BRYAN BROWN (Director of Investor Relations & Corporate Communications, Chiquita Brands International): Welcome to Chiquita Brands International Third Quarter 2008 Earnings Conference Call. On the call today are Fernando Aguirre, chairman and chief executive officer, and Jeff Zalla, chief financial officer.
After today's prepared remarks, we will take questions as time allows. If you have not received a copy of today's press release, you will find it on the company's web site at www.chiquitabrands.com or you can call Chiquita's Investor Relations line at (513) 784-6366. Before we begin, let me remind you that this call may contain forward-looking statements concerning operating performance or industry developments. Factors that could cause results to differ materially are described in the safe harbor section of today's press release and in Chiquita's SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Now I'd like to turn the call over to Fernando Aguirre. FERNANDO AGUIRRE (Chairman and CEO, Chiquita Brands International): Thank you, Bryan, and good afternoon and welcome. We are pleased to have this opportunity to discuss our third quarter 2008 financial and operating results. I will start by reviewing key highlights from the quarter. First, we increased net sales, as well as operating and net income, versus the year ago period. The pricing discipline and focus on profitability we have instilled in our banana business has improved our performance for the fifth consecutive quarter and it is a great testament to the strength of our strategy to drive profitable growth. We also reduced our debt significantly by using $75 million from the sale of Atlanta AG to repurchase $91 million of our senior notes at attractive prices which represent a long term value for our shareholders. The financial fundamentals of our business are strong. Our focus on debt reduction combined with our improved operating performance and refinancings earlier this year have resulted in a strong and healthy balance sheet with ample cash and liquidity. We are also in an enviable position in terms of debt maturities with no more than $20 million due in any year all the way through 2014. In fact, because of our strong financial position, the recent upheaval in financial markets has made Chiquita an even better investment alternative compared to many other companies. We also took an important step during the quarter towards our long term goal to become a global leader in branded, healthy fresh foods. We entered a joint venture agreement in value-added fresh produce in China with Haitong Food Group, a company known for its high quality products. We believe that their local expertise combined with our strong brand and marketing capabilities will position us to successfully enter this promising market with new products within the next year. We continue to make our products more convenient and available to consumers. We are pleased with the execution and results in Europe of Just Fruit in a Bottle, our line of 100 percent fresh fruit smoothies and we are confident in our long term success with this important innovation for Chiquita. We continue to gain distribution and to increase both revenue and value share in key markets and we are beginning to enter new convenience channels beyond grocery retail. Our premium Gourmet Café line of single serve salads is now available throughout the Midwest and our ACV distribution is climbing and nationally has already achieved a 20 percent level. You can now find Gourmet Café at Wal-Mart, Super Value, Albertsons, Meijer, Kroger, and HEB among others. We anticipate that this product will do well in traditional grocery outlets, and very importantly, can broaden to other channels, such as convenience stores, universities and cafeterias. Let me also comment more generally on the current global economic environment and how our business is well positioned to outperform despite these adverse conditions.
Now let me add some common sense to all this data. Bananas are a food staple and a great value compared to other food items, especially in North America where a banana sells on average for only $0.30. Nowhere else in the grocery store can consumers find such a great value in any food item. Second, with respect to salads, we are confident that we will succeed in this category over the long term although we have seen some shifts in consumer behavior. Based on recent data, we can draw the following conclusions. Consumers are still buying the same number of bagged salads on each of their trips to the grocery store. Even the most price-sensitive consumer group, households with earnings less than $55,000, have not changed their purchasing behavior. Dollar volume for heads of lettuce is actually down 1.5 percent year on year while value added salads are up 3.5 percent, so we know consumers are not trading down to commodities. However, consumers have been making fewer trips per month to the grocery store. And we have seen a small decline in unit volumes, although the category is growing on a dollar basis. In fact, total consumer consumption of all grocery items is up 3 percent in dollars and down 2.5 percent in units. Retail salads are performing at about the store average and better than some discretionary categories like indulgent snacks. Pricing for retail value added salads is up about 7 percent for the year, far less than many other food categories. For example, eggs are up 16 percent, bread is up 12 percent, and yogurt is up 9 percent. IRI data indicates that nearly 10 million new consumers tried the salad category during the last year which reinforces our long term view that this is a category with significant growth potential. Now, let me provide you with an update on our four operating initiatives outlined last quarter. These are central to improving earnings in the salads category.
