Exhibit 99.1 - CQB 10-K 2012.12.31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Chiquita Brands International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flow present fairly, in all material respects, the financial position of Chiquita Brands International, Inc. and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Assessment of the Company's Internal Control over Financial Reporting appearing in Exhibit 13 of the Company’s Annual Report on Form 10-K. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 18, 2013, except with respect to our opinion on the consolidated financial statements insofar as it relates to the guarantor information presented in Note 22, as to which the date is December 23, 2013
Chiquita Brands International, Inc.
CONSOLIDATED STATEMENTS OF INCOME
|
| | | | | | | | | | | |
(In thousands, except per share amounts) | 2012 | | 2011 | | 2010 |
Net sales | $ | 3,078,337 |
| | $ | 3,139,296 |
| | $ | 3,227,432 |
|
Cost of sales | 2,743,040 |
| | 2,698,031 |
| | 2,770,431 |
|
Selling, general and administrative | 275,895 |
| | 301,465 |
| | 315,749 |
|
Depreciation | 53,736 |
| | 51,533 |
| | 51,172 |
|
Amortization | 9,418 |
| | 9,394 |
| | 9,844 |
|
Equity in losses of investees | 33,433 |
| | 6,314 |
| | 2,925 |
|
Reserve for (recovery of) grower receivables, net | (664 | ) | | 32,967 |
| | 2,148 |
|
Restructuring and relocation costs | 35,429 |
| | 5,852 |
| | — |
|
Gain on deconsolidation of European smoothie business | — |
| | — |
| | (32,497 | ) |
Goodwill and trademark impairment | 181,884 |
| | — |
| | — |
|
Operating income (loss) | (253,834 | ) | | 33,740 |
| | 107,660 |
|
Interest income | 3,131 |
| | 4,204 |
| | 5,532 |
|
Interest expense | (45,299 | ) | | (51,586 | ) | | (57,058 | ) |
Other income (expense), net | (1,793 | ) | | (11,722 | ) | | 2,889 |
|
Income (loss) from continuing operations before income taxes | (297,795 | ) | | (25,364 | ) | | 59,023 |
|
Income tax (expense) benefit | (105,239 | ) | | 82,200 |
| | 1,600 |
|
Income (loss) from continuing operations | (403,034 | ) | | 56,836 |
| | 60,623 |
|
Loss from discontinued operations, net of income taxes | (1,983 | ) | | — |
| | (3,268 | ) |
Net income (loss) | $ | (405,017 | ) | | $ | 56,836 |
| | $ | 57,355 |
|
| | | | | |
Continuing operations | $ | (8.75 | ) | | $ | 1.25 |
| | $ | 1.34 |
|
Discontinued operations | (0.04 | ) | | — |
| | (0.07 | ) |
Earnings (loss) per common share – basic | $ | (8.79 | ) | | $ | 1.25 |
| | $ | 1.27 |
|
| | | | | |
Continuing operations | $ | (8.75 | ) | | $ | 1.23 |
| | $ | 1.32 |
|
Discontinued operations | (0.04 | ) | | — |
| | (0.07 | ) |
Earnings (loss) per common share – diluted | $ | (8.79 | ) | | $ | 1.23 |
| | $ | 1.25 |
|
See Notes to Consolidated Financial Statements.
Chiquita Brands International, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | | | | | |
(In thousands) | 2012 | | 2011 | | 2010 |
Net income (loss) | $ | (405,017 | ) | | $ | 56,836 |
| | $ | 57,355 |
|
Other comprehensive income (loss), net of tax where applicable: | | | | | |
Unrealized foreign currency translation gains (losses) | (194 | ) | | 241 |
| | 87 |
|
| | | | | |
Change in fair value of available-for-sale investment | 1,222 |
| | (224 | ) | | (126 | ) |
| | | | | |
Unrealized gains (losses) on derivatives for the period | (16,928 | ) | | 38,903 |
| | 28,709 |
|
(Gains) reclassified from OCI into net income | (17,293 | ) | | (44,824 | ) | | (5,805 | ) |
Unrealized gains (losses) on derivatives | (34,221 | ) | | (5,921 | ) | | 22,904 |
|
| | | | | |
Actuarial gains (losses) for the period | 189 |
| | (3,846 | ) | | (6,661 | ) |
Amortization included in pension cost, net of ($283), $0 and $0, respectively, of income tax expense (benefit) | 789 |
| | 1,000 |
| | 1,095 |
|
Defined benefit pension and severance plans | 978 |
| | (2,846 | ) | | (5,566 | ) |
| (32,215 | ) | | (8,750 | ) | | 17,299 |
|
Comprehensive income (loss) | $ | (437,232 | ) | | $ | 48,086 |
| | $ | 74,654 |
|
See Notes to Consolidated Financial Statements.
Chiquita Brands International, Inc.
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| December 31, |
(In thousands, except share amounts) | 2012 | | 2011 |
ASSETS | | | |
Current assets: | | | |
Cash and equivalents | $ | 51,026 |
| | $ | 45,261 |
|
Trade receivables, less allowances of $19,028 and $6,405, respectively | 285,151 |
| | 266,555 |
|
Other receivables, net | 65,109 |
| | 66,804 |
|
Inventories | 220,041 |
| | 238,279 |
|
Prepaid expenses | 40,814 |
| | 43,177 |
|
Other current assets | 18,335 |
| | 44,597 |
|
Total current assets | 680,476 |
| | 704,673 |
|
Property, plant and equipment, net | 395,299 |
| | 369,687 |
|
Investments and other assets, net | 81,528 |
| | 132,233 |
|
Trademarks | 426,085 |
| | 449,085 |
|
Goodwill | 18,095 |
| | 176,584 |
|
Other intangible assets, net | 96,279 |
| | 105,697 |
|
Total assets | $ | 1,697,762 |
| | $ | 1,937,959 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Current portion of long-term debt | $ | 65,008 |
| | $ | 16,774 |
|
Accounts payable | 274,624 |
| | 251,572 |
|
Accrued liabilities | 140,700 |
| | 114,979 |
|
Total current liabilities | 480,332 |
| | 383,325 |
|
Long-term debt, net of current portion | 540,517 |
| | 555,705 |
|
Accrued pension and other employee benefits | 75,144 |
| | 76,903 |
|
Deferred gain – sale of shipping fleet | 20,204 |
| | 34,553 |
|
Deferred tax liabilities | 111,628 |
| | 43,248 |
|
Other liabilities | 99,535 |
| | 44,155 |
|
Total liabilities | 1,327,360 |
| | 1,137,889 |
|
Commitments and contingencies | — |
| | — |
|
Shareholders' equity: | | | |
Common stock, $.01 par value (46,317,433 and 45,777,760 shares outstanding, respectively) | 463 |
| | 458 |
|
Capital surplus | 834,560 |
| | 827,001 |
|
Accumulated deficit | (424,096 | ) | | (19,079 | ) |
Accumulated other comprehensive loss | (40,525 | ) | | (8,310 | ) |
Total shareholders' equity | 370,402 |
| | 800,070 |
|
Total liabilities and shareholders' equity | $ | 1,697,762 |
| | $ | 1,937,959 |
|
See Notes to Consolidated Financial Statements.
