Cincinnati, Aug. 6 - Chiquita Brands International, Inc. today released financial and operating results for the second quarter 2009. All figures in this press release are for continuing operations.
For the second quarter 2009, net sales decreased by 4 percent to $955 million. The company reported income from continuing operations of $89 million, or $1.95 per diluted share, versus $58 million, or $1.28 per diluted share, in 2008. On a comparable basis, income from continuing operations in the second quarter was $95 million, or $2.08 per diluted share, versus $55 million, or $1.21 per diluted share, in the 2008 period. The comparable basis amounts exclude certain items described below under "Items affecting comparability."
"Our second quarter results mark our best quarterly performance in the past decade and are a testament to our strategic focus and our pricing and cost discipline," said Fernando Aguirre, chairman and chief executive officer. "We are particularly pleased with our value added salads business which is showing significant and sustainable profit improvement. The plans we began executing several months ago to achieve network efficiencies and manufacturing cost reductions are working well. Additionally, our profit focus continues to deliver strong results in bananas which benefited from record high pricing in Europe and sustained pricing in North America."
Aguirre added, "While our results will continue to reflect normal seasonality, especially in our European banana operations, we are encouraged by our strong first-half results and now expect that, in the absence of any major unforeseen weather or other event risks, our second-half comparable income will improve versus a year ago by at least as much as we have improved in the first-half."
2009 SECOND QUARTER SUMMARY
(The following table shows adjustments made to income and EPS from
continuing operations between comparable and GAAP results. See "Items
affecting comparability" below for a description of items excluded on a
comparable basis. Exhibit B provides a reconciliation by segment for
"Operating income.")
Income from Income from continuing
continuing operations operations per diluted share
--------------------- ----------------------------
2009 2008 2009 2008
---- ---- ---- ----
Comparable results $95 $55 $2.08 $1.21
Restructuring
related costs (4) (1) (0.09) (0.01)
Incremental non-cash
interest expense on
Convertible Notes (2) (1) (0.04) (0.03)
Resolution of
non-income tax claims - 6 - 0.12
--- - --- ----
As Reported on a GAAP
basis $89 $58 $1.95 $1.28
=== === ===== =====
Table may not total due to rounding
Net Sales: Quarterly sales decreased 4 percent year-over-year to $955 million due to lower European exchange rates and previously implemented reductions in foodservice volumes in North American salads.
Comparable Results: Comparable income from continuing operations for the second quarter 2009 increased by $40 million, to $95 million. The increase was due mostly to plans implemented throughout the past year to increase network efficiencies and achieve sustainable cost reductions in salads manufacturing.
Cash, Debt and Liquidity: Cash and cash equivalents were $159 million at June 30, 2009. The company's debt balance was $695 million. In the second quarter 2009, the company repaid the full $38 million of seasonal working capital borrowings under its revolving credit facility. The company has ample liquidity and a solid capital structure, with no more than $20 million in debt maturities in any year until 2014.
Banana Segment: Net sales for the segment decreased 1 percent to $557 million, due to lower European exchange rates (see Exhibit E), which were largely offset by record local banana pricing in core European markets (see Exhibit D). On a comparable basis, operating income increased 8 percent to $96 million, compared to $89 million in 2008. The $7 million increase was principally due to favorable local pricing in Europe, as well as in Asia and the Middle East, partially offset by lower European exchange rates and higher purchased fruit and logistics costs. Pricing in North America was sustained despite a significant reduction in fuel-related surcharge revenue. For the second quarters of 2009 and 2008, reported GAAP segment results are the same as the comparable results (see Exhibit B).
Salads and Healthy Snacks Segment: Net sales decreased 13 percent to $305 million, primarily as a result of the previously implemented reduction of foodservice volumes in North America. On a comparable basis, operating income increased to $30 million, compared to a loss of $6 million in 2008, primarily driven by network efficiencies, sustainable cost reductions and lower net fuel costs in salads manufacturing. For the second quarters of 2009 and 2008, reported GAAP segment results are the same as the comparable results (see Exhibit B).