In conclusion, our balance sheet and liquidity are in excellent shape. The fundamentals of our banana business are strong. We are clearly focused on making significant profit improvements in our salad operations and we are confident about the future of the business. In fact, we believe we are better positioned than perhaps ever before to deliver consistent shareholder value over the long term. And let me remind you why we believe this is the case:
I am confident that we will achieve the levels of profitability and growth that we expect over time. Much of this confidence comes from seeing that as a total company we have achieved operating income improvement of more than $80 million so far this year despite unprecedented cost increases, and we continue to expect to achieve significantly better full year operating results. While many other companies are restructuring their operations or addressing balance sheet concerns, we have already delivered in these areas and our year to date results demonstrate that we are a compelling long term investment opportunity. Now, our CFO, Jeff Zalla, will provide more detail on our financial and operating results for the quarter. Jeff? JEFF ZALLA (Chief Financial Officer, Chiquita Brands International):
Thank you, Fernando. The following are some key highlights of our performance in the third quarter.
Now, I'd like to turn to our segment results.
In our Banana segment, year over year sales rose 13 percent in the third quarter to $474 million and segment operating income rose to $22 million from $4 million in the year ago period. Banana segment operating results benefited the most from significantly higher banana revenues in North America, as well as the favorable impact of the euro. These benefits allowed us to overcome much higher industry costs, including the cost of purchased fruit and fuel, as well as lower volume primarily in the European market. Let me provide some additional perspective on recent price and volume trends in our primary markets.
In our Salads and Healthy Snacks segment, net sales increased by 2 percent from the year ago quarter to $325 million. Operating results were a loss of $8 million, compared to income of $7 million a year ago. Operating results in both periods included $6 million of investment spending behind the successful expansion of Just Fruit in a Bottle to six countries in Europe.
In our Other Produce segment, net sales decreased 14 percent to $42 million primarily due to the exit of owned operations in Chile. Operating income improved to break even, compared to a loss of $5 million a year ago principally because last year's $4 million charge for exiting owned operations in Chile did not repeat.
Turning to our outlook and to various performance and risk assumptions for the year which are summarized in the outlook section of today's press release.
To mitigate foreign currency risk, we hedge our net euro cash flow exposure. As I am sure you are aware, the euro has declined in value in recent weeks. Today's euro spot price of about $1.29 per euro compares to an average euro spot price in the fourth quarter of 2007 of $1.44 per euro. Our put options are providing valuable protection.
Let me now turn specifically to our outlook on operating performance for the year. So far this year, we have demonstrated enormous resilience in managing through a rising cost environment. We have generated total benefits of almost $380 million which have more than overcome almost $240 million of higher industry and other product supply costs that flow through our results. We have generated these benefits primarily through pricing, including fuel and other surcharges, especially in bananas, euro exchange rates, the benefits of our restructuring program, internal cost savings initiatives and fuel hedging gains.
In addition, I want to comment on a few other items that will impact results during the fourth quarter.
Finally, I'd like to comment on our capital structure which has placed us in an excellent position to withstand uncertainty in current global financial markets. As Fernando mentioned, in September and October, we applied $75 million of the proceeds from the sale of Atlanta AG to complete an open-market repurchase program for a combined $91 million in face amount of the company's senior notes. In connection with this program, we realized a $10 million gain in other income in the third quarter and we will realize a further gain of $4 million in the fourth quarter. These repurchases, at an average yield of 12 percent, represent an excellent long term value to the company and will reduce our future interest expense by close to $8 million per year. Our total debt to capital ratio now stands at 44 percent, close to our target of 40 percent. In addition, we have ample liquidity. We have $150 million in cash and $129 million in borrowing capacity under a five year revolver with a syndicate of highly rated commercial banks. Further, our debt maturity profile is very attractive. We don't have any more than $20 million in principal maturities in any year until 2014. So despite the current market turmoil, we are in excellent financial condition. In summary, we made steady progress in the third quarter. Our strategies are working to more than overcome full year increases in industry and other product supply costs. With the exception of significant recent weakness in the euro, we are pleased with the improving fundamentals of the banana business. We have a clear plan to improve performance in salads. Our innovation efforts are on track. Investors can take comfort in our very solid capital structure and financial discipline. And we continue to expect strong year over year improvement in operating performance for the full year 2008. At this time, Fernando and I would like to open the call for questions. We will take as many questions as time allows. Operator?
