Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of April 30, 2003, there were 39,907,921 shares of Common Stock outstanding.

Table of Contents

CHIQUITA BRANDS INTERNATIONAL, INC.

TABLE OF CONTENTS

Table of Contents

Part I - Financial Information

Item 1 - Financial Statements

CHIQUITA BRANDS INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In thousands, except per share amounts)

*See Notes to Consolidated Financial Statements, including “Basis of Presentation” describing the Reorganized Company and Predecessor Company and “Accounting Change” describing the Company’s  change in method of accounting for certain tropical production and logistics expenses in interim periods.

3

Table of Contents

CHIQUITA BRANDS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands, except share amounts)

* Includes the accounts of Scipio GmbH & Co., which was acquired in March 2003. (See Notes to Consolidated Financial Statements – "Acquisition of German Distributor").

See Notes to Consolidated Financial Statements.

4

Table of Contents

CHIQUITA BRANDS INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
(In thousands)

*See Notes to Consolidated Financial Statements, including “Basis of Presentation” describing the Reorganized Company and Predecessor Company.

5

Table of Contents

CHIQUITA BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Basis of Presentation

     Chiquita Brands International, Inc. (“CBII”) and its subsidiaries (collectively, “Chiquita” or the “Company”) operate as a leading international marketer, producer and distributor of quality fresh fruits and vegetables and processed foods.  On March 19, 2002, CBII, a parent holding company without business operations of its own, completed its financial restructuring when its pre-arranged Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Plan” or “Plan of Reorganization”) became effective.  For financial reporting purposes, the Company used an effective date of March 31, 2002.  References in these financial statements to “Predecessor Company” refer to the Company prior to March 31, 2002.  References to “Reorganized Company” refer to the Company on and after March 31, 2002, after giving effect to the issuance of new securities in exchange for the previously outstanding securities in accordance with the Plan, and implementation of fresh start accounting.  The securities issued pursuant to the Plan and the fresh start adjustments are described in “Financial Restructuring Items” below and in the Company’s 2002 Annual Report on Form 10-K.

     Interim results for the Company are subject to significant seasonal variations and are not necessarily indicative of the results of operations for a full fiscal year.  The Company’s results during the third and fourth quarters are generally weaker than in the first half of the year, due to increased availability of competing fruits and resulting lower banana prices.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair statement of the results of the interim periods shown have been made.  See Notes to Consolidated Financial Statements included in the Company’s 2002 Annual Report on Form 10-K for additional information relating to the Company’s financial statements.

Accounting Change

     In the first quarter of 2003, the Company changed its method of accounting for certain tropical production and logistics expenses during interim periods. Previously, the Company used a standard costing method which allocates those costs evenly throughout the year on a per box basis.  The Company has now adopted a costing method which recognizes costs as incurred.  The accounting change has no effect on total-year costs or results.  The Company has determined that this is a change to a preferable accounting method, particularly given the estimations of full year production and logistics costs required by the previous method, which were susceptible to change depending on weather, labor or other factors.  The Company’s independent auditors, Ernst & Young, have agreed that this is a change to a preferable method, as indicated in their letter included in Exhibit 18 to this Quarterly Report on Form 10-Q.

     Had the Company used the new cost accounting method for the first quarter of 2002, the net loss would have increased by $18 million to $416 million ($5.31 per old share outstanding prior to the Company’s financial restructuring).  The Consolidated Statement of Income column entitled “Pro Forma for Accounting Change” provides the Company’s results on a pro forma basis as if this accounting change had been adopted on January 1, 2002.  Had the previous accounting policy been used for the first quarter of 2003, net income would have been $40 million ($1.00 per share).

6

Table of Contents

Earnings Per Share

     Basic and diluted earnings per common share (“EPS”) are calculated as follows (in thousands, except per share amounts):

     The weighted average common shares outstanding for the Reorganized Company include 62,060 shares held in a “rabbi trust” for certain members of management.

     The earnings per share calculations for the Predecessor Company are based on shares of common stock outstanding prior to the Company’s emergence from Chapter 11 proceedings on March 19, 2002. Upon emergence, these shares were cancelled and the Company issued 40 million shares of a new series of Common Stock.

     The assumed conversions to common stock of the Company’s previously outstanding stock options, preferred stock and preference stock, and the assumed exercise of outstanding warrants, stock options and other stock awards, are excluded from the diluted EPS computations for periods in which these items, on an individual basis, have an anti-dilutive effect on diluted EPS.  The Company’s previously outstanding stock options and preferred and preference stock were all cancelled pursuant to the Company’s Plan of Reorganization.  In connection with and following the financial restructuring, new stock options, stock awards and warrants to purchase Common Stock were issued.