Other Produce: Net sales for the segment were $93 million compared to $81 million in 2008. On a comparable basis, operating income was $5 million for both quarters ended June 30, 2009 and 2008. For the second quarters of 2009 and 2008, reported GAAP segment results are the same as the comparable results (see Exhibit B).
Corporate: Corporate expenses were $18 million compared to $15 million in 2008. The increase resulted primarily from higher incentive compensation accruals.
2009 OUTLOOK
Based on the strong performance of its profit-improvement strategies and cost reduction initiatives, as well as better-than-anticipated first-half results in both salads and bananas, the company expects to deliver significantly improved full-year results in 2009, on a comparable basis, versus 2008. The company's results in the third and fourth quarters are generally weaker than in the first half of the year due to the typical seasonality in European banana pricing, as well as seasonally lower consumption of salads in the fourth quarter. In addition, the company plans to increase its investment in consumer marketing and innovation in the second-half of 2009, consistent with its long-term plans to drive profitable sales growth. Even so, in the absence of any major weather or other negative event risks in the balance of the year, the company expects to improve its second-half comparable net income year-over-year by at least as much as in the first half of the year.
In the Banana segment, overall supply and consumer demand remain relatively stable. Banana sourcing and production costs are expected to increase in the balance of 2009 compared to 2008 due to increases in purchased fruit contract pricing and government-imposed exit prices. Reductions in fuel-related costs are expected to be partly offset by fuel hedging results, which at current market-forward rates would represent a gain in the balance of 2009, in an amount similar to the year ago period. Banana pricing is expected to remain relatively stable in North America for the remainder of the year, despite a significant decline in fuel-related surcharges as a component of pricing. Local European banana pricing, which was at record levels in the second quarter, is more difficult to predict but may return to more normal seasonal levels in the remainder of the year. Based on current market-forward rates, negative year-over-year comparisons in the value of the euro will continue through the third quarter of 2009, versus the average of $1.51 per euro in the 2008 third quarter. The company is approximately 75 percent hedged at about $1.41 per euro in the balance of 2009 and $1.39 per euro in the first half of 2010, compared to a spot rate of approximately $1.42 per euro at July 31, 2009.
In the Salads and Healthy Snacks segment, the company's profit-improvement strategy in salads is on track to outperform the previously announced target of three to four percent operating margin for the full-year 2009, and is now expected to be at least six percent for the full-year 2009. However, the magnitude of improvement in salads in the balance of the year is not expected to be as robust as in the first half due to the company's planned investment in consumer marketing and innovation as well as typically lower consumption of salads in the fourth quarter. In healthy snacks, the company expects reduced operating losses in 2009 from the roll-out of Just Fruit in a Bottle in seven European countries, in line with the target for individual markets to reach breakeven by the end of their third year following market launch.
In addition to the company's overall business outlook, the following chart summarizes management's estimates of certain key items for 2009:
(in millions) Q1 2009 Q2 2009 FY 2009
Actual Actual Estimate
------ ------ --------
Capital expenditures(1) $11 $11 $70-80
Depreciation and amortization $16 $15 $63-67
Gross interest expense(2) $15 $14 $56-60
Net interest expense(2) $13 $13 $50-54
(1) Estimate includes approximately $15 million in spending to repair
levees and other farm infrastructure damaged from a May 2009
earthquake in Honduras and Guatemala, to be funded in part by
insurance proceeds.
(2) Actual 2009 quarterly and estimated full-year 2009 interest expense
excludes the impact of adopting a new accounting standard that
changed the method used to account for the company's Convertible
Notes, as described in Exhibit F.
.
