Kroger 2014 Annual Report Download - page 107

A-42
NO T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S , CO N T I N U E D
assets or liabilities that require recognition in connection with the application of acquisition accounting under
Accounting Standards Codification (“ASC”) 805. Intangible assets are recognized apart from goodwill when
the asset arises from contractual or other legal rights, or are separable from the acquired entity such that they
may be sold, transferred, licensed, rented or exchanged either on a standalone basis or in combination with
a related contract, asset or liability.
Pending finalization of the Company’s valuation and other items, the following table summarizes the
preliminary fair values of the assets acquired and liabilities assumed as part of the merger with Vitacost.com:
August 18,
2014
ASSETS
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Total Assets, excluding Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
LIABILITIES
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61)
Total Identifiable Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Total Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $287
Of the $81 allocated to intangible assets, the Company recorded $49, $26 and $6 related to customer
relationships, technology and the trade name, respectively. The Company will amortize the technology and
the trade name, using the straight line method, over 10 and three years, respectively, while the customer
relationships will be amortized over five years using the declining balance method. The goodwill recorded
as part of the merger was attributable to the assembled workforce of Vitacost.com and operational synergies
expected from the merger, as well as any intangible assets that did not qualify for separate recognition.
The transaction was treated as a stock purchase for income tax purposes. The assets acquired and liabilities
assumed as part of the merger did not result in a step up of the tax basis and goodwill is not expected to be
deductible for tax purposes. The above amounts represent the preliminary allocation of the purchase price,
and are subject to revision when the resulting valuations of property and intangible assets are finalized, which
will occur prior to August 18, 2015. The results of operations of Vitacost.com were not material in 2014.
On January 28, 2014, the Company closed its merger with Harris Teeter by purchasing 100% of the
Harris Teeter outstanding common stock for $2,436. The merger allows us to expand into the fast-growing
southeastern and mid-Atlantic markets and into Washington, D.C. The merger was accounted for under the
purchase method of accounting and was financed through a combination of commercial paper and long-term
debt (see Note 6).
The fair value step up adjustment to Harris Teeter inventory as of the merger date is recorded in the LIFO
reserve. This resulted in a $52 decrease in LIFO reserve.