7

Table of Contents

Acquisition of German Distributor

     On March 27, 2003, the Company acquired the remaining equity interests in Scipio GmbH & Co. (“Scipio”), a German limited partnership that owns Atlanta AG (“Atlanta”).  Atlanta is the primary distributor of Chiquita products in Germany and Austria and has been the Company’s largest customer in Europe for many years.   Prior to the acquisition, Chiquita had held a 5% limited partnership interest in Scipio and loans secured by pledges of substantially all of its other limited partnership interests, and accounted for this investment under the equity method.  Chiquita had made the loans in the late 1980s and early 1990s in order to strengthen its relationship with Atlanta.  The loans had been made to four companies that had used the proceeds to purchase substantially all of the limited partnership interests in Scipio.  Under the terms of the acquisition, the Company exchanged its interests in the loans for the corresponding underlying Scipio limited partnership interests.  After this exchange, Chiquita owned 97% of Scipio.  The Company also acquired the general partnership interest and all of the remaining limited partnership interests in a step-acquisition.  The total cash paid by the Company to acquire all of the equity interests in Scipio was approximately $1 million.  Coinciding with the acquisition, the Chiquita Brands, Inc. (“CBI”) credit facility was amended and restated to add a new $65 million term loan to a subsidiary of CBI, the proceeds of which were lent to Atlanta and used to repay existing Atlanta lenders. 

     Scipio/Atlanta’s first quarter 2003 net loss of $4 million, which was primarily due to severance costs and asset write-downs, was included in Chiquita’s cost of sales because Scipio/Atlanta was an investment accounted for under the equity method prior to the March 27, 2003 acquisition.  For the first quarter of 2002, Chiquita’s cost of sales included breakeven results for Scipio/Atlanta.  Starting with the second quarter of 2003, Scipio/Atlanta’s operating results will be consolidated in Chiquita’s financial statements.  The balance sheet of Scipio/Atlanta is included in the Company’s Consolidated Balance Sheet as of March 31, 2003.  Summarized balance sheet information at March 31, 2003 for Scipio/Atlanta, as well as the subsidiary of CBI that incurred $65 million of indebtedness to refinance Atlanta indebtedness, follows (in thousands):

Summarized income statement information for Scipio follows (in thousands):

8

Table of Contents

Discontinued Operations

     In December 2002, the Company sold its interest in the Castellini group of companies (“Castellini”), a wholesale produce distribution business in the midwestern United States, for approximately $45 million, consisting of $21 million in cash plus debt assumed by the buyer.

     In January 2003, the Company sold Progressive Produce Corporation (“Progressive”), a California packing and distribution company, for approximately $7 million in cash.

     On March 6, 2003, the Company entered into a definitive agreement to sell Chiquita Processed Foods (“CPF”) to Seneca Foods Corporation for $110 million of cash and approximately 968,000 shares of Seneca preferred stock convertible into an equal number of shares of Seneca series A common stock, worth about $17 million based on Seneca’s April 30, 2003 closing price.  Seneca will assume CPF debt, which was $88 million at March 31, 2003 and $70 million at April 30, 2003.  The Company expects to close the transaction during the second quarter.  For the quarter ended March 31, 2003, CPF obtained a waiver to certain financial covenants under its debt agreement which are required to be met at the end of each quarter.  Because the Company anticipates selling CPF in the second quarter, it did not seek to amend the covenants on an ongoing basis.

     The financial information of Castellini and Progressive were previously included in the Fresh Produce business segment and CPF was previously included in the Processed Foods business segment.  Their results are now included as discontinued operations for all periods presented in the Consolidated Financial Statements. 

     A gain of approximately $2 million on the sale of Progressive was recognized in discontinued operations in the first quarter of 2003.  Loss from discontinued operations presented below includes interest expense of $1 million for the three months ended March 31, 2003 and $2 million for the three months ended March 31, 2002 on debt assumed or to be assumed by the buyers. 

     In the financial information presented below, each of the discontinued operations is included through the date of its sale (in thousands):

9

Table of Contents

Subsequent Event

     On April 25, 2003, the Company signed an agreement to sell the assets of its Armuelles, Panama banana production division for approximately $20 million to a worker cooperative led by members of the Armuelles banana workers’ union.  The agreement includes a 10-year contract to supply Chiquita with fruit at market prices.  Proceeds of the sale will include approximately $15 million in cash financed by a Panamanian bank and a $5 million note receivable, which is payable based on the volume of bananas produced by the cooperative at a rate of $.20 per box.  The sale agreement requires Chiquita to pay approximately $20 million for workers’ severance and certain other liabilities of the Armuelles division, which have been previously accrued.  The Company expects the transaction to close in the second quarter and result in a gain, the amount of which will be determined upon the closing of the sale.