ITEMS AFFECTING COMPARABILITY
(See Exhibit B for Reconciliation of GAAP and Non-GAAP Operating Information)
Second Quarter 2009 Items
-- Restructuring related costs: In the fourth quarter of 2008, the
company committed to relocate its European headquarters from Belgium
to Switzerland in order to optimize the company's long-term tax
structure. The relocation, which is now substantially complete, is
expected to result in one-time costs of approximately $19 million, of
which $4 million was recognized in the second quarter of 2009, $5
million was recognized in the first quarter of 2009, and $7 million
was recognized in prior periods. The approximately $3 million
remaining is expected to be recognized primarily in the third quarter
of 2009. As shown in Exhibit B, restructuring related costs are
included in reportable figures as a component of operating income, but
are not allocated to the reportable segments.
-- Incremental non-cash interest expense on Convertible Notes: As
described more fully in Exhibit F, the company retrospectively adopted
FSP No. APB 14-1 on January 1, 2009. This FSP changes the method of
accounting for, and increases the amount of reported GAAP interest
expense on the company's $200 million of 4.25% Convertible Senior
Notes. In determining earnings on a comparable basis, the company
excludes the additional non-cash interest expense that results from
the application of this new accounting standard. Such higher non-cash
interest expense was $2 million and $1 million for the quarters ended
June 30, 2009 and 2008, respectively, and will be $7 million and $5
million for the full years 2009 and 2008, respectively.
Second Quarter 2008 Items
-- Restructuring related costs: In the second quarter of 2008, $1
million of costs were incurred for the relocation of the company's
European headquarters. As shown in Exhibit B, restructuring related
costs are included in reportable figures as a component of operating
income, but are not allocated to the reportable segments.
-- Resolution of non-income tax claims: In the second quarter of 2008,
$9 million of other income and $3 million in related tax expense was
recorded from the resolution of claims and the receipt of refunds of
certain non-income taxes paid between 1980 and 1990. These items are
included in the reportable figures as other income and income tax
expense, which are below operating income, but these items are not
allocated to the reportable segments.
-- Incremental non-cash interest expense on Convertible Notes: The
additional non-cash interest expense that results from the application
of FSP No. APB 14-1 to the company's Convertible Senior Notes was $1
million for the quarter ended June 30, 2008 and $5 million for the
full year 2008 (see Exhibit F).
.
Exhibit A:
CHIQUITA BRANDS INTERNATIONAL, INC.
CONSOLIDATED INCOME STATEMENT
(Unaudited - in millions, except per share amounts)
Quarter Ended June 30, Six Months Ended June 30,
--------------------- ------------------------
2009 2008 2009 2008
---- ---- ---- ----
Net sales $955 $995 $1,796 $1,930
---- ---- ------ ------
Operating expenses:
Cost of sales 748 808 1,459 1,587
Selling, general
and administrative 88 100 171 180
Depreciation 13 17 26 33
Amortization 3 2 5 5
Equity in earnings
of investees (10) (6) (16) (6)
European headquarters
relocation 4 1 9 1
- - - -
846 922 1,654 1,801
--- --- ----- -----
Operating income 109 72 142 129
Interest income 1 2 2 3
Interest expense(1) (16) (19) (32) (45)
Other income(2) - 9 - 9
--- - --- -
Income from continuing
operations before taxes 94 64 113 95
Income tax expense (2, 3) (5) (6) (1) (6)
-- -- -- --
Income from continuing
operations 89 58 112 90
Income from discontinued
operations - 3 - 2
--- - --- -
Net income $89 $61 $112 $92
=== === ==== ===
Basic earnings per share:
Continuing
operations $2.00 $1.34 $2.52 $2.08
Discontinued
operations - 0.06 - 0.04
--- ---- --- ----
$2.00 $1.40 $2.52 $2.12
===== ===== ===== =====
Diluted earnings per
share: (4)
Continuing
operations $1.95 $1.28 $2.46 $2.01
Discontinued
operations - 0.06 - 0.04
--- ---- --- ----
$1.95 $1.34 $2.46 $2.05
===== ===== ===== =====
Shares used to
calculate basic
earnings per share 44.5 43.5 44.5 43.2
Shares used to
calculate diluted
earnings per share 45.5 45.3 45.5 44.8
Table may not total due to rounding.