Chiquita Brands International, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Common Shares | | Common Stock | | Capital Surplus | | (Accumulated Deficit) Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders' Equity |
December 31, 2009 | 44,818 |
| | $ | 448 |
| | $ | 809,984 |
| | $ | (133,270 | ) | | $ | (16,859 | ) | | $ | 660,303 |
|
Comprehensive income | — |
| | — |
| | — |
| | 57,355 |
| | 17,299 |
| | 74,654 |
|
Modification of LTIP awards | — |
| | — |
| | (6,363 | ) | | — |
| | — |
| | (6,363 | ) |
Stock-based compensation | 480 |
| | 5 |
| | 14,028 |
| | — |
| | — |
| | 14,033 |
|
Shares withheld for taxes | — |
| | — |
| | (2,639 | ) | | — |
| | — |
| | (2,639 | ) |
December 31, 2010 | 45,298 |
| | $ | 453 |
| | $ | 815,010 |
| | $ | (75,915 | ) | | $ | 440 |
| | $ | 739,988 |
|
Comprehensive income (loss) | — |
| | — |
| | — |
| | 56,836 |
| | (8,750 | ) | | 48,086 |
|
Stock-based compensation | 480 |
| | 5 |
| | 13,711 |
| | — |
| | — |
| | 13,716 |
|
Shares withheld for taxes | — |
| | — |
| | (1,720 | ) | | — |
| | — |
| | (1,720 | ) |
December 31, 2011 | 45,778 |
| | $ | 458 |
| | $ | 827,001 |
| | $ | (19,079 | ) | | $ | (8,310 | ) | | $ | 800,070 |
|
Comprehensive income (loss) | — |
| | — |
| | — |
| | (405,017 | ) | | (32,215 | ) | | (437,232 | ) |
Stock-based compensation | 539 |
| | 5 |
| | 8,772 |
| | — |
| | — |
| | 8,777 |
|
Shares withheld for taxes | — |
| | — |
| | (1,213 | ) | | — |
| | — |
| | (1,213 | ) |
December 31, 2012 | 46,317 |
| | $ | 463 |
| | $ | 834,560 |
| | $ | (424,096 | ) | | $ | (40,525 | ) | | $ | 370,402 |
|
See Notes to Consolidated Financial Statements
Chiquita Brands International, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOW
|
| | | | | | | | | | | |
(In thousands) | 2012 | | 2011 | | 2010 |
CASH (USED) PROVIDED BY: | | | | | |
OPERATIONS | | | | | |
Net income (loss) | $ | (405,017 | ) | | $ | 56,836 |
| | $ | 57,355 |
|
Loss from discontinued operations | 1,983 |
| | — |
| | 3,268 |
|
Depreciation and amortization | 63,154 |
| | 60,927 |
| | 61,016 |
|
Goodwill and trademark impairment | 181,884 |
| | — |
| | — |
|
Equity in losses of investees | 33,433 |
| | 6,314 |
| | 2,925 |
|
Loss on debt extinguishment, net | — |
| | 11,722 |
| | 246 |
|
Deferred income taxes | 92,547 |
| | (100,836 | ) | | (10,465 | ) |
Reserve for trade receivables | 14,041 |
| | 2,877 |
| | 2,161 |
|
Reserve for grower receivables | 933 |
| | 32,967 |
| | 2,148 |
|
Gain on deconsolidation of European smoothie business | — |
| | — |
| | (32,497 | ) |
Amortization of discount on Convertible Notes | 9,715 |
| | 8,606 |
| | 7,623 |
|
Amortization of gain on shipping fleet sale | (14,349 | ) | | (14,131 | ) | | (14,562 | ) |
Stock-based compensation | 8,193 |
| | 10,042 |
| | 14,033 |
|
Restructuring related asset impairments | 4,883 |
| | — |
| | — |
|
Changes in current assets and liabilities: | | | | | |
Trade receivables | (37,098 | ) | | (11,022 | ) | | 21,286 |
|
Other receivables | (2,175 | ) | | 33,306 |
| | 25,417 |
|
Inventories | 15,302 |
| | (26,546 | ) | | 663 |
|
Prepaid expenses and other current assets | (537 | ) | | (9,981 | ) | | (5,286 | ) |
Accounts payable and accrued liabilities | 7,889 |
| | (18,617 | ) | | (70,422 | ) |
Other liabilities | 31,325 |
| | 2,995 |
| | 17,455 |
|
Other | 26,471 |
| | (6,501 | ) | | 15,497 |
|
Operating cash flow | 32,577 |
| | 38,958 |
| | 97,861 |
|
INVESTING | | | | | |
Capital expenditures | (53,440 | ) | | (75,535 | ) | | (65,542 | ) |
Net proceeds from sale of: | | | | | |
51% of European smoothie business, net of $1,396 cash included in the net assets on the sale date | — |
| | — |
| | 16,882 |
|
Equity method investments | 3,142 |
| | 3,307 |
| | 21,345 |
|
Other long-term assets | 4,993 |
| | 3,512 |
| | 1,089 |
|
Other, net | (2,334 | ) | | 745 |
| | (6,094 | ) |
Investing cash flow | (47,639 | ) | | (67,971 | ) | | (32,320 | ) |
FINANCING | | | | | |
Issuances of long-term debt | — |
| | 330,067 |
| | — |
|
Repayments of long-term debt | (16,768 | ) | | (400,333 | ) | | (30,429 | ) |
Payments for debt modification and issuance costs | (2,405 | ) | | (5,026 | ) | | — |
|
Payments of debt extinguishment costs | — |
| | (6,915 | ) | | — |
|
Borrowings under the revolving credit facility | 70,000 |
| | — |
| | — |
|
Repayments of revolving credit facility | (30,000 | ) | | — |
| | — |
|
Financing cash flow | 20,827 |
| | (82,207 | ) | | (30,429 | ) |
Increase (decrease) in cash and equivalents | 5,765 |
| | (111,220 | ) | | 35,112 |
|
Cash and equivalents, beginning of period | 45,261 |
| | 156,481 |
| | 121,369 |
|
Cash and equivalents, end of period | $ | 51,026 |
| | $ | 45,261 |
| | $ | 156,481 |
|
See Notes to Consolidated Financial Statements.
Chiquita Brands International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
CONSOLIDATION
The Consolidated Financial Statements include the accounts of Chiquita Brands International, Inc. ("CBII"), controlled majority-owned subsidiaries and any entities that are not majority-owned but require consolidation as a variable interest entity (collectively, "Chiquita" or the company). Intercompany balances and transactions have been eliminated.
USE OF ESTIMATES
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"), which require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Significant estimates are inherent in the preparation of the accompanying consolidated financial statements. Significant estimates are made in determining allowance for doubtful accounts for grower and trade receivables, sales incentives, reviews of carrying values of long-lived assets, fair value assessments, goodwill and intangible asset valuations, pension and severance plans, income taxes and contingencies. Actual results could differ from these estimates.
CASH AND EQUIVALENTS
Cash and equivalents include cash and highly liquid investments with a maturity of three months or less at the time of purchase.
TRADE RECEIVABLES
Trade receivables less allowances reflect the net realizable value of the receivables, and approximate fair value. The company generally does not require collateral or other security to support trade receivables subject to credit risk. To reduce credit risk, the company performs credit investigations prior to establishing customer credit limits and reviews customer credit profiles on an ongoing basis. Allowances against the trade receivables are established based on the company's knowledge of customers' financial condition, historical loss experience and account payment status compared to invoice payment terms. Allowances are recorded and charged to expense when an account is deemed to be uncollectible. Recoveries of trade receivables previously reserved in the allowance are credited to income.
