anti-Dilutive Common Share Equivalents - Stock Options     -     -     -     -  
  Anti-Dilutive Common Share Equivalents - Stock Awards     -     -     -     -  

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 106,000 performance shares for each of the 13 and 26 week periods ended April 1, 2012 and 148,000 performance shares for each of the 13 and 26 week periods ended April 3, 2011 were excluded from the computation of diluted shares.

To calculate the per share (Loss) Earnings From Discontinued Operations, Net and Net Earnings, the denominator for both basic and diluted per share data is the same as that used in the table above. The basic and diluted per share (Loss) Earnings From Discontinued Operations, Net and Net Earnings were as follows (in thousands except per share data):

7


                             
        13 Weeks Ended     26 Weeks Ended  
        April 1,     April 3,     April 1,     April 3,  
        2012     2011     2012     2011  
  (Loss) Earnings From Discontinued Operations, Net   $ (202 ) $ 3,733   $ (12,359 ) $ 7,460  
  Basic (Loss) Earnings Per Share   $ - $ 0.08   $ (0.25 ) $ 0.15  
  Diluted (Loss) Earnings Per Share   $ - $ 0.08   $ (0.25 ) $ 0.15  
  Net Earnings   $ 30,254   $ 29,906   $ 43,913   $ 68,039  
  Basic Earnings Per Share   $ 0.62   $ 0.62   $ 0.90   $ 1.40  
  Diluted Earnings Per Share   $ 0.62   $ 0.61   $ 0.90   $ 1.39  

4. Employee Benefit Plans

The Company maintains various retirement benefit plans for substantially all full-time employees. These plans include the Harris Teeter Supermarkets, Inc. Employees' Pension Plan ("Pension Plan"), which is a qualified non-contributory defined benefit plan, the Harris Teeter Supermarkets, Inc. Supplemental Executive Retirement Plan ("SERP"), which is a non-qualified supplemental defined benefit pension plan for certain executive officers and the Harris Teeter Supermarkets, Inc. Retirement and Savings Plan ("Savings Plan") which is a defined contribution retirement plan. The following table summarizes the components of the net periodic pension expense for the Pension Plan and SERP (in thousands):

                             
        13 Weeks Ended     26 Weeks Ended  
        April 1,     April 3,     April 1,     April 3,  
        2012     2011     2012     2011  
  Pension Plan:                          
  Service cost   $ 842   $ 762   $ 1,610   $ 1,270  
  Interest cost     4,199     4,361     7,902     8,113  
  Expected return on plan assets     (4,891 )   (5,863 )   (9,207 )   (10,306 )
  Amortization of prior service cost     7     26     14     43  
  Recognized net actuarial loss     3,182     2,935     6,084     5,633  
  Net periodic pension expense   $ 3,339   $ 2,221   $ 6,403   $ 4,753  
                             
  SERP:                          
  Service cost   $ 193   $ 204   $ 402   $ 407  
  Interest cost     612     488     1,252     977  
  Amortization of prior service cost     43     62     91     124  
  Recognized net actuarial loss     270     380     588     760  
  Net periodic pension expense   $ 1,118   $ 1,134   $ 2,333   $ 2,268  

Expense related to the Savings Plan amounted to $5,310,000 and $4,497,000 for the 13 weeks and $10,861,000 and $9,972,000 for the 26 weeks ended April 1, 2012 and April 3, 2011, respectively.

As previously disclosed in the Notes to the Consolidated Financial Statements in the Company's 2011 Annual Report, the Company's current funding policy for its 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 Company's actuaries to be effective in reducing the volatility of contributions. Based on preliminary actuarial calculations, the Company will not be required to make a contribution to the Pension Plan in fiscal 2012; however, the Company elected to contribute $40.0 million during the 26 weeks ended April 1, 2012 and will review the funding ratios after the final actuarial calculations are complete. Based on these reviews, the Company may elect to make additional contributions during the remainder of fiscal 2012.

Contributions to the SERP are equal to the benefit payments made during the year. The Company has contributed $616,000 during the 26 weeks ended April 1, 2012, and anticipates contributing approximately $616,000 more for expected future benefit payments during the remainder of fiscal 2012.