(1) Six months ended June 30, 2008 includes $9 million for the write-off
of deferred fees related to the refinancing of the company's credit
facility. 2008 amounts differ from those previously reported due to
the adoption of FSP APB 14-1. See Exhibit F.
(2) Other income includes the resolution of a claim related to a non-
income tax refund. An offsetting $3 million of related expense is
included in "Income taxes."
(3) For each of the second quarters of 2009 and 2008, income tax expense
includes $1 million in benefits due to the resolution of tax
contingencies in various jurisdictions. Income tax expense includes
$8 million in benefits from the resolution of tax contingencies and
the sale of the company's operations in the Ivory Coast for the six
months ended June 30, 2009 and $6 million in benefits from the
resolution of tax contingencies for the six months ended June 30,
2008.
(4) Includes any dilutive effect of any outstanding warrants and stock
options based on the treasury stock method and the dilutive effect of
restricted stock awards. For the quarters ended June 30, 2009 and
2008, the Convertible Notes did not have a dilutive effect because the
average trading price of the common shares was below the initial
conversion price of $22.45 per share. All warrants to purchase
common shares that had been outstanding expired on March 19, 2009.
Exhibit B:
CHIQUITA BRANDS INTERNATIONAL, INC.
RECONCILIATION OF GAAP AND NON-GAAP INFORMATION
OPERATING INCOME (LOSS) - SECOND QUARTER
(Unaudited - in millions)
2009 Reconciliation
-------------------
Salads & Operating
Healthy Other Restruc- Income
Bananas Snacks Produce Corporate turing (loss)
------- ------- ------- --------- -------- -------
Comparable
results
(Non-GAAP) $96 $30 $5 $(18) $- $113
Restructuring
related costs - - - - (4) (4)
------ ------ ------ ------ ------ ------
Reported results
(GAAP) $96 $30 $5 $(18) $(4) $109
====== ====== ====== ====== ======= =======
2008 Reconciliation
-------------------
Salads & Operating
Healthy Other Restruc- Income
Bananas Snacks Produce Corporate turing (loss)
------- ------- ------- --------- -------- -------
Comparable
results
(Non-GAAP) $89 $(6) $5 $(15) $- $73
Restructuring
related costs - - - - (1) (1)
------ ------ ------ ------ ------ -------
Reported results
(GAAP) $89 $(6) $5 $(15) $(1) $72
====== ====== ====== ====== ======= =======
Table may not total due to rounding.
CHIQUITA BRANDS INTERNATIONAL, INC.
RECONCILIATION OF GAAP AND NON-GAAP INFORMATION
OPERATING INCOME (LOSS) - SIX MONTHS
(Unaudited - in millions)
2009 Reconciliation
-------------------
Salads & Operating
Healthy Other Restruc- Income
Bananas Snacks Produce Corporate turing (loss)
------- ------- ------- --------- -------- -------
Comparable
results
(Non-GAAP) $136 $43 $7 $(38) $- $148
Gain on
divestitures(1) 4 - - - - 4
Restructuring
related costs - - - - (9) (9)
------ ------ ------ ------ ------ ------
Reported results
(GAAP) $140 $43 $7 $(38) $(9) $142
====== ====== ====== ====== ======= =======
2008 Reconciliation
-------------------
Salads & Operating
Healthy Other Restruc- Income
Bananas Snacks Produce Corporate turing (loss)
------- ------- ------- --------- -------- -------
Comparable
results
(Non-GAAP) $150 $(2) $8 $(25) $- $130
Restructuring
related costs - - - - (1) (1)
------ ------ ------ ------ ------ ------
Reported results
(GAAP) $150 $(2) $8 $(25) $(1) $129
====== ====== ====== ====== ======= =======
Table may not total due to rounding.
(1) In January 2009, the company sold its operations in the Ivory Coast,
which resulted in a pre-tax gain of approximately $4 million.
The pre-tax gain was excluded in the first quarter 2009 comparable
Figures for the banana segment.
