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

question 72

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: What amount of interest expense will Health Foods accrue on the debentures during fiscal year 2019?

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Definitions:

Split-brain Operation

A neurosurgical procedure that involves severing the corpus callosum to treat refractory epilepsy, impacting how the brain's hemispheres communicate.

Epileptic Seizures

Episodes of abnormal electrical activity in the brain leading to various symptoms such as convulsions, sensory disturbances, or loss of consciousness, indicative of epilepsy.

Cerebral Cortex

The outermost layer of the brain, involved in high-level functions such as thought, memory, and consciousness.

Auditory Area

A region of the brain, specifically located in the temporal lobe, that is responsible for processing auditory information received from the ears.