QUESTIONS AND ANSWERS VINCENT ANDREWS (Morgan Stanley): Hi. Good afternoon. Jeff, if I could just ask you, if I take out the $0.22 from the gain, you then lost $0.35 in the quarter versus a loss of $0.56 last year. And if I walk all the way back to June when you issued that guidance in your mid-quarter update and ultimately came to the conclusion that you were going to have a loss in line with last year, I mean this is much better than last year. And I'm just not clear from your prepared remarks exactly what took place relative to your earlier expectations that allowed you to do so much better. ZALLA: Well, on an operating income basis, Vincent, results were a little better than last year, $2 million better. On a net income basis, we were benefited, as you noted, by the $10 million gain on the senior note repurchase. We were also benefited by $3 million lower interest expense and a $6 million swing to our benefit in income tax. That led to the improvement in net income performance year on year. ANDREWS: Okay. So those were things that you did not-- obviously the $10 million I understand you didn't expect at the time because you hadn't closed Atlanta yet. But the balance of that was stuff that you were not anticipating? ZALLA: Correct. The focus at the time was on operating income performance. ANDREWS: Okay. Maybe that wasn't clear to me at that time. I guess my next question then is for Fernando. In the value added salad space, you talked about the category growing 3 percent. But if we break that 3 percent down into different segments, are they all growing at 3 percent or are certain segments of the category growing faster than others? And how do you feel that you are positioned relative to the different segment growth rates? AGUIRRE: Vincent, year to date Fresh Express is essentially stable versus year ago on year to date and the category is up about 3.5 percent. In general terms, we feel very good about this because as we've talked before, this is a category that some people were a little concerned that it may see an impact. But as I noted in my remarks, even heads of lettuce are down in unit terms. And we are up as a category as well. So we are very, very comfortable with the way we are seeing consumers react. As I mentioned in my prepared remarks, we are some of the most basic food categories. And the fact of the matter is that even with the financial turmoil, we all have to eat and we all have to eat some of the most basic food items. And both bananas and salads are some of the most basic ones. So we're feeling pretty confident that this is going to at least continue this way. And frankly once the financial situation gets better, then we will recuperate the growth. ANDREWS: Okay. I guess one last question then I'll pass it along. Just generically in your conversations with retailers, this year has been a pretty good environment for raising prices kind of in anything in food simply because the retailers have been pretty well aware of the substantial input cost inflation that has taken place across food. And as that is starting to unwind, are you starting to see, whether it is in relation to what you do or just kind of more broadly speaking, are you starting to see any retailer pushback on further price increases? AGUIRRE: Well, I can only speak for our categories as far as how retailers have reacted. In general terms, they're pretty happy with our performance and they are very happy with their performance in our categories and with our brands. As we reported before, we have much better profitability, but the retailers also made better money. If you compare the pricing, for example, in value added salads of 7 percent for the year and as I mentioned eggs are up 16 percent, bread is up 12 percent, yogurt is up 9 percent. So in general terms, even with our more significant price increases in salads, it is still a category that hasn't grown and hasn't increased as much as the others. And bananas, the best thing I can tell you is, as I mentioned, one banana cost $0.30. I can't find any other food item in the store as a consumer for that kind of a value. ANDREWS: Okay. So you're not seeing any pushback? AGUIRRE:No. ZALLA: Vincent, just one more comment. Your first question about results for the quarter, notice that these third quarter results in '08 reflect a $4 million benefit on the income tax line. A big portion of that are items that were resolved favorably to the company during the quarter. Some were resolutions of audits that were underway. Some were expiration of statute of limitations. Those are the kinds of things that are difficult to predict in advance. ANDREWS: Thank you, Jeff. That's very helpful. KAREN ELTRICH (Goldman Sachs): Thank you. You guys, even before the Atlanta AG sale, are generating a ton of free cash flow this year. How are you prioritizing use of that free cash flow in terms of share repurchases, debt reduction and potential acquisitions? ZALLA: Karen, we are focused quite a bit on improving operating performance, as well as the cash flow, as you note. Our number one priority has been debt reduction. We've been clear and steadfast about that commitment for several years and we have acted on it with discipline all along, including in this quarter with the $75 million repurchase of senior notes. We think at a 12 percent yield that's a terrific investment and that helps improve the balance sheet while keeping tremendous liquidity both in $150 million of cash on the balance sheet and $129 of borrowing capacity under the revolver. And the Board obviously made a choice in prioritization when we purchased the senior notes. At present, we don't have significant acquisitions on the horizon and our priorities will remain debt reduction at