Exhibit C:
CHIQUITA BRANDS INTERNATIONAL, INC.
OPERATING STATISTICS - SECOND QUARTER
(Unaudited - in millions, except for percentages and exchange rates)
Percent
Change
Quarter Ended June 30, Favorable
---------------------- (Unfavorable)
2009 2008 vs. 2008
---- ----
Net sales by segment
Bananas $557 $563 (1.1)%
Salads and Healthy Snacks 305 350 (13.0)%
Other Produce 93 81 14.1%
--- --- ----
Total net sales $955 $995 (4.0)%
Comparable segment operating
income (loss)( 1)
Bananas $96 $89 7.7%
Salads and Healthy Snacks 30 (6) N/A
Other Produce 5 5 12.6%
Corporate (18) (15) (20.6)%
---- ---- ------
Total operating income
(loss) $113 $73 54.8%
Comparable operating margin by
segment
Bananas 17.2% 15.8% 1.4 pts
Salads and Healthy Snacks 9.7% (1.7)% 11.4 pts
Other Produce 5.5% 5.5% 0.0 pts
SG&A as a percent of sales 9.3% 10.0% 0.7 pts
Company banana sales volume(2)
(40 lb. boxes)
North America 16.1 16.1 0.0%
Core European Markets(3) 11.8 12.7 (7.1)%
Asia and the Middle East (4) 5.7 6.1 (6.6)%
Trading Markets(5) 3.0 1.4 114.3%
--- --- -----
Total 36.6 36.3 0.8%
Fresh Express-branded retail
value-added salad sales volume
(12-count cases) 17.1 16.7 2.4%
Euro average exchange rate, spot
(dollars per euro) $1.35 $1.56 (13.5)%
Euro average exchange rate, hedged
(dollars per euro) $1.34 $1.52 (11.8)%
Table may not total due to rounding.
(1) See detailed description of reconciling items between GAAP and
comparable basis figures in Exhibit B and in the text of this press
release under the heading titled "Items affecting comparability."
(2) Total volume sold includes all banana varieties, such as Chiquita
to Go, Chiquita minis, organic bananas and plantains.
(3) The company's Core European Markets include the 27 member states
of the European Union, as well as Switzerland, Norway and Iceland.
(4) The company primarily operates through joint ventures in this region,
where sales are invoiced mostly in U.S. dollars.
(5) The company's Trading Markets are mainly European and Mediterranean
countries that do not belong to the European Union.
Exhibit C (continued):
CHIQUITA BRANDS INTERNATIONAL, INC.
OPERATING STATISTICS - SIX MONTHS
(Unaudited - in millions, except for percentages and exchange rates)
Percent
Change
Six Months Ended June 30, Favorable
------------------------- (Unfavorable)
2009 2008
---- ----
Net sales by segment
Bananas $1,042 $1,091 (4.5)%
Salads and Healthy Snacks 586 685 (14.5)%
Other Produce 168 154 9.3%
----- ----- -----
Total net sales $1,796 $1,930 (6.9)%
Comparable segment operating
income (loss)( 1)
Bananas $136 $150 (9.2)%
Salads and Healthy Snacks 43 (2) N/A
Other Produce 7 8 (8.7)%
Corporate (38) (25) (50.1)%
---- ---- -----
Total operating income
(loss) $148 $130 13.7%
Comparable operating margin by
segment
Bananas 13.4% 13.7% (0.3) pts
Salads and Healthy Snacks 7.3% (0.3)% 7.6 pts
Other Produce 4.3% 5.2% (0.9) pts
SG&A as a percent of sales 9.5% 9.3% (0.2)pts
Company banana sales volume(2)
(40 lb. boxes)
North America 31.2 31.3 (0.3)%
Core European Markets(3) 23.6 25.2 (6.3)%
Asia and the Middle East (4) 11.8 11.0 7.3%
Trading Markets(5) 4.5 2.6 73.1%
--- --- ----
Total 71.1 70.1 1.4%
Fresh Express-branded retail
value-added salad sales volume
(12-count cases) 33.7 33.4 0.8%
Euro average exchange rate, spot
(dollars per euro) $1.33 $1.53 (13.1)%
Euro average exchange rate,
hedged (dollars per euro) $1.35 $1.49 (9.4)%
Table may not total due to rounding.