FINANCE RECEIVABLES
The company includes finance receivables in the Consolidated Balance Sheets net of allowances, with current portions included in "Other receivables, net" and long-term portions included in "Investments and other assets, net." The largest components of finance receivables are seasonal grower advances and seller financing from prior sales of certain subsidiaries. Seasonal grower advances made to qualified growers of other produce are non-interest bearing, usually short-term in nature and are generally collected as the other produce is harvested and sold. The company generally requires property liens and pledges of the season's produce as collateral to support the advances. If sales of the season's produce do not result in full repayment of the advance, the company may exercise the collateral provisions or renegotiate terms, including interest, to collect the remaining balance. Terms of seller financing are typically based on the earnings power of the business that was sold.
Allowances are established when the company determines it is probable that the grower will be unable to repay the advance based on the company's knowledge of the grower's financial condition and the company's historical loss experience. Allowances are measured for each individual finance receivable using quantitative and qualitative factors, considering the value of any collateral securing the seller financing or grower advance. Interest receivable on overdue or renegotiated seller financing or grower advances is placed into nonaccrual status when collectibility becomes uncertain. Collectibility is assessed at the end of each reporting period and write-offs are recorded only when collection efforts have been abandoned. Recoveries of other receivables previously reserved in the allowance are credited to income.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost for banana growing crops and banana inventories is determined on the "last-in, first-out" (LIFO) basis. Cost for other inventory categories, including other fresh produce and value-added salads, is determined on the "first-in, first-out" (FIFO) or average cost basis. Banana and other fresh produce inventories represent costs associated with boxed bananas and other fresh produce not yet sold. Growing crop inventories primarily represent the costs associated with growing banana plants on company-owned farms or growing lettuce on third-party farms where the company bears substantially all of the growing risk. Materials and supplies primarily represent growing and
packaging supplies maintained on company-owned farms or in production plants and warehouses. Inventory costs are comprised of the purchase and transportation cost plus production labor and overhead.
INVESTMENTS
Investments representing non-controlling interests are accounted for by the equity method when the company has the ability to exercise significant influence over the investees' operations. Investments that the company does not have the ability to significantly influence are valued at cost. Publicly traded investments that the company does not have the ability to significantly influence are accounted for as available-for-sale securities at fair value. Unrealized holding gains or losses on available-for-sale securities are excluded from operating results and are recognized in shareholders' equity (accumulated other comprehensive income) until realized. The company assesses any declines in the fair value of individual investments to determine whether such declines are other-than-temporary and whether the investments are impaired.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, and except for land, are depreciated on a straight-line basis over their estimated remaining useful lives. The company generally uses 5 to 30 years for cultivations, 10 to 40 years for buildings and improvements, and 3 to 15 years for machinery and equipment. Cultivations represent the costs to plant and care for banana plants until such time that the root system can support commercial quantities of fruit, as well as the costs to build levees, drainage canals and other farm infrastructure to support the banana plants. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts. The difference between the net book value of the asset and the proceeds from disposition is recognized as a gain or loss. Routine maintenance and repairs are charged to expense as incurred, while costs of betterments and renewals are capitalized. The company reviews the carrying value of its property, plant and equipment when impairment indicators are noted. In 2012, the company recorded $2 million of impairment charges in connection with its restructuring, which is recorded as "Restructuring and relocation costs" in the Consolidated Statements of Income. See Note 3 for additional description of the company's restructuring. The failure of step 1 of the goodwill impairment analysis (discussed below) was an impairment indicator in 2012, but the undiscounted cash flows associated with the property, plant and equipment were greater than the carrying value and therefore no impairment was present. No material impairment charges were recorded during 2011 or 2010.
GOODWILL, TRADEMARKS AND INTANGIBLE ASSETS
Impairment reviews comparing fair value to carrying value are highly judgmental and involve the use of significant estimates and assumptions, which determine whether there is potential impairment and the amount of any impairment charge recorded. Fair value assessments involve estimates of discounted cash flows that are dependent upon discount rates and long-term assumptions regarding future sales and margin trends, market conditions and cash flow. Actual results may differ from these estimates. Fair value measurements used in the impairment reviews of goodwill and intangible assets are Level 3 measurements, as described in Note 12. See further information about the company's policy for fair value measurements below under "Fair Value Measurements" and in Note 12.
A significant portion of the company's goodwill, trademarks and intangible assets relate to the company's salad operations, Fresh Express. Due to lower operating performance of retail value-added salad business, lower retail value-added salad volumes, lower perceived valuation multiples in the packaged salad industry and continuing demand for private label versus branded products, the 2012 analyses resulted in a $157 million ($157 million after-tax) impairment charge to goodwill and a $23 million ($14 million after-tax) impairment charge to the Fresh Express trademark. The company also fully impaired goodwill related to a non-core business in 2012, resulting in $2 million of additional goodwill impairment charges.
Goodwill. Goodwill is reviewed for impairment each fourth quarter, or more frequently if circumstances indicate the possibility of impairment. The 2011 and 2010 reviews did not indicate impairment; however impairment charges resulted from the 2012 review.
The first step of the impairment review compares the fair value of the Fresh Express reporting unit to the carrying value. Consistent with prior impairment reviews, the company estimated the fair value of the reporting unit using a combination of: (i) a market approach based on multiples of revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") from recent comparable transactions and other market data; and (ii) an income approach based on expected future cash flows discounted at 13.0%, 9.7% and 9.6% in 2012, 2011 and 2010, respectively. The increase in the discount rate for the 2012 analysis reflects the additional industry-specific risk corresponding to the lower perceived revenue and EBITDA multiples for the packaged salad industry. The market approach and the income approach were weighted equally based on judgment of the comparability of the recent transactions and the risks inherent in estimating future cash flows. Management considered recent economic and industry trends, as well as risk in executing its current plans in estimating Fresh Express' expected future cash flows in the income approach. In 2012, the first step of the impairment analysis indicated impairment, which was measured in the second step. In 2011 and 2010, the first step did not indicate impairment because the estimated fair value of the
Fresh Express reporting unit was greater than its carrying value; therefore, the second step was not required. In addition, no events or changes in circumstances occurred in 2012, 2011 or 2010 that required impairment testing in between annual tests.
The second step measures the implied value of goodwill by subtracting the fair value of the Fresh Express reporting unit's assets and liabilities, including intangible assets, from the fair value of Fresh Express as estimated in step 1. The 2012 goodwill impairment charge was measured as the difference between the implied value of goodwill and the carrying value.
Significant assumptions used to estimate the fair value of the Fresh Express reporting unit include estimates of future cash flows, discount rate and multiples of revenue and EBITDA. These assumptions are typically not considered individually because assumptions used to select one variable should also be considered when selecting other variables; however, sensitivity of the overall fair value assessment to each significant variable is also considered. In the 2011 and 2010 analyses, reasonably possible fluctuations in the discount rate, cash flows or market multiples did not indicate impairment. In 2011 and 2010, management also considered the operation of the business in several possible business environments; in each case management assumed that Fresh Express would be able to recapture increases in commodity costs affecting the industry, such as increases in transportation or raw product costs. In the 2012 analysis, a 1.0 percentage point increase in the selected discount rate would have resulted in $8 million of additional impairment, and a 5% decrease in the selected multiples of revenue and EBITDA would have resulted in $10 million of additional impairment.
Trademarks. Trademarks are indefinite-lived intangible assets that are not amortized and are also reviewed each fourth quarter, or more frequently if circumstances indicate the possibility of impairment. In addition, no events or changes in circumstances occurred in 2012, 2011 or 2010 that required impairment testing in between annual tests. The review compares the estimated fair values of the trademarks to the carrying values. The 2011 and 2010 reviews did not indicate impairment because the estimated fair values were greater than the carrying values. As noted above, the 2012 review resulted in an impairment charge to the Fresh Express trademark. Consistent with prior reviews, the company estimated the fair values of the trademarks using the relief-from-royalty method. The relief-from-royalty method estimates the royalty expense that is avoided as a result of owning the respective trademarks. The royalty savings are measured by applying a royalty rate to projected sales to estimate cash flows attributable to the trademark then converting those cash flows (after-tax) to a present value using a discount rate that considers the risk associated with owning the trademarks. Royalty rates are selected based on recent available data for similar trademark license arrangements as well as assessments of the cash flows from the business activities related to the trademark.