5. Equity Incentive Plans

The Company has various equity incentive plans that allow for the granting of incentive stock options, nonqualified stock options or stock awards such as performance shares and restricted stock. Since 2004, the Company's Board of Directors has approved stock awards in lieu of stock options.

A summary of the status of the Company's stock awards as of the respective balance sheet dates, changes during 26-week periods ending on those dates and the per share weighted average grant-date fair value (WAGFV) is presented below (shares in thousands):

8


                             
        April 1, 2012     April 3, 2011  
        Shares     WAGFV     Shares     WAGFV  
  Non-vested at beginning of period     797   $ 32.25     706   $ 28.52  
  Granted     212     42.44     298     38.44  
  Vested     (389 )   31.72     (190 )   28.29  
  Forfeited     (3 )   34.61     (11 )   30.32  
  Non-vested at end of period     617     35.92     803     32.23  

The total fair value of stock awards vested during the 26 weeks ended April 1, 2012 and April 3, 2011 was $12,357,000 and $5,388,000, respectively.

Stock awards are being expensed over the employees' five-year requisite service period in accordance with the graded vesting schedule. Compensation expense related to restricted awards amounted to $1,777,000 and $2,121,000 for the 13 weeks and $6,703,000 and $3,999,000 for the 26 weeks ended April 1, 2012 and April 3, 2011, respectively. Unamortized expense related to these awards as of April 1, 2012 amounted to $13,101,000 and have a weighted average recognition period of 2.09 years.

A summary of the status of the Company's stock option plans as of the respective balance sheet dates, changes during the 26 week periods ending on those dates and related per share weighted average exercise price is presented below (shares in thousands):

                             
        April 1, 2012     April 3, 2011  
        Shares     Price     Shares     Price  
  Outstanding at beginning of period     67   $ 18.77     104   $ 17.86  
  Exercised     (20 )   16.11     (21 )   16.57  
  Outstanding and exercisable at end of period     47     19.87     83     18.19  

As of April 1, 2012, all outstanding stock options were exercisable and the price per share ranged from $14.39 to $35.24. 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 respective balance sheet dates, and stock options exercised during the periods ending on those dates is presented below (in thousands):

                 
        April 1, 2012     April 3, 2011  
  Intrinsic value of options outstanding and exercisable at end of period   $ 951   $ 1,720  
  Intrinsic value of stock options exercised during the 26-week period     493     455  

There were no stock options granted or compensation costs related to stock options during the first six months of fiscal 2012 or 2011.

6. Inventories

The following table summarizes the components of inventories as of the respective balance sheet dates (in thousands):

                 
         April 1, 2012     October 2, 2011  
  Finished Goods   $ 286,490   $ 283,699  
  Raw Materials     4,169     3,438  
  Total Inventories   $ 290,659   $ 287,137  

9


7. Property

The following table summarizes the components of property as of the respective balance sheet dates (in thousands):

                 
         April 1, 2012     October 2, 2011  
  Land   $ 29,073   $ 20,168  
  Buildings and Improvements     227,766     220,442  
  Machinery and Equipment     845,895     815,590  
  Leasehold Improvements     800,911     786,792  
  Construction in Progress     67,305     54,411  
  Total, at Cost     1,970,950     1,897,403  
  Accumulated Depreciation and Amortization     (930,902   (877,935
  Property, Net   $ 1,040,048   $ 1,019,468  

Depreciation and amortization expense for property was $33,348,000 and $31,832,000 for the 13 weeks and $66,349,000 and $63,208,000 for the 26 weeks ended April 1, 2012 and April 3, 2011, respectively.