(1) See detailed description of reconciling items between GAAP and
comparable basis figures in Exhibit B and in the text of this press
release under the heading titled "Items affecting comparability."
(2) Total volume sold includes all banana varieties, such as Chiquita
to Go, Chiquita minis, organic bananas and plantains.
(3) The company's Core European Markets include the 27 member states
of the European Union, as well as Switzerland, Norway and Iceland.
(4) The company primarily operates through joint ventures in this
region, where sales are invoiced mostly in U.S. dollars.
(5) The company's Trading Markets are mainly European and Mediterranean
countries that do not belong to the European Union.
Exhibit D:
CHIQUITA AVERAGE BANANA PRICES AND VOLUME
YEAR-OVER-YEAR PERCENTAGE CHANGE - FAVORABLE (UNFAVORABLE)
2009 vs. 2008
(Unaudited)
Pricing Volume
------- ------
Q2 YTD Q2 YTD
Region -- --- -- ---
North America(1) 0.1% 7.6% 0.0% (0.3)%
Core European Markets(2)
U.S. Dollar basis(3) 0.3% (6.7)% (7.1)% (6.3)%
Local Currency 15.7% 6.7%
Asia and the Middle East(4)
U.S. Dollar basis 17.8% 16.6% (6.6)% 7.3%
Trading Markets
U.S. Dollar basis (15.7)% (18.3)% 114.3% 73.1%
(1) Pricing includes fuel-related and other surcharges. Total volume
sold includes all banana varieties, such as Chiquita to Go, Chiquita
minis, organic bananas and plantains.
(2) The company's Core European Markets include the 27 member states of
the European Union, Switzerland, Norway and Iceland.
(3) Prices on a U.S. dollar basis do not include the impact of hedging.
(4) The company primarily operates through joint ventures in this region,
where sales are invoiced mostly in U.S. dollars.
FRESH EXPRESS RETAIL VALUE-ADDED SALADS
NET REVENUE PER CASE AND VOLUME
YEAR-OVER-YEAR PERCENTAGE CHANGE - FAVORABLE (UNFAVORABLE)
2009 vs. 2008
(Unaudited)
Pricing(1) Volume(2)
--------- --------
Q2 YTD Q2 YTD
Region -- --- -- ---
North America (1%) 0% 2% 1%
(1) Pricing is for Fresh Express-branded products only, and includes fuel
and regulatory surcharges. Including Verdelli-branded and other
products that have been eliminated because they did not generate
sufficient profit, pricing in retail value-added salads was down 1
percent during the second quarter and flat year to date.
(2) Volume is for Fresh Express-branded products only. Including
Verdelli-branded and other products that have been eliminated because
they did not generate sufficient profit, volume in retail value-added
salads was down 2 percent during the second quarter, and 4 percent
year to date.
Exhibit E:
EUROPEAN CURRENCY
YEAR-OVER-YEAR CHANGE - FAVORABLE (UNFAVORABLE)
2009 vs. 2008
(Unaudited - in millions)
Q2 YTD
-- ---
Currency Impact (Euro/Dollar)
Revenue $(42) $(80)
Local Costs 12 22
Hedging(1) 4 15
Balance sheet translation(2) 0 (2)
- --
Net European currency impact $(26) $(45)
==== ====
Table may not total due to rounding.
(1) Hedging costs in the second quarter of 2009 were $2 million compared
to $6 million in the second quarter of 2008. Hedging gains for YTD
2009 were $4 million compared to costs of $11 million for YTD 2008.