For the Chiquita trademark, the company assumed royalty rates of 2.5%, 3.0% and 3.0% and discount rates of 11.0%, 11.3% and 11.1% in the 2012, 2011 and 2010 impairment analyses, respectively. The fair value estimate is most sensitive to the royalty rate but reasonably possible fluctuations in both the royalty rates and the discount rates for both the Chiquita trademarks also did not indicate impairment.
For the Fresh Express trademarks, the company assumed royalty rates of 1.0%, 3.0% and 3.0% and discount rates of 13.0%, 11.3% and 11.1% in the 2012, 2011 and 2010 impairment analyses, respectively. A 0.5 percentage point decrease in the selected royalty rate in the 2012 analysis would have resulted in $18 million of additional impairment and a 1.0 percentage point increase in the selected discount rate would have resulted in an additional $3 million of impairment. At the time of the 2011 and 2010 analyses, reasonably possible fluctuations in the selected royalty rate or the selected discount rate did not indicate impairment.
Other Intangible Assets. The company's intangible assets with definite lives consist of customer relationships and patented technology primarily related to Fresh Express. These assets are amortized on a straight-line basis (which approximates the attrition method) over their estimated remaining lives. The weighted average remaining lives of the Fresh Express customer relationships and patented technology are 11 years and 9 years, respectively. As amortizable intangible assets, the company reviews the carrying value only when impairment indicators are present, by comparing (i) estimates of undiscounted future cash flows, before interest charges, included in the company's operating plans versus (ii) the carrying values of the related assets. Tests are performed over asset groups at the lowest level of identifiable cash flows. No impairment indicators existed in 2011 or 2010. The failure of step 1 of the goodwill impairment analysis was an impairment indicator in 2012, but the undiscounted cash flows associated with the other intangible assets were greater than the carrying value, and therefore, no impairment was present.
REVENUE RECOGNITION
The company records revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectibility is reasonably assured. This generally occurs when the product is delivered to, and title to the product passes to, the customer.
SALES INCENTIVES
The company, primarily in its Salads and Healthy Snacks segment and also in its Bananas segment in certain countries, offers sales incentives to its customers and to consumers. These incentives primarily consist of volume-related rebates, placement fees (fees paid to retailers for product display), consumer coupons and promotional discounts. Consideration given to customers and consumers related to sales incentives is recorded as a reduction of "Net sales" in the Consolidated Statements of Income. Changes in the estimated amount of incentives to be paid are treated as changes in estimates and are recognized in the period of change.
COST OF SALES
Cost of sales represents direct costs attributable to the production and delivery of goods sold by the company. The company identified certain ripening expenses previously reported as "Selling, general and administrative" expense that should be recorded as "Cost of sales." These expenses were $6 million and less than 0.3% of "Cost of sales" and less than 2.7% of "Selling, general and administrative" expense for each of the years ended December 31, 2012, 2011 and 2010. The company concluded that correction of the expense classification would not be material to any prior periods, and does not affect "Income (loss) from continuing operations" for any of the periods. The company has revised amounts previously reported as "Cost of sales" and "Selling, general and administrative" expense in the Consolidated Statements of Income and in Note 21 to classify such ripening expenses as "Cost of sales."
ADVERTISING AND PROMOTION EXPENSE
Advertising and promotion expense are included in "Selling, general and administrative" and was $27 million, $56 million and $58 million for the years ended December 31, 2012, 2011 and 2010, respectively. Television advertising costs related to production are expensed the first time an ad airs in each market and the cost of advertising time is expensed over the advertising period. Other types of advertising and promotion are expensed over the advertising or promotion period.
SHIPPING AND HANDLING FEES AND COSTS
Shipping and handling fees billed to customers are included in "Net sales" and shipping and handling costs are recorded in "Cost of sales" in the Consolidated Statements of Income.
VALUE ADDED TAXES
Value added taxes ("VAT") that are collected from customers and remitted to taxing authorities in applicable jurisdictions are excluded from sales and cost of sales. Receivables result from filing for refunds of VAT paid to various governments and liabilities result from collections that have not yet been remitted to taxing authorities. As of December 31, 2012 and 2011, the company had $39 million and $36 million, respectively, of VAT receivables classified in "Other receivables, net," and $2 million and $2 million, respectively, classified in "Investments and other assets, net" in addition to $7 million and less than $1 million, respectively, of VAT liabilities classified in "Accounts payable."
LEASES
Leases are evaluated at inception or upon any subsequent material modification for treatment as either capital or operating, depending on the terms of each lease. For operating leases that contain built-in pre-determined rent escalations, rent holidays or rent concessions, rent expense is recognized on a straight-line basis over the life of the lease.
STOCK-BASED COMPENSATION
The company's share-based awards include restricted stock units ("RSU"), a Long-Term Incentive Program ("LTIP") and stock options. RSU awards generally vest over four years, and prior to vesting, shares are not issued and grantees are not eligible to vote or receive dividends on the restricted stock units. RSU awards are equity-classified and the fair value of these awards is determined at the grant date and expensed over the period from the grant date to the date the employee is no longer required to provide service to earn the award, which could be immediately in the case of retirement-eligible employees.
Certain executive level employees participate in the LTIP, where awards are intended to be performance-based compensation as defined in Section 162(m) of the Internal Revenue Code. The LTIP allows for awards to be issued at the end of each three-year performance period. Prior to the 2011-2013 performance period, one-half of each LTIP award was based on the company's achievement of cumulative earnings per share targets ("EPS awards"), and the other half was based on the company's achievement of total shareholder return relative to peer companies ("TSR awards"). For the 2011-2013 and 2012-2014 performance periods, 20% is a TSR award, 40% is an EPS award and 40% is based on the company's achievement of a free cash flow target ("FCF award"). The value of TSR awards is based on a Monte Carlo simulation at the measurement date. The value of EPS and FCF awards is based on the share price at the measurement date and an estimate of the expected number of shares to be issued.
In 2010, the LTIP was modified to allow a portion of the awards to be paid in cash in an amount substantially equal to the estimated tax liability triggered by such awards. LTIP awards outstanding in 2010 were modified, which changed them to liability-classified awards from equity-classified awards. Both liability-classified and equity-classified awards recognize the fair value of the award ratably over the performance period; however, equity-classified awards only measure the fair value at the grant date, whereas liability-classified awards measure the fair value at each reporting date, with changes in the fair value of the award cumulatively adjusted through expense each period. For modified awards, expense is recognized at the greater of the equity-method or the liability-method. At December 31, 2012, the expense for the modified LTIP awards was measured under the equity classification, as the original equity value of the awards is higher than the current value. The LTIP awards for the 2011-2013 and 2012-2014 performance periods have been liability-classified since their respective grant dates.
In October 2012, under a plan separate from the company's shareholder-approved equity compensation plan, 1,440,062 of stock options were granted to the company's new chief executive officer as a hiring inducement in accordance with New York Stock Exchange rules. One-half of the stock options become exercisable on each of the first two anniversaries of the chief executive officer's start date. The fair value of these awards was determined at the grant date and is being expensed over the period from the grant date to the date the chief executive officer is no longer required to provide service to earn the award. See Note 16 for additional description of the company's stock-based compensation.
