In Its 2018 Annual Report to Shareholders, Health Foods, Inc

question 233

Essay

In its 2018 annual report to shareholders, Health Foods, Inc., disclosed the following information about some of its indebtedness:

In addition, the company disclosed the following:

We have outstanding zero coupon convertible subordinated debentures which had a book amount of approximately $158.8 million and $151.4 million at September 26, 2018, and September 28, 2017, respectively. The debentures have an effective yield to maturity of 5 percent and a principal amount at maturity on March 2, 2032, of approximately $308.8 million. The debentures are convertible at the option of the holder, at any time on or prior to maturity, unless previously redeemed or otherwise purchased. The debentures have a conversion rate of 10.64 shares per $1,000 principal amount at maturity, representing 3,285,632 shares. The debentures may be redeemed at the option of the holder on March 2, 2022, or March 2, 2027, at the issue price plus accrued original discount totaling approximately $188 million and $241 million, respectively.


The fair value of convertible subordinated debentures is estimated using quoted market prices. Book amounts and estimated fair values of our financial instruments other than those for which book amounts approximate fair values as noted above are as follows (in thousands)

-Required: Explain why the estimated fair value of the debentures exceeds their book amount at the end of fiscal year 2018.

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Definitions:

On-Demand Labor

A form of labor where workers are hired on a temporary basis to meet immediate or short-term requirements, often facilitated by digital platforms.

Secondary Position

A rank or status that is not primary or inferior in importance, often implying a subordinate or lesser role within a hierarchy or structure.

Nonfinancial Resources

Assets that contribute to an organization's or individual's value and capabilities, such as time, skills, and relationships, not measured in monetary terms.

Fulfilling Life

A life filled with satisfaction and happiness derived from achieving personal goals and finding meaning in activities and relationships.