(2) Balance sheet translation for the second quarter of 2009 was a loss
of less than $1 million compared to zero in the second quarter of
2008. Balance sheet translation for YTD 2009 was a loss of $1
million compared to a gain of $1 million for YTD 2008.
Exhibit F:
CHIQUITA BRANDS INTERNATIONAL, INC.
DEBT SCHEDULE - SECOND QUARTER 2009
(Unaudited - in millions)
FSP APB Payments,
Mar. 31, 14-1 Other June 30,
2009 Accretion Additions Reductions 2009
---- --------- --------- ---------- ----
Parent Company
7-1/2% Senior Notes $195 $- $- $- $195
8-7/8% Senior Notes 188 - - - 188
4.25% Convertible Senior
Notes 122 2 - - 124
Subsidiaries
Term Loans 190 - - (3) 188
Revolving Credit
Facilities 38 - - (38) -
Other 0 - - (0) 0
- --- --- - -
Total Debt $734 $2 $- $(41) $695
==== == == ==== ====
Table may not total due to rounding.
Exhibit F (continued):
CHIQUITA BRANDS INTERNATIONAL, INC.
DEBT SCHEDULE - YEAR-TO-DATE 2009 AND
IMPACT OF NEW ACCOUNTING STANDARD ON CONVERTIBLE NOTES
(Unaudited - in millions)
FSP APB
As 14-1
Previous- Discount,
ly net of $5 Adjus- FSP APB Payments,
Reported million of ted 14-1 Other
Dec. 31, accretion Dec. 31, Accre- Addi- Reduc- Jun. 30,
2008 for 2008 2008 tion tions tions 2009
-------- ---------- ------- ------- ------ -------- --------
Parent
Company
7-1/2%
Senior
Notes $195 $- $195 $- $- $- $195
8-7/8%
Senior
Notes 188 - 188 - - - 188
4.25%
Convertible
Senior
Notes 200 (80) 120 3 - - 124
Subsidiaries
Term
Loans 193 - 193 - - (6) 188
Revolving
Credit
Facilities - - - - 38 (38) -
Other 1 - 1 - - (0) 0
----- ----- ----- ----- ----- ----- -----
Total
Debt $777 $(80) $697 $3 $38 $(43) $695
===== ===== ===== ===== ===== ===== =====
Table may not total due to rounding.
As previously reported, on January 1, 2009, the company adopted FASB
Staff Position ("FSP") No. APB 14-1, "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (including
partial cash settlement)," which required a retroactive change in the
accounting method for the company's $200 million aggregate principal
amount of 4.25 % Convertible Senior Notes due 2016 ("Convertible Notes")
issued in February 2008. The new FSP required the company to account
separately for both the equity and debt components of the Convertible
Notes. The $85 million equity component (and related debt discount)
represents the investors' debt-for-equity conversion rights and was
calculated as the present value of the lower 4.25 percent interest coupon
payable under the Convertible Notes compared to the estimated 12.50
percent rate the company would have had to pay at the time of issuance for
a debt instrument with no equity conversion feature. The reported amount
of the debt component, valued at $115 million at the time of issuance,
increases at an accelerating rate throughout the life of the Convertible
Notes as the debt discount is amortized, through additional non-cash
interest expense, in order to reflect a total effective interest rate
of 12.50 percent.
Summary of Convertible Note Accounting
Expected
Dec. 31, June 30, Dec. 31, June 30,
2009 2009 2008 2008
-------- -------- -------- --------
Principal amount
of debt $200 $200 $200 $200
Unamortized discount (73) (76) (80) (83)
------- ------- ------- -------
Net carrying amount
of debt $127 $124 $120 $117
======= ======= ======= =======
Conversion feature
recorded as equity $85 $85 $85 $85
Expected
FY 2009 FY 2008 Q2 2009 Q2 2008
------- ------- ------- -------
4.25% coupon
interest expense $8 $8 $2 $2
Amortization of
discount to
interest expense 7 5 2 1
------- ------- ------- -------
Total interest
Expense $15 $13 $4 $4
======= ======= ======= =======