CONTINGENT LIABILITIES
Each period, the company reviews the status of each claim and legal proceeding and assesses the potential financial exposure. This is coordinated with information obtained from external and internal counsel. If the potential loss from any claim or legal proceeding is probable and the amount can be reasonably estimated, the company accrues a liability for the estimated loss. To the extent the amount of a probable loss is estimable only by reference to a range of equally likely outcomes, and no amount within the range appears to be a better estimate than any other amount, the company accrues the low end of the range. Management makes judgments related to accruals based on the best information available at the time, which may be based on estimates and assumptions, including those that depend on external factors beyond the company's control. As additional information becomes available, the company reassesses and may revise estimates for the potential liabilities related to pending claims and litigation. Legal costs are expensed as incurred.
INCOME TAXES
The company is subject to income taxes in both the United States and numerous foreign jurisdictions. Income tax expense or benefit is provided for using the asset and liability method. Deferred income taxes are recognized at currently enacted tax rates for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial reporting purposes. Deferred taxes are not provided for the undistributed earnings of subsidiaries operating outside the U.S. that have been permanently reinvested in foreign operations.
The company regularly reviews all deferred tax assets on a tax filer and jurisdictional basis to estimate whether these assets are more likely than not to be realized based on all available evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies and projected future taxable income. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence is objectively verified. The expected timing of the reversals of existing temporary differences is based on current tax law and the company's tax methods of accounting. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The expected timing of the reversals of existing temporary differences is based on current tax law and the company's tax methods of accounting. Unless deferred tax assets are more likely than not to be realized, a valuation allowance is established to reduce the carrying value of the deferred tax asset until such time that realization becomes more likely than not. Increases and decreases in these valuation allowances are included in "Income tax expense (benefit)" in the Consolidated Statements of Income.
In the ordinary course of business, there are many transactions and calculations where the ultimate income tax determination is uncertain. The evaluation of a tax position is a two-step process. The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available evidence indicates that it is "more-likely-than-not" that a tax position, including resolution of any related appeals or litigation, will be sustained upon examination based on its technical merits. If the recognition criterion is met, the second step is to measure the income tax benefit to be realized. Tax positions or portions of tax positions that do not meet the recognition and realization criteria are de-recognized by recording reserves. The company establishes reserves for income tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes, penalties and interest could be due. Provisions for and changes to these reserves, as well as the related net interest and penalties, are included in "Income tax expense (benefit)" in the Consolidated Statements of Income. Significant judgment is required in evaluating tax positions and determining the company's provision for income taxes. The company regularly reviews its tax positions, and the reserves are adjusted in light of changing facts and circumstances, such as the resolution of outstanding tax audits or contingencies in various jurisdictions and the expiration of statutes of limitations.
EARNINGS PER SHARE
Basic earnings per share are calculated on the basis of the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated on the basis of the sum of the weighted average number of common shares outstanding during the year and the dilutive effect of the assumed conversion to common stock of the 4.25% convertible senior notes and the exercise or vesting of options and other stock awards using the treasury stock method. The assumed conversion to common stock of securities that would, on an individual basis, have an anti-dilutive effect on diluted earnings per share is not included in the diluted earnings per share computation.
CURRENCY TRANSLATION ADJUSTMENT
The company primarily uses the U.S. dollar as its functional currency, and monetary assets denominated in other than U.S. dollars are remeasured at the balance sheet date with related transaction gains and losses recognized currently in earnings. Certain smaller subsidiaries have functional currencies other than the U.S. dollar.
HEDGING
The company is exposed to currency exchange risk, most significantly from the value of the euro and its effect on the amount of euro net sales from the conversion of euro-denominated sales into U.S. dollars. The company is also exposed to price risk on purchases of bunker fuel used in its ocean shipping operations. The company may reduce these risks by purchasing derivatives, such as options and forward contracts. When purchasing derivatives, the company identifies a "forecasted hedged transaction," which is a specific future transaction (e.g., the purchase of fuel or exchange of currency in a specific future period), and designates the risk associated with the forecasted hedged transaction that the derivative will mitigate. The fair value of all derivatives is recognized in the Consolidated Balance Sheets. Gains and losses from changes in fair value of derivatives are recognized in net income in the current period if a derivative does not qualify for, or is not designated for, hedge accounting.
Most of the company's derivatives qualify for hedge accounting as cash flow hedges. The company formally documents all relationships between derivatives and the forecasted hedged transactions, including the company's risk management objective and strategy for undertaking various hedge transactions. To the extent that a derivative is effective in offsetting the designated risk exposure of the forecasted hedged transaction, gains and losses are deferred in accumulated other comprehensive income ("AOCI") in the Consolidated Balance Sheets until the respective forecasted hedged transaction occurs, at which point any gain or loss is recognized in net income. Gains or losses on effective hedges that have been terminated prior to maturity are also deferred in AOCI until the forecasted hedged transactions occur. For the ineffective portion of the hedge, gains or losses are reflected in net income in the current period. Ineffectiveness is caused by an imperfect correlation of the change in fair value of the derivative and the risk that is hedged.
The earnings effect of the derivatives is recorded in "Net sales" for currency hedges and in "Cost of sales" for fuel hedges. The company does not hold or issue derivative financial instruments for speculative purposes. See Note 11 for additional description of the company's hedging activities.
FAIR VALUE MEASUREMENTS
The company carries financial assets and financial liabilities at fair value, as further described in Note 12, but did not elect to carry nonfinancial assets and nonfinancial liabilities at fair value. Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment reviews and in the valuation of assets held for sale. Fair value standards provide a framework for measuring fair value, which prioritizes the use of observable inputs in measuring fair value. Fair value is the price to hypothetically sell an asset or transfer a liability in an orderly manner in the principal market for that asset or liability. The standards address valuation techniques used to measure fair value including the market approach, the income approach and the cost approach. The market approach uses prices or relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach involves converting future cash flows to a single present value, with the fair value measurement based on current market expectations about those future cash flows. The cost approach is based on the amount that currently would be required to replace the service capacity of the asset. See further information related to fair value measurements above under "Goodwill, Trademarks and Intangible Assets" and in Notes 12 and 14.
PENSION AND TROPICAL SEVERANCE PLANS
The company records the underfunded status of the defined benefit postretirement plan and tropical severance plans as a liability on the Consolidated Balance Sheets, recognizes changes in the funded status in AOCI in the year in which the changes occur, and measures the plan assets and obligations that determine the funded status as of the end of the fiscal year. Significant assumptions used in the actuarial calculation of the liabilities and expense related to the company's defined benefit and foreign pension and severance plans include the discount rate, long-term rate of compensation increase and the long-term rate of return
on plan assets. For domestic plans, the company uses a discount rate based on a yield curve which uses the plans' expected payouts combined with a large population of high quality, fixed income investments in the U.S. that are appropriate for the expected timing of the plans' payments. For foreign plans, the company uses a discount rate based on the 10-year U.S. Treasury rate adjusted to reflect local inflation rates in those countries.