Accounting Pronouncements

     As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.”  To give effect to the new standard, the Company recorded a goodwill write-down of $145 million as a cumulative effect of a change in method of accounting.  The write-down resulted from applying the SFAS No. 142 requirement to evaluate goodwill using discounted cash flows rather than the undiscounted cash flow methodology prescribed by the previous standard.  In addition, under this new standard, goodwill and other intangible assets with an indefinite life are no longer amortized but are reviewed at least annually for impairment.

     SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” was effective beginning January 1, 2002.  Under this statement, subsidiaries that have been disposed of or classified as held for sale, and have operations and cash flows that can be clearly distinguished from the rest of the Company, are to be reported as discontinued operations.  The Company sold its interest in Castellini in December 2002 and Progressive in early January 2003, and reached a definitive agreement to sell CPF in March 2003.  In accordance with the new standard, financial information for these businesses are reported in discontinued operations for all periods presented in which they were owned.

      SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”  was issued in April 2002. SFAS No. 145 effectively prohibits gains or losses resulting from extinguishment of debt from being classified as extraordinary items.  Any such gains or losses classified as extraordinary in a prior financial statement period must be reclassified.  The new standard became effective for fiscal years beginning after May 15, 2002, and early application was encouraged.  The Company chose to adopt this standard early and, accordingly, the Company’s $154 million gain on the extinguishment of debt associated with the March 2002 financial restructuring was included in financial restructuring items in the Consolidated Statement of Income.

10

Table of Contents

Inventories (in thousands)

Segment Information (in thousands)

     Financial information for the Company’s business segments is as follows:

11

Table of Contents

Hedging

     At March 31, 2003, the Company had euro-denominated forward contracts requiring the conversion of approximately €165 million of sales in 2003 and €30 million of sales in 2004 at average rates of $0.99 and $1.04 per euro, respectively.  The Company also had euro-denominated option contracts which allow for conversion of approximately €40 million of sales in 2003 at rates ranging from $0.87 per euro to $0.99 per euro.  Additionally, the Company had zero-cost collars which ensure conversion of approximately €30 million of sales in 2003 at rates between $1.05 and $1.12 per euro, and €30 million of sales in 2004 at rates between $1.04 and $1.08 per euro. The Company also had 3.5% Rotterdam barge fuel oil forward contracts at March 31, 2003 that require conversion of approximately 135,000 metric tons of fuel oil in 2003 and 15,000 metric tons in 2004 at prices ranging from $120 to $150 per metric ton.  The fair value of the foreign currency option contracts, zero-cost collars and the fuel oil forward contracts at March 31, 2003 was not significant. The fair value of the foreign currency forward contracts at March 31, 2003 was a loss of approximately $15 million, which was included in accrued liabilities.  The unrealized loss on these contracts deferred in accumulated other comprehensive loss at the end of the first quarter was approximately $15 million, substantially all of which is expected to be reclassified to net income during the next twelve months.  During the first quarter of 2003, the change in the fair value of these contracts relating to hedge ineffectiveness was not significant.

Financial Restructuring Items

     The Company’s emergence from Chapter 11 bankruptcy proceedings on March 19, 2002 resulted in a new reporting entity and adoption of fresh start reporting in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.”  The Consolidated Financial Statements as of and for the quarter ended March 31, 2002 reflect reorganization adjustments for the discharge of debt and adoption of fresh start reporting.  Accordingly, the estimated reorganization value of the Company of $1,280 million, which served as the basis for the Plan approved by the bankruptcy court, was used to determine the equity value allocated to the assets and liabilities of the Reorganized Company in proportion to their relative fair values in conformity with SFAS No. 141, “Business Combinations.”

     Financial restructuring items for the quarter ended March 31, 2002, totaling a net charge of $286 million, resulted from the following:

The fresh start adjustments to the carrying values of the Company’s assets and liabilities were based upon the work of outside appraisers, actuaries and financial consultants, as well as internal valuation estimates using discounted cash flow analyses, to determine the relative fair values of the Company’s assets and liabilities.

12

Table of Contents

Comprehensive Income (Loss) (in thousands):

Stock-Based Compensation

     Beginning January 1, 2003, the Company recognized stock option expense in its results of operations for new stock options granted after December 31, 2002.  Prior to January 1, 2003, the Company accounted for stock options in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”  The table below illustrates the effect of stock compensation expense on all periods as if the Company had always applied the fair value method under SFAS No. 123, “Accounting for Stock-Based Compensation.”