8. Intangible Assets

The carrying amount of intangible assets as of the respective balance sheet dates was as follows (in thousands):

                 
         April 1, 2012     October 2, 2011  
  Acquired Favorable Operating Leases   $ 18,170   $ 18,170  
  Pharmacy Scripts     602     602  
  Total Amortizing Intangibles     18,772     18,772  
  Accumulated Amortization     (5,699 )   (5,163 )
  Total Intangible Assets, Net of Accumulated Amortization   $ 13,073   $ 13,609  

The Company has no non-amortizing intangible assets. Amortization expense for intangible assets was $268,000 and $226,000 for the 13 weeks and $536,000 and $444,000 for the 26 weeks ended April 1, 2012 and April 3, 2011, respectively. Amortizing intangible assets have remaining useful lives from two to 17 years. Projected amortization expense for intangible assets existing as of April 1, 2012 is: $535,000 for the remainder of fiscal 2012 and $1,071,000, $1,004,000, $870,000 and $870,000 for fiscal years 2013, 2014, 2015 and 2016, respectively.

9. Long-Term Debt

On January 30, 2012, the Company amended and restated its then-existing credit agreement that provided financing under a $100.0 million term loan and a $350.0 million revolving line of credit. The prior credit agreement was due to expire in December of 2012 and the Company had previously repaid $20.0 million of the term loan prior to the closing of the amended credit facility. The amended credit facility contains a revolving line of credit that provides for financing up to $350.0 million through its termination date on January 30, 2017. In connection with the closing of the amended credit agreement, the Company repaid the remaining $80.0 million term loan under the prior credit facility utilizing $40.0 million of cash and $40.0 million of borrowings under the new revolver. The amended credit agreement provides for an optional increase of the revolving credit facility by an additional amount of up to $100.0 million (if the existing or new lenders agree to assume the additional commitments) and two one-year maturity extension options, both of which require consent of certain of the lenders. Outstanding borrowings under the amended credit agreement bear interest at a variable rate, at the Company's option at: (a) an alternate base rate, based on a reference to: rates on federal funds transactions with members of the Federal Reserve System, the prime rate, or the LIBOR Market Index Rate in effect on the interest determination date; (b) the LIBOR Market Index Rate; or (c) a LIBOR Rate, each plus an applicable margin as determined by the administrative agent in accordance with the terms of the amended credit agreement. The amount which may be borrowed from time to time and the applicable margin to the referenced interest rate 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 amended credit agreement. The more significant of the financial covenants that the Company must meet during the term of the amended credit agreement include a maximum leverage ratio and a minimum fixed charge coverage ratio. The amended credit agreement restricts the Company's ability to pay dividends and make certain other restricted payments, as defined in the amended credit agreement, if after giving effect to such restricted payment an event of default under the amended credit agreement would exist or the Company would not be in compliance with certain specified financial covenants. However, management does not expect these restrictions will affect the Company's ability to pay dividends at the current level in the foreseeable future.

10


10. Derivative Financial Instruments

During fiscal 2009, the Company entered into two separate three-year interest rate swap agreements with an aggregate notional amount of $80.0 million. The swap agreements effectively fixed the interest rate on $80.0 million of the Company's term loan, of which $40.0 million was at 1.81% and $40.0 million was at 1.80%, excluding the applicable margin and associated fees. Both interest rate swaps were designated as cash flow hedges. One of the swap agreements expired according to its term on January 30, 2012 and the second swap agreement expires May 12, 2012. In connection with the closing of the amended and restated credit agreement, the Company paid off the term loan utilizing $40.0 million of cash and $40.0 million of borrowings under the new revolver.

In the first quarter of fiscal 2011, the Company entered into a series of purchased call options and written put options in order to limit the price variability in fuel purchases. The options effectively established the purchase price for 1,092,000 gallons of fuel at $1.95 to $2.56 per gallon, excluding shipping, handling and taxes. The options expired on April 30, 2011 and were deemed to be net purchase options which were designated as a cash flow hedge.

In the second quarter of fiscal 2011, the Company entered into a series of purchased call options and written put options in order to limit the price variability in fuel purchases. The options effectively established the purchase price for 1,344,000 gallons of fuel at $2.43 to $2.80 per gallon, excluding shipping, handling and taxes. The options expired on November 30, 2011 and were deemed to be net purchase options which were designated as a cash flow hedge.

In the fourth quarter of fiscal 2011, the Company entered into a series of purchased call options and written put options in order to limit the price variability in fuel purchases. The options effectively established the purchase price for 2,478,000 gallons of fuel at $2.50 to $3.13 per gallon, excluding shipping, handling and taxes. Options on 1,218,000 gallons of fuel began on December 1, 2011 and expire on May 31, 2012. The remaining options begin on June 1, 2012 and expire on November 30, 2012. All of the options are deemed to be net purchase options which are designated as a cash flow hedge.

The following tables present the required fair value quantitative disclosures, on a combined basis, for the Company's financial instruments, designated as cash flow hedges (in thousands):

                             
        Carrying
Value
    Quoted Prices
in Active Markets
for Identical
Instruments
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
  Fair Value Measurement at April 1, 2012:                          
  Interest rate swaps (included with Other Long-Term                          
  Liabilities on the balance sheet)   $ 78   $ -   $ 78   $ -  
  Net purchase options (included with Prepaid Expenses                          
  and Other Current Assets on the balance sheet)   $ 340   $ -   $ 340   $ -  
                             
  Fair Value Measurement at October 2, 2011:                          
  Interest rate swaps (included with Other Long-Term                          
  Liabilities on the balance sheet)   $ 565   $ -   $ 565   $ -  
  Net purchase options (included with Prepaid Expenses                          
  and Other Current Assets on the balance sheet)   $ 16   $ -   $ 16   $ -  
  Net purchase options (included with Accounts Payable                          
  on the balance sheet)   $ 276   $ -   $ 276   $ -  

There were no transfers into or out of Level 1 and Level 2 fair-value measurements during the period ended April 1, 2012.

11


The pre-tax unrealized gains associated with the cash flow hedges were as follows (in thousands):

                             
        13 Weeks Ended     26 Weeks Ended  
        April 1,     April 3,     April 1,     April 3,  
        2012     2011     2012     2011  
  Unrealized gains recognized in other comprehensive income   $ 590   $ 952   $ 1,457   $ 1,256  

11. Financial Instruments

Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash equivalents and receivables. The Company limits the amount of credit exposure to each individual financial institution and places its temporary cash into investments of high credit quality. Concentrations of credit risk with respect to receivables are limited due to their dispersion across various companies and geographies.

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 variable interest debt approximates its carrying amount. The estimated fair value of the Company's senior notes due at various dates through 2017 (which accounts for 97% of the Company's fixed interest debt obligations) is computed based on borrowing rates currently available to the Company for loans with similar terms and maturities. The estimated fair value of the Company's senior notes and its carrying amount outstanding as of the balance sheet dates is as follows (in thousands):

                 
        April 1, 2012     October 2, 2011  
  Senior notes - estimated fair value   $ 128,175   $ 128,737  
  Senior notes - carrying amount     100,000     100,000  

12. Commitments and Contingencies

The Company is involved in various lawsuits and environmental matters arising in the normal course of business. Management believes that such matters will not have a material effect on the financial condition, results of operations or cash flows of the Company.

In connection with the closing of certain store locations, the Company has assigned leases to several other sub-tenants with recourse. These various leases expire over the next nine years and the future minimum lease payments totaling $33,976,000 over this period have been assumed by the other sub-tenants.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Overview

The Company operates in the retail grocery segment (including related real estate and store development activities) through its wholly-owned subsidiary Harris Teeter. The Company operates a regional supermarket chain primarily in the southeastern and mid-Atlantic United States, and the District of Columbia and evaluates its performance utilizing various measures which include, but are not limited to, operating profit.

Historically, the Company also engaged in the manufacturing and distribution of industrial sewing thread (textile primarily), including embroidery thread and technical textiles, through its A&E business. On November 7, 2011, the Company sold all of its ownership interest in A&E to two newly formed affiliates of KPS Capital Partners, LP. The sale price for A&E was $180.0 million in cash, subject to adjustments for working capital and certain liabilities including underfunded pension liability and foreign debt. In connection with the sale, the Company recorded a pre-tax loss of $48.8 million in the fourth quarter of fiscal 2011. During the first half of fiscal 2012, the Company recorded pre-tax charges totaling $21.0 million related to the sale. As a result of this disposition, the sales and operating results of A&E are categorized as discontinued operations in the discussion that follows for all periods presented.

The economic environment over the past few years has motivated changes in the consumption habits of the retail consumer which continues to impact our financial results. Economic uncertainty, tumultuous market conditions and low levels of consumer confidence have created changes in the type of products purchased by the Company's customers and increased the competitive environment in the Company's primary markets. The Company competes with other traditional grocery retailers, as well as other retail outlets including, but not limited to, discount retailers such as "neighborhood or supercenters" and "club and warehouse stores," specialty supermarkets and drug stores. Generally, the Company's markets continue to experience new store opening activity and increased feature pricing or everyday low prices by competitors. The Company 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 the Company's customers. In addition, the Company differentiates itself from its competitors with its product selection, assortment and variety, and its focus on customer service.

12


The Company has continued with its planned new store development program. Since the end of the second quarter of fiscal 2011, the Company has opened six new stores and closed two stores, for a net addition of four stores. The Company operated 206 stores as of the end of the second quarter of fiscal 2012. Much of the Company's new store growth is focused on expanding its Washington, D.C. metro market area which incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware.

Quarterly Results

The following table sets forth the consolidated operating profit components for the Company for the 13 weeks ended April 1, 2012 and April 3, 2011, respectively. The table also sets forth the percentage increase or decrease of such components over the prior year (in thousands):

                                   
        April 1, 2012     April 3, 2011        
              % of
Net Sales
          % of
Net Sales
    % Inc.
(Dec.)
 
  Net Sales   $ 1,120,379     100.00   $ 1,050,146     100.00     6.7  
  Cost of Sales     776,822     69.34     733,070     69.81     6.0  
  Gross Profit     343,557     30.66     317,076     30.19     8.4  
  Selling, General and Administrative Expenses:                                
  Harris Teeter     288,004     25.71     266,605     25.39     8.0  
  Corporate     3,067     0.27     2,815     0.26     9.0  
  Total     291,071     25.98     269,420     25.65     8.0  
                                   
  Operating Profit     52,486     4.68     47,656     4.54     10.1  
  Interest Expense, net     3,300     0.29     5,036     0.48     (34.5 )
  Net Investment Loss     -     -     114     0.01     n.a.  
  Earnings From Continuing Operations Before                                
  Income Taxes     49,186     4.39     42,506     4.05     15.7  
  Income Tax Expense     18,730     1.67     16,333     1.56     14.7  
  Earnings From Continuing Operations, Net     30,456     2.72     26,173     2.49     16.4  
  (Loss) Earnings From Discontinued Operations,                                
  Net of Income Taxes     (202 )         3,733              
  Net Earnings   $ 30,254         $ 29,906              
 
  n.a. - not applicable                                

Sales

Net sales increased 6.7% in the second quarter of fiscal 2012, as compared to the second quarter of fiscal 2011. The increase in net sales was attributable to an increase in comparable store sales and sales from new stores that were partially offset by store closings. Comparable store sales (see definition below) increased 3.91% ($40.2 million) in the second quarter of fiscal 2012 as compared to 1.42% ($14.1 million) in the second quarter of fiscal 2011. The increase in sales from new stores exceeded the loss of sales from closed stores by $27.6 million for the comparable periods. Comparable store sales have been negatively impacted, to some extent, by the cannibalization created by strategically opening stores in key major markets that have a close proximity to existing stores. Management believes that the Company's strategy of opening additional stores within close proximity to existing stores, and any similar new additions in the foreseeable future, have a strategic benefit of enabling the Company to capture sales and expand market share as the markets it serves continue to grow. The Company has responded to its customers' changing buying habits with increased promotional activity designed to increase the overall value to their customers. During the second quarter of fiscal 2012, on a comparable basis, customer visits and average basket size increased, while the average number of items sold declined slightly. In addition, the Company experienced average increases in active households per comparable store (based on VIC data) of 1.67% for the second quarter of fiscal 2012, evidencing a continued growing customer base in those stores and the Company's ability to gain market share. Store brand unit penetration was 24.15% in the second quarter of fiscal 2012, as compared to 24.48% in the second quarter of fiscal 2011. Store brand penetration based on sales dollars increased by 60 basis points to 24.98% in the second quarter of fiscal 2012 from 24.38% in the second quarter of fiscal 2011.

13


The Company considers its reporting of comparable store sales growth to be effective in determining core sales growth during periods of fluctuation in the number of stores in operation, their locations and their sizes. While there is no standard industry definition of "comparable store sales," the Company has consistently applied 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 as a result of 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 period.

Gross Profit

Gross profit as a percent of sales for the second quarter of fiscal 2012 increased 47 basis points from the prior year period. The 47 basis point increase in the gross profit margin was driven by a decrease in the LIFO charge when compared to the second quarter of fiscal 2011 and increased sales resulting from our effective promotional activity. The LIFO charge for the second quarter of fiscal 2012 was $2.3 million (0.20% of sales), as compared to $4.8 million (0.46% of sales) in the second quarter of fiscal 2011.

Expenses

Selling, general and administrative (SG&A) expenses and its percent of sales for the second quarter of fiscal 2012 increased from the prior year period as a result of incremental store growth and its impact on associated operational costs such as labor, credit and debit card fees, rent and other occupancy costs. The increase in SG&A expenses (excluding advertising and support department costs) over the previous year for stores opened, or to be opened, during fiscal 2011 and fiscal 2012 accounted for $9.2 million of the $21.4 million increase in total SG&A expenses. Store labor costs increased from the second quarter of fiscal 2011 to the second quarter of fiscal 2012 by $5.8 million; however, there was a 2 basis point reduction in these costs on a percent of sales basis. Fringe benefit costs increased between the second quarter of fiscal 2011 and the second quarter of fiscal 2012 primarily as a result of increased costs associated with health and welfare, incentive bonus plans and pension benefts. The increase in fringe benefit costs represented a 28 basis point increase in the SG&A margin between the comparable periods. The Company also incurred increased remodeling expenses of approximately $1.7 million associated with the Company’s aggressive store remodelling program. Cost increases were offset, in part, by the Company's continued emphasis on its cost control programs. Pre-opening costs are included with SG&A expenses and consist of rent, labor and associated fringe benefits, and recruiting and relocation costs incurred prior to a new store opening and amounted to $1.4 million (0.13% of sales) for the second quarter of fiscal 2012, as compared to $1.9 million (0.18% of sales) for the second quarter of fiscal 2011. Pre-opening costs fluctuate between reporting periods depending on the new store opening schedule and market location.

Corporate SG&A expenses include a portion of compensation and benefits of holding company employees and certain other costs that have not historically been fully allocated to the operating companies. Corporate SG&A expenses for the second quarter of fiscal 2012 increased by $0.3 million from the prior year period as a result of higher costs associated with certain of the Company's compensation and benefit programs.

Net interest expense (interest expense less interest income) for the second quarter of fiscal 2012 decreased by $1.7 million from the prior year period. Net interest expense for the second quarter of fiscal 2012 included a reversal of accrued interest amounting to $1.3 million that was associated with a reduction of the Company's unrecognized tax liabilities of $3.8 million. The majority of the unrecognized tax liabilities reserve was reversed during the second quarter of fiscal 2012 and since the tax positions related to timing differences it had no impact on current period results of operations. The effective consolidated income tax rate on continuing operations for the second quarter of fiscal 2012 was 38.1% as compared to 38.4% for the second quarter of fiscal 2011.

Continuing Operations

As a result of the items discussed above, earnings from continuing operations after tax were $30.5 million, or $0.62 per diluted share for the second quarter of fiscal 2012, as compared to $26.2 million, or $0.54 per diluted share for the second quarter of fiscal 2011.

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Discontinued Operations

The following table sets forth the components of discontinued operations for the 13 weeks ended April 1, 2012 and April 3, 2011, respectively (in thousands):

                 
        April 1, 2012     April 3, 2011  
  Net Sales   $ -   $ 82,627  
  Cost of Sales     -     62,190