NEW ACCOUNTING STANDARDS
New accounting standards that could significantly affect the company's Consolidated Financial Statements are summarized as follows:
|
| | | | | | |
Issue Date | | Description | | Effective Date for the Company | | Effect on the Company’s Consolidated Financial Statements |
February 2013 | | Requires reporting of significant reclassifications out of accumulated other comprehensive income on the face of the financial statements or in the notes. | | Prospectively, beginning January 1, 2013; early adoption permitted. | | Will expand disclosure. |
July 2012 | | Amends the guidance on testing indefinite-lived intangible assets, other than goodwill, for impairment and permits the use of qualitative factors in determining whether it is likely that indefinite-lived intangible assets impairment exists. | | Prospectively, beginning January 1, 2013; early adoption permitted. | | Because the measurement of a potential impairment loss has not changed, the amended standards will not have an effect on the company's Consolidated Financial Statements upon adoption in 2013. |
Note 2 — Earnings Per Share
Basic and diluted earnings per common share ("EPS") are calculated as follows:
|
| | | | | | | | | | | |
(In thousands, except per share amounts) | 2012 | | 2011 | | 2010 |
Income (loss) from continuing operations | $ | (403,034 | ) | | $ | 56,836 |
| | $ | 60,623 |
|
Loss from discontinued operations | (1,983 | ) | | — |
| | (3,268 | ) |
Net income (loss) | $ | (405,017 | ) | | $ | 56,836 |
| | $ | 57,355 |
|
| | | | | |
Weighted average common shares outstanding (used to calculate basic EPS) | 46,059 |
| | 45,541 |
| | 45,003 |
|
Stock options and other stock awards | — |
| | 745 |
| | 847 |
|
Weighted average common shares outstanding (used to calculate diluted EPS) | 46,059 |
| | 46,286 |
| | 45,850 |
|
| | | | | |
Continuing operations | $ | (8.75 | ) | | $ | 1.25 |
| | $ | 1.34 |
|
Discontinued operations | (0.04 | ) | | — |
| | (0.07 | ) |
Earnings (loss) per common share – basic | $ | (8.79 | ) | | $ | 1.25 |
| | $ | 1.27 |
|
| | | | | |
Continuing operations | $ | (8.75 | ) | | $ | 1.23 |
| | $ | 1.32 |
|
Discontinued operations | (0.04 | ) | | — |
| | (0.07 | ) |
Earnings (loss) per common share – diluted | $ | (8.79 | ) | | $ | 1.23 |
| | $ | 1.25 |
|
If the company had generated net income for the year ended December 31, 2012, an additional 0.5 million shares would have been used to calculate diluted EPS. The assumed conversions to common stock of the company's stock awards, options and 4.25% Convertible Senior Notes due 2016 ("Convertible Notes") 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. In 2012, 2011 and 2010, the effect of the conversion of the Convertible Notes would have been anti-dilutive because the average trading price of the common stock was below the initial conversion price of $22.45 per share. Additionally, shares were excluded from the diluted EPS calculation related to restricted stock units, stock options and long term incentive plans because they were anti-dilutive. These excluded shares were 1.9 million, 1.5 million and 1.5 million for 2012, 2011 and 2010, respectively.
Note 3 — Restructuring and Relocation
RESTRUCTURING
In August 2012, the company announced a restructuring plan to transform the company into a branded commodity operator. The restructuring plan is designed to reduce costs and improve the company's competitive position by focusing its resources on the banana and salad businesses, reducing investment in non-core products, reducing overhead and manufacturing cost and limiting consumer marketing activities. The company expects this initiative to result in annual savings of at least $60 million. In connection with this restructuring plan, the company has eliminated approximately 300 positions worldwide. A total of $18 million of restructuring costs have been recognized during 2012 including $11 million of severance and $5 million of impairments primarily related to fixed assets and certain promotional and packaging materials included in inventories associated with non-core European healthy snacking businesses in "Restructuring and relocation costs" in the Consolidated Statements of Income. Restructuring costs also included $2 million of goodwill impairment related to the European healthy snacking business recorded in "Goodwill and trademark impairment" in the Consolidated Statements of Income. The restructuring was substantially complete at December 31, 2012, although cash payments related to the restructuring plan are expected to continue through 2014, primarily related to severance payments to the former chief executive officer.
A reconciliation of the accrual for the restructuring activities ($4 million included in "Accrued liabilities" and $3 million included in "Other liabilities" in the Consolidated Balance Sheet at December 31, 2012) is as follows:
|
| | | |
(In thousands) | Severance |
December 31, 2011 | $ | — |
|
Severance expense | 10,591 |
|
Amounts paid | (3,591 | ) |
December 31, 2012 | $ | 7,000 |
|
HEADQUARTERS RELOCATION
Late in 2011, the company committed to relocate its corporate headquarters from Cincinnati, Ohio to Charlotte, North Carolina, affecting approximately 300 positions. Concurrent with the headquarters relocation, the company further consolidated approximately 100 additional positions previously spread across the U.S. to improve execution and accelerate decision-making. The relocation was substantially completed in 2012 and is expected to cost approximately $30 million (including net capital expenditures of approximately $5 million after allowances from the landlord), of which a significant portion is expected to be recaptured through state, local and other incentives through 2022. The company does not expect the restructuring activities described above to affect the realization of the relocation incentives. As of December 31, 2012, the company had incurred a total of $26 million of expense and $5 million of net capital expenditures related to the relocation. The company expects to incur less than $1 million of additional expense primarily related to relocation, recruiting and other costs through 2013, at which time related cash payments will also be substantially complete.
One-time termination costs for affected employees included severance under the company's severance plans and, in some cases, retention awards, both of which required employees to continue providing services until their termination dates in order to be eligible for payment. Estimated payouts under the company's severance plans were accrued at the time the relocation was announced and estimated payouts of retention awards were accrued over the remaining service period. Relocation, recruiting and other costs are being expensed as incurred. Relocation related costs are included in "Restructuring and relocation costs" in the Consolidated Statements of Income.
A reconciliation of the accrual for the relocation that is included in "Accrued liabilities" is as follows:
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | One-Time Termination Costs | | Relocation, Recruiting and Other Costs | | Total Exit Costs | | Other Relocation Costs | | Total |
December 31, 2010 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Amounts expensed | 5,303 |
| | 265 |
| | 5,568 |
| | 284 |
| | 5,852 |
|
Amounts paid | — |
| | (21 | ) | | (21 | ) | | (176 | ) | | (197 | ) |
December 31, 2011 | $ | 5,303 |
| | $ | 244 |
| | $ | 5,547 |
| | $ | 108 |
| | $ | 5,655 |
|
Amounts expensed | 2,527 |
| | 13,129 |
| | 15,656 |
| | 4,048 |
| | 19,704 |
|
Amounts paid | (5,799 | ) | | (12,295 | ) | | (18,094 | ) | | (4,238 | ) | | (22,332 | ) |
December 31, 2012 | $ | 2,031 |
| | $ | 1,078 |
| | $ | 3,109 |
| | $ | (82 | ) | | $ | 3,027 |
|
OTHER SEVERANCE
In June 2011, the company realigned its value-added salads overhead cost structure and embedded its global innovation and marketing functions into its business units to better focus on speed, execution and scalability, and to deliver future operating cost savings, particularly in the Salads and Healthy Snacks segment. These actions resulted in $3 million of severance costs during 2011, which were recorded in "Cost of sales" and "Selling, general and administrative" in the Consolidated Statements of Income.
Note 4 – Trade and Finance Receivables
TRADE RECEIVABLES
The company's primary markets are in North America and Europe, but it also has sales in the Middle East and other markets. The majority of the company's sales in the Middle East are in Iran under license from the U.S. government that allows sale of food products to non-sanctioned parties. These sales are in U.S. dollars and represent $26 million of "Trade receivables, less allowances" on the Consolidated Balance Sheet at December 31, 2012. Even though the sales in Iran are permitted, the international sanctions against Iran are affecting the ability of Iranian customers to pay invoices within terms because it is difficult for them to obtain U.S. dollars, euros or other suitable currencies in sufficient quantity on a regular basis. Over the course of 2012, the company's receivable balance with these customers has increased, and the company has established payment plans with each of these customers to reduce their balances. Most customers have so far been able to find acceptable methods of payment to comply with their payment plans. However, one significant customer has not, and as a result, the company reserved $9 million of these receivables in 2012 representing balances in excess of related collateral. If this customer is able to find acceptable methods of payment to comply with its payment plan, the reserve may be reversed as appropriate. The company sources bananas from the Philippines for sale in the Middle East under a long term purchase contract with a former joint venture partner through 2016 with committed volumes. The company continues to develop other markets for these bananas, such as Iraq and Saudi Arabia, to diversify its risk in the region.
FINANCE RECEIVABLES
Finance receivables were as follows:
|
| | | | | | | | | | | | | | | |
| December 31, |
| 2012 | | 2011 |
(In thousands) | Grower Receivables | | Seller Financing | | Grower Receivables | | Seller Financing |
Gross receivable | $ | 41,008 |
| | $ | 30,523 |
| | $ | 46,188 |
| | $ | 35,021 |
|
Reserve | (36,854 | ) | | — |
| | (37,519 | ) | | — |
|
Net receivable | $ | 4,154 |
| | $ | 30,523 |
| | $ | 8,669 |
| | $ | 35,021 |
|
| | | | | | | |
Current portion, net | $ | 4,154 |
| | $ | 3,691 |
| | $ | 8,669 |
| | $ | 4,771 |
|
Long-term portion, net | — |
| | 26,832 |
| | — |
| | 30,250 |
|
Net receivable | $ | 4,154 |
| | $ | 30,523 |
| | $ | 8,669 |
| | $ | 35,021 |
|
Activity in the finance receivable reserve is as follows:
|
| | | | | | | |
(In thousands) | 2012 | | 2011 |
Reserve at beginning of year | $ | 37,519 |
| | $ | 4,552 |
|
Charged to costs and expenses | 933 |
| | 33,401 |
|
Recoveries | (1,597 | ) | | (435 | ) |
Foreign exchange and other | (1 | ) | | 1 |
|
Reserve at end of year | $ | 36,854 |
| | $ | 37,519 |
|
Seasonal advances may be made to certain qualified growers of other produce, which are normally collected as the produce is harvested and sold. The company generally requires asset liens and pledges of the season's produce as collateral to support these advances. If sales of the season's produce do not result in full repayment of the advance, the company may exercise the collateral provisions or renegotiate the terms, including terms of interest, to collect the remaining balance. The gross grower receivable balance includes $30 million (all of which is classified as long-term and fully reserved) and $32 million (all of which is classified as long-term and fully reserved) related to a Chilean grower of grapes and other produce as of December 31, 2012 and 2011, respectively. In 2011, the company recorded a reserve of $32 million for advances made to this Chilean grower. Late in 2011, the Chilean grower was declared bankrupt; the company continues to aggressively negotiate recovery with the bankruptcy trustee and other creditors of the grower, and has recovered approximately $2 million in 2012.
The company provided seller financing in the 2009 sale of the former joint venture that sourced bananas and pineapples from the Philippines for sale in the Middle East and Asia. The financing for the sale of this joint venture is a note receivable in equal installments through 2019. Payments are current on this note receivable. At both December 31, 2012 and 2011, the current portion of the note receivable included in "Other receivables, net" on the Consolidated Balance Sheets was $4 million, and the long-term portion included in "Investments and other assets, net" on the Consolidated Balance Sheets was $27 million and $30 million at December 31, 2012 and 2011, respectively. The company also provided seller financing in the 2004 sale of its former Colombian subsidiary in the form of a note receivable, which was fully repaid in July 2012. The terms of the seller financing were based on the earnings power of the businesses sold.
Note 5 — Inventories
Inventories consist of the following:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Finished goods | $ | 74,246 |
| | $ | 91,595 |
|
Growing crops | 79,046 |
| | 72,382 |
|
Raw materials, supplies and other | 66,749 |
| | 74,302 |
|
| $ | 220,041 |
| | $ | 238,279 |
|
The carrying value of inventories valued by the LIFO method was approximately $99 million at December 31, 2012 and 2011. At current costs, these inventories would have been approximately $44 million and $45 million higher than the LIFO values at December 31, 2012 and 2011, respectively. There were no LIFO liquidations in 2012 and 2011.
Note 6 — Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Land | $ | 40,810 |
| | $ | 41,107 |
|
Buildings and improvements | 183,068 |
| | 170,052 |
|
Machinery, equipment and other | 416,814 |
| | 380,785 |
|
Containers | 13,404 |
| | 8,992 |
|
Cultivations | 63,956 |
| | 59,175 |
|
| 718,052 |
| | 660,111 |
|
Accumulated depreciation | (381,833 | ) | | (337,036 | ) |
| 336,219 |
| | 323,075 |
|
Construction in progress | 59,080 |
| | 46,612 |
|
| $ | 395,299 |
| | $ | 369,687 |
|
Note 7 — Equity Method Investments
The company's share of the losses from equity method investments was $33 million, $6 million and $3 million in 2012, 2011 and 2010, respectively, and its investment in these affiliates totaled $1 million and $17 million at December 31, 2012 and 2011, respectively. The company's undistributed earnings from its equity method investments at December 31, 2012, 2011 and 2010 were not significant.
Summarized financial information for the company's equity method investments is as follows:
|
| | | | | | | | | | | |
| Years ended December 31, |
(In thousands) | 2012 | | 2011 | | 2010 |
Revenue | $ | 33,713 |
| | $ | 43,287 |
| | $ | 128,166 |
|
Gross profit | 10,597 |
| | 11,530 |
| | 23,617 |
|
Net loss | (39,014 | ) | | (12,824 | ) | | (8,114 | ) |
| December 31, | | |
(In thousands) | 2012 | | 2011 | | |
Current assets | $ | 6,568 |
| | $ | 7,529 |
| | |
Total assets | 29,254 |
| | 48,998 |
| | |
Current liabilities | 51,968 |
| | 6,609 |
| | |
Total liabilities | 53,490 |
| | 8,397 |
| | |
The company's primary equity method investments were: the Danone JV, which was formed in May 2010, and the Coast Citrus Distributors, Inc., which was sold in April 2010. See Note 20 for further discussion of the formation of the Danone JV and the sale of Coast Citrus Distributors, Inc. In the third quarter of 2012, the board of directors of the Danone JV approved a change in strategy and the related discontinuation of a key product. As a result, the company determined that the decline in estimated fair value of its equity-method investment was other than temporary and recorded a $28 million loss to fully impair its equity-method investment and related assets and to record estimates of probable cash obligations to the Danone JV. In the fourth quarter of 2012, changes in the estimated funding obligations and related assets resulted in an additional charge of $4 million. These losses are included in “Equity in losses of investees” in the Consolidated Statements of Income. As of December 31, 2012, the company has fully accrued its obligations to fund the Danone JV, which it believes are limited to €14 million ($18 million) through 2013 without unanimous consent of the owners. The company made no contributions in 2012 to equity method investees and contributed a total of €3 million ($5 million) and €4 million ($5 million) to the Danone JV during 2011 and 2010, respectively.
There were no sales by the company to equity method investees for years ended December 31, 2012 and 2011. Sales by the company to equity method investees were approximately $13 million in the year ended December 31, 2010. No purchases were made by the company from equity method investees in the years ended December 31, 2012, 2011 and 2010.
Note 8 — Goodwill, Trademarks and Intangible Assets
GOODWILL
The company's goodwill is primarily related to its salad operations, Fresh Express, and is included in the Salads and Healthy Snacks reportable segment (see Note 18). Further discussion of goodwill impairments is included in Note 1. Activity related to goodwill is as follows:
|
| | | | | | | | | | | |
(In thousands) | Gross Goodwill | | Accumulated Impairment | | Net Carrying Value |
Balance at December 31, 2010 | $ | 551,879 |
| | $ | (375,295 | ) | | $ | 176,584 |
|
Additions from business acquisitions | — |
| | — |
| | — |
|
Impairment charges | — |
| | — |
| | — |
|
Balance at December 31, 2011 | $ | 551,879 |
| | $ | (375,295 | ) | | $ | 176,584 |
|
Additions from business acquisitions | 395 |
| | — |
| | 395 |
|
Impairment charges | — |
| | (158,884 | ) | | (158,884 | ) |
Balance at December 31, 2012 | $ | 552,274 |
| | $ | (534,179 | ) | | $ | 18,095 |
|
TRADEMARKS
The company's trademarks for Chiquita and Fresh Express are not amortizable (indefinite-lived). Further information on trademark impairments is included in Note 1. Activity related to trademarks is as follows: |
| | | | | | | | | | | | | | | | | | | |
| Chiquita Trademarks | | Fresh Express Trademarks | | |
(In thousands) | Gross Trademarks | | Accumulated Impairment | | Gross Trademarks | | Accumulated Impairment | | Net Trademarks |
Balance at December 31, 2010 | $ | 387,585 |
| | $ | — |
| | $ | 61,500 |
| | $ | — |
| | $ | 449,085 |
|
Impairment charges | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at December 31, 2011 | $ | 387,585 |
| | $ | — |
| | $ | 61,500 |
| | $ | — |
| | $ | 449,085 |
|
Impairment charges | — |
| | — |
| | — |
| | (23,000 | ) | | (23,000 | ) |
Balance at December 31, 2012 | $ | 387,585 |
| | $ | — |
| | $ | 61,500 |
| | $ | (23,000 | ) | | $ | 426,085 |
|
OTHER INTANGIBLE ASSETS
The company's other intangible assets are also primarily related to Fresh Express and are amortizable (definite-lived). Other intangible assets consist of the following:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Amortized intangible assets: | | | |
Customer relationships | $ | 110,000 |
| | $ | 110,000 |
|
Patented technology | 55,123 |
| | 55,123 |
|
| 165,123 |
| | 165,123 |
|
Accumulated amortization: | | | |
Customer relationships | (44,539 | ) | | (38,383 | ) |
Patented technology | (24,305 | ) | | (21,043 | ) |
| (68,844 | ) | | (59,426 | ) |
Other intangible assets, net | $ | 96,279 |
| | $ | 105,697 |
|
Amortization expense of other intangible assets totaled $9 million, $9 million and $10 million in 2012, 2011 and 2010, respectively. The estimated amortization expense associated with other intangible assets is approximately $9 million in each of the next five years. See Note 1 for discussion of impairment reviews.
Note 9 — Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Accounts payable: | | | |
Trade | $ | 243,745 |
| | $ | 223,465 |
|
Other | 30,879 |
| | 28,107 |
|
| $ | 274,624 |
| | $ | 251,572 |
|
Accrued liabilities: | | | |
Payroll and employee benefit costs | $ | 48,148 |
| | $ | 54,099 |
|
Other | 92,552 |
| | 60,880 |
|
| $ | 140,700 |
| | $ | 114,979 |
|
Note 10 — Debt
Debt is not carried at fair value. Significant refinancing activities were performed in February 2013 and are described below. The $457 million of net proceeds from issuance of the 7.875% senior secured notes due 2021 (the "7.875% Notes") and the initial borrowings of the asset-based lending facility (the "ABL Facility") were used to retire the Credit Facility and the 7½% Senior Notes at par plus accrued interest on March 7, 2013.
Debt as of the balance sheet dates consists of the following: |
| | | | | | | | | | | | | | | | |
| | December 31, 2012 | | December 31, 2011 |
| Carrying | | Estimated | | Carrying | | Estimated |
(In thousands) | Value | | Fair Value | | Value | | Fair Value |
Parent company1: | | | | | | | | |
7½% Senior Notes due 2014 | | $ | 106,438 |
| | $ | 106,000 |
| | $ | 106,438 |
| | $ | 107,000 |
|
4.25% Convertible Senior Notes due 2016 | | 153,082 |
| | 174,000 |
| | 143,367 |
| | 172,000 |
|
Subsidiaries2: | | | | | | | | |
Credit Facility Revolving Loan | | 40,000 |
| | 38,000 |
| | — |
| | — |
|
Credit Facility Term Loan | | 305,250 |
| | 296,000 |
| | 321,750 |
| | 321,000 |
|
Other | | 755 |
| | 700 |
| | 924 |
| | 900 |
|
Less current portion | | (65,008 | ) | | | | (16,774 | ) | | |
Total long-term debt | | $ | 540,517 |
| | | | $ | 555,705 |
| | |
| |
1 | The fair value of the parent company debt is based on observable inputs, which include quoted prices for similar assets or liabilities in an active market and market-corroborated inputs (Level 2). See also Note 12 for discussion of fair value. |
| |
2 | Credit facilities and other subsidiary debt may be traded on the secondary loan market, and the fair value of the Term Loan is based on either the last available trading price, if recent, or trading prices of comparable debt (Level 3). See also Note 12 for discussion of fair value. |
Debt maturities are as follows:
|
| | | |
(In thousands) | |
2013 | $ | 65,008 |
|
2014 | 139,671 |
|
2015 | 33,224 |
|
2016 | 414,528 |
|
2017 | 12 |
|
Later years | — |
|
Total cash payments for interest were $36 million, $51 million and $46 million in 2012, 2011 and 2010, respectively.
CREDIT FACILITY
On June 26, 2012, Chiquita Brands L.L.C. ("CBL"), the company's main operating subsidiary, amended its Credit Facility to provide the appropriate level of flexibility to execute the company's strategy and absorb the volatility inherent in its business. The amended Credit Facility maintains the $330 million senior secured term loan ("Term Loan") and a $150 million senior secured revolving facility ("Revolver") both maturing July 26, 2016 (May 1, 2014, if the company does not repay, refinance or otherwise extend the maturity of the 7½% Senior Notes by such date). The Credit Facility can be increased by $50 million under certain circumstances.
The Credit Facility contains two financial maintenance covenants, each measured for the most recent four fiscal quarter period: 1) a CBL (operating company) leverage ratio (debt divided by EBITDA, each as defined in the Credit Facility) and 2) a fixed charge coverage ratio (the sum of CBL's EBITDA plus Net Rent divided by Fixed Charges, each as defined in the Credit Facility). The Credit Facility's financial covenants exclude changes in generally accepted accounting principles effective after December 31, 2010. EBITDA, as defined in the Credit Facility, excludes certain non-cash items including stock compensation, impairments and other non-cash charges. Fixed Charges, as defined in the Credit Facility, includes interest payments and distributions by CBL to CBII other than for normal overhead expenses, net rent and net lease expense. Net rent and net lease expense, as defined in the Credit Facility, exclude the estimated portion of ship charter costs that represents normal vessel operating expenses. Debt for purposes of the leverage covenant includes subsidiary debt plus letters of credit outstanding and synthetic leases ($54 million at December 31, 2012). Synthetic leases are operating leases under generally accepted accounting principles, but are capital leases for tax purposes.
The June 2012 amendment created a Covenant Amendment Period, which ends after the third quarter of 2013 unless elected earlier by CBL. CBL may elect to terminate the Covