Harris Teeter 2012 Annual Report Download - page 40

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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.
Covenants in certain of the Company’s long-term debt agreements limit the total indebtedness that the Company may incur.
The most restrictive of these covenants is a consolidated maximum leverage ratio and a minimum fixed charge coverage ratio
as defined in the Company’s amended credit agreement. As of October 2, 2012, the amount of additional debt that could be
incurred within the limitations of the debt covenants exceeded the additional borrowings available under the amended credit
facility. As such, management believes that the limit on indebtedness does not restrict the Company’s ability to meet future
liquidity requirements through borrowings available under the Company’s amended credit facility, including any liquidity
requirements expected in connection with the Company’s expansion plans for the foreseeable future.
Long-term debt as of October 2, 2012 and October 2, 2011 was as follows (in thousands):
2012 2011
7.72% Senior Note due April, 2017 $ 50,000 $ 50,000
7.55% Senior Note due July, 2017 50,000 50,000
Bank Term Loan due December, 2012, variable interest (0.87% as of October 2, 2011) - 80,000
Capital Lease Obligations 110,487 104,325
Other Obligations 2,003 3,005
Total 212,490 287,330
Less Current Portion 4,219 3,902
Total Long-Term Debt $208,271 $283,428
Long-term debt maturities (including capital lease obligations) in each of the next five fiscal years are as follows: 2013
- $4,129,000; 2014 - $4,538,000; 2015 - $3,803,000; 2016 - $4,142,000; 2017 - $104,533,000.
Total interest expense, net of amounts capitalized, on debt and capital lease obligations was $18,269,000, $19,140,000 and
$19,478,000 for fiscal 2012, 2011 and 2010, respectively. Capitalized interest totaled $560,000, $632,000 and $624,000 for fiscal
2012, 2011 and 2010, respectively.
9. INTANGIBLE LIABILITIES
In connection with the Lowes Foods transaction, the Company recorded intangible liabilities associated with unfavorable
operating lease contracts. The carrying amount of the intangible liabilities associated with unfavorable operating lease contracts
was $2,147,000 as of October 2, 2012, and is included with other long-term liabilities in the Company’s Consolidated Balance
Sheets. Amortization for intangible liabilities was $52,000 for the fiscal 2012. Intangible liabilities are amortized over the
primary term of the underlying lease contracts which have remaining terms from 11 to 16 years. Projected amortization for
intangible liabilities existing as of October 2, 2012 is $159,000 per year for the fiscal 2013 through 2017.
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. The swap agreements expired according to their terms on
January 30, 2012 and May 12, 2012.
HARRIS TEETER SUPERMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
36