Harris Teeter 2012 Annual Report Download - page 38

3. PROPERTY
The following table summarizes the components of property as of October 2, 2012 and October 2, 2011 (in thousands):
2012 2011
Land 30,167 $ 20,168
Buildings and improvements 233,538 220,442
Machinery and equipment 890,500 815,590
Leasehold improvements 838,792 786,792
Construction in progress 77,707 54,411
Total, at cost 2,070,704 1,897,403
Accumulated depreciation and amortization (968,001) (877,935)
Property, net $1,102,703 $1,019,468
Depreciation and amortization expense for property was $134,455,000, $127,779,000 and $120,861,000 for fiscal 2012,
2011 and 2010, respectively.
4. COMPANY OWNED LIFE INSURANCE (COLI)
The Company has purchased life insurance policies to fund its obligations under certain benefit plans for officers, key
employees and directors. The cash surrender value of these policies is recorded net of policy loans and included with other
long-term assets in the Company’s consolidated balance sheets. The cash value of the Company’s life insurance policies were
$58,390,000 as of October 2, 2012 and $64,374,000 as of October 2, 2011, and no policy loans were outstanding at either date.
5. GOODWILL
In June 2012, the Company completed a purchase and sale agreement between Harris Teeter and Lowe’s Food Stores, Inc.
(“Lowes Foods”) whereby Harris Teeter acquired ten Lowes Foods store locations and Lowes Foods acquired six Harris Teeter
store locations and received cash consideration of $26.3 million. The transaction was accounted for as a business acquisition
and assets and liabilities were valued at the current fair market value. During fiscal 2012, the Company recorded impairment
losses and other incremental costs of approximately $29.8 million in connection with this transaction. Such costs are included
with Selling General & Administrative expenses on the Company’s Consolidated Statements of Operations. In connection with
the Lowes Foods transaction, the Company recorded goodwill of $23.2 million during the third quarter of fiscal 2012.
Subsequent to the acquisition, the Company made an assessment for goodwill impairment on those stores that would not be
integrated into the operations, resulting in the Company recording goodwill impairment of $3.9 million. On an annual basis,
the Company will perform a fair value-based impairment test on the net book value of goodwill and will perform the same
procedures on an interim basis if certain events or circumstances indicate that an impairment loss may have occurred.
6. INTANGIBLE ASSETS
The carrying amount of intangible assets as of October 2, 2012 and October 2, 2011 was as follows (in thousands):
2012 2011
Acquired favorable operating leases $20,740 $18,170
Pharmacy scripts 602 602
Total amortizing intangibles 21,342 18,772
Accumulated amortization (6,303) (5,163)
Total intangible assets, net of accumulated amortization $15,039 $13,609
The Company has no non-amortizing intangible assets. Amortization expense for intangible assets was $1,139,000,
$937,000 and $870,000 in fiscal 2012, 2011, and 2010, respectively. Amortizing intangible assets have remaining useful lives
from three to 21 years. Projected amortization expense for intangible assets existing as of October 2, 2012 is: $1,314,000,
$1,258,000, $1,114,000, $1,114,000 and $1,114,000 for fiscal 2013, 2014, 2015, 2016 and 2017, respectively.
HARRIS TEETER SUPERMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
34