least until we hit our target of 40 percent total debt to capital. ELTRICH: Great. And definitely congratulations to you on buying in the bonds. I wish more companies saw the return on capital of that investment. Second, with salad, it sounds like you're doing a lot of the right things to get the business back on track. What do you think timing is to return to profitable growth? And is it hinged upon the integration of the businesses or is there also do you think that you need to rev up the line a little bit more with new product introductions? What are the key catalysts we should be looking for in salads? AGUIRRE:That's a good question, Karen. And I'll tell you since August-- essentially in the middle of the summer, we began incorporating and executing our plan. Based on what I described, 30 percent of retail contracts have been renewed at higher prices. The Verdelli facility is essentially fully integrated. And we'll see the effects of that in the next two or three months. We've eliminated more than 300 product SKUs. We have the pricing mechanisms which incidentally are very, very transparent as far as fuel surcharge is concerned. So it goes up and our contracts go up. And if it goes down, they will go down. But that's been extremely transparent. And yet we have also made some permanent price moves on contracts. So we are very, very comfortable with that. And then we're moving on the trade spending. So each one of these items we already seeing some of the results. I do expect that at the beginning of next year we'll see even more results. And it will just continue. We're not delivering the target margins that we had established for this category. And we have our management is very disciplined to follow their execution to get to those target margins. ELTRICH: Great. Thank you very much. HEATHER JONES (BB&T Capital Markets): Good evening. Good job on the balance sheet. It looks very good. I have a few questions. I first want clarification on the comments on EU pricing in October. You said a bit lower than last year. I was wondering I mean are we talking about a low single digit rate? ZALLA: Yes. It's slightly below for us, Heather. Recall that last year Hurricane Dean hit in August. It temporarily boosted pricing in the market, so October got the biggest benefit of that last year. But it was pretty short lived. So compared in this month of October to a year ago, pricing on a local currency basis for us is a little lower although the comps get a little better in November and December. JONES: As far as the EU goes, have you seen any changes in purchasing behavior over the past month or so? And just wondering given the rapid decline in the Euro what your perspective or expectations are for potential improvement in local pricing. ZALLA: We have not seen any significant change in consumer buying behavior in the category. We've seen local prices up to this week remain pretty stable at the bottom end of the market despite the currency reduction. Although, it stands to reason that cannot remain for long. Any reasonable observer would expect that local euro pricing is going to respond if the dollar value euro remains weak for an extended period of time. JONES: Now, in the press release it talks about in the Fresh Express business $3 million due the amortizations of pre-paid customer incentives. I was wondering if you could explain that. ZALLA: Sure. It was an accounting adjustment that we made in this third quarter to correct for the amortization of some customer incentives. And while the amounts were not material in any prior period, the accumulated result was $3 million for this third quarter. That was for a customer for which we've renegotiated a contract. And for the next two years, the terms are more favorable to us than they have been up to now. JONES: This is not going to be a hit every quarter? ZALLA: Correct. It's one time. JONES: Okay. And as far as-- I was wondering in staying with Fresh Express, I was wondering if you could elaborate. It sounded like in the press release that you raised your other cost guidance by I think it was $20 million or somewhere in that range due to the issues with Verdelli. I was just wondering if you could give us more color as to what's actually going on there, why it's worse than you initially expected and your confidence that this will be cleared up by early '09. ZALLA: Heather, if we did say $20 million in the third quarter which already is reflected in our results and $20 million for the fourth quarter, it relates to the Verdelli. So for example, we're integrating the network of processing facilities on logistics and distribution. So we're streamlining the SKUs. So we've had excess trucking and logistics costs, cross docking costs, excess overhead costs, other costs in the production environment that we are incurring because we are not yet operating at the level of efficiency that we expect. JONES: So is this like--this is like $40 million? ZALLA: Well, it's not all Verdelli. Remember that the other major element is lower owned farm productivity in bananas. So we have seen both lower productivity than expected in Central Americas due particularly to an extended drought earlier this year in Costa Rica and Panama especially. And we've seen only very slight impact from recent flooding. But overall, our costs are higher as a result of lower productivity. JONES: In Central America and productivity at Verdelli? ZALLA: Correct. JONES: And what is the status on the consolidation of Verdelli? ZALLA: As Fernando said, we expect the consolidation to be complete by the end of the year. So you'll see significant improvements in that in Q1. AGUIRRE: And just on that point, Heather, the plans originally when we made the acquisition was to integrate within three years. And because of the restructuring decision we made a little bit after the acquisition, we accelerated those plans. And in the end, it is going to end up being about a year and a half after acquisition when we will have the integration completely done. So from all practical purposes, we're ahead of schedule and will be doing the integration in about half of the time from where we originally started. JONES: I don't know how much this has cost you all this year, but it sounds-- the Verdelli consolidation sounds like it is a sizable amount. I'm not really concerned with this year, but wondering about '09. I mean are these-- I guess Q2 through Q4 it sounds like it has probably cost you on the order of in excess of $20 million. Is that-- are these costs that will go away next year and that we can expect to be added to Fresh Express earnings or will some of these costs recur in '09? Just if you could give us some color on that. ZALLA: The large majority of these costs are going to go away. The inefficiencies are going to go out of the network because we'll take facilities out. We'll have less freight. We'll have less cross docking. We'll have more efficient production and manufacturing and distribution process too. JONES: And as far as the recent flooding we have seen in-- I saw some number out of Honduras about 3 million to 4 million boxes gone. And I think there was some flooding in Guatemala. Did any of this affect your farms? ZALLA: For us, it affected less than-- fewer than 100 hectares in Honduras. And the estimate that you cited seems high to us based on what we know. JONES: For the total country? ZALLA: That's correct. Now, some of the independent grower farms that supply us in Honduras have been flooded, but not with significant direct impact to us. JONES: And what about Guatemala? ZALLA: The impact has been small overall and in Guatemala not on Chiquita owned farms, only in certain independent grower farms and to a smaller scale. JONES: Okay. And then my final question is going into Q4 what kind of benefit do you all anticipate seeing from Asia, the pricing strength that we're seeing in Japan? ZALLA: Well, we do expect benefit in Asia due to price, and as well, lower costs. But remember that our business there is smaller than that of some of our competitors so that the dollar magnitude of the impact won't be as great for us as it would be for others. JONES: If I remember correctly in Q4 of last year Asia was a big hit to you all. So I mean not only would you-- I think it was a $6 million hit to EBIT in Q4 of last year. Is that-- would you expect to break even there this year or possibly make money. I mean is it going to be a big delta for you year on year? ZALLA: It will be this year. That's right. We had in last year's fourth quarter some quality claims in the Middle East markets that will not repeat this year. And we are, as you mentioned, experiencing significantly higher market pricing. CARLA CASCELLA (JP Morgan Chase Co): Hi. How are you? My question relates to the pension. I'm wondering if you have any forecast yet for '09 whether you'll have to contribute a greater amount into the pension given the stock market decline. ZALLA: We do every year an actuarial calculation at the end of the year. And we contribute in cash about $9 million a year toward the under funded pension obligation. Those are obligations that are long term in nature mostly to retirees in our tropical operations. So it's feasible that we could be required to contribute several million dollars more next year, but it's not going to be a dramatic amount of money. And we'll know upon the completion of the actuarial review in the fourth quarter. CASELLA: That's great. Thanks a lot. That's all I had. BRYAN HUNT (Wachovia Securities): Good afternoon. I was wondering, Jeff or Fernando, if you could kind of rank the potential benefits in the salad business. I mean cutting 300 SKUs sounds like a substantial number. I was wondering if you could quantify the total SKUs as one example. Again, if you could just talk about the priorities and the opportunities in the salad business. And the other part of that discussion if you could talk about-- when are you going to have your total customer base on the contractual pass through of fuel and/or reset of your contracts overall. And then I've got a follow up. ZALLA: First, as to fuel, essentially all the contracts in salads are now on our new fuel surcharge program that more quickly and fairly shares fuel cost with customers. So that is done and completed. In bananas, that's true for all of our customers and it has been true since the end of 2005. That program works extremely well. In terms of the salad business, the priorities are really as Fernando laid them out in the discussion. Price is number one. We'll be keenly focused on renegotiating contracts with customers that allow us to earn a return on our cost to capital. We're clearly focused on overcoming the temporary network inefficiencies that we have been experiencing the last couple of quarters. And we are likewise focused on making our trade spending more efficient. HUNT: Okay. And, Jeff, looking at pricing and meeting that cost to capital, when do you think you're, again, through all your contracts negotiating higher pricing? Is that a Q1/Q2 event next year? ZALLA: Most will be completed by the end of Q1 next year. HUNT: Okay. And then additionally looking at the inefficiencies and being able to pull those out of the system, is that a Q1 event? ZALLA: Yes. By Q1 that network will be in place, meaning the full efficient integration of the Verdelli plant. HUNT: Okay. And my last question is if the Board liked bonds at 12 percent, I think they are trading about 15 percent now. Does that imply that I mean that's the focus of debt reduction? ZALLA: We take each decision separately, Bryan. We did complete the program in October, the $75 million which was the amount that we chose to invest in the notes. That is to balance our long term goal toward total debt reduction and to balance the desire to always maintain ample liquidity. So we'll continue to look at opportunities to employ capital in the best way we see fit, but we are not going to speculate as to which instruments we would apply that cash to. HUNT: And if I look at your cash balance, how much do you need to run the business out of that $150 million? How much of that is excess? ZALLA: You know on a normal operating basis, we think of $35 million as a baseline level of cash. REZA VAHABZADEH (Barclays): Good afternoon. On the pricing front, on a local currency basis in Europe you mentioned October was down a little more than mid-single digits. Would you anticipate a more balanced pricing trend in the rest of the quarter generically speaking based on supply and demand sort of flattish. AGUIRRE: Reza, what I said was that local currency pricing is down a little. It's only down a little at present for us, versus October a year ago. Recall that a year ago October was strong in the market because of the aftermath of Hurricane Dean. That benefit a year ago was short lived. The local currency comp would naturally get better for November and December. They should get even better assuming that the trade increased local pricing in order to compensate for Euro weakness. That's what one would expect people to do. So we'll see the degree to which it actually comes to fruition in the balance of the year. VAHABZADEH: And on the euro front, you are obviously fairly well hedged. I think you mentioned 75 percent for the next five quarters give or take. ZALLA: That's correct. And we're hedged to the degree of a little more than 30 percent for all of 2010 as well. VAHABZADEH: So the portion that is not hedged, I guess that would be a partial offset to the portion that is hedged and to the extent that the euro is now down 10 percent year over year? ZALLA: Correct. We hedge with put option and we get the full benefit of any decline in the Euro below the strike price to the degree that we're hedged. We're hedged 75 percent the next five quarters, as you say, and a further 32 percent for all of 2010 at levels that are pretty strong, $1.40 for the balance of this year, $1.39 for next year, and $1.41 for 2010. And the portion that is unhedged, naturally, we are not protected against. So that would be a negative unless local pricing responds. VAHABZADEH: Got it. Okay. And now on the bond repurchases the Euro restrictions in your bank agreements and your bond agreements, do they allow for more bond purchases post your October purchases? And if so, what's the basket remaining? ZALLA: They do, Reza. I don't have the amount off the top of my head. There is some amount permitted. But it is, I believe, less than the amount that we have already completed. VAHABZADEH: Okay. Got it. The packaged salad category, Fernando, based on Nielsen data it looks to be softening at least a bit in the retail channel. Obviously, there are other channels that we don't see as well. How should we think about packaged salad category going forward? Is it as-- are the volume trends as vibrant as you would have expected or is there need for more marketing? AGUIRRE: The volume trends are not as vibrant as we expected. But actually, the category according to IRI-- you said Nielsen. But according to our data from IRI, year to date the category is up 3.5 percent. And it has been roughly like that even recently. So give or take a few, anywhere between 2 percent to 3 percent even in the last four to eight weeks. So I'm-- we're seeing category growth. Now, it is not the type of growth that we want. And therefore, yes, we are spending time and money in making sure that we are talking to the consumer. That was one of the comments I made in my prepared remarks, our spending. We're trying to shift some trade spending into consumers so that we can revitalize the growth with the consumers. But it is-- the fact of the matter is this is a category with tremendous opportunity. 10 million new consumers came in this year. If we can have some of those repeat then the category will start seeing even better growth than we have seen so far. VAHABZADEH: And then lastly for Jeff, D&A was $5 million lower year over year. Should we expect the same kind of D&A year over year decline in the fourth quarter, Jeff? ZALLA: We should, Reza. A few things have happened. One, we sold the ships in mid-year 2007. And some of the assets that we acquired with Fresh Express in mid-2005 only had a three year life, so they were fully depreciated as of mid-year. That's why you began to see a benefit in Q3 and it should continue. VAHABZADEH: And is that gain on that ship still running through your P&L? ZALLA: It is and it will continue to until 2014, because it's amortized over the initial seven year life of the charter back period on the primary vessels we sold. VAHABZADEH: Still around $4.5 million? ZALLA: Per quarter. Correct. ZALLA: Thank you all very much for your questions and for joining us today. We look forward to updating you on our continued progress in the quarters ahead. Thanks again.
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[The information contained in this transcript is a textual representation of an audio presentation. Efforts are made to provide an accurate transcription; however, there may be inadvertent errors, omissions or inaccuracies in the reporting of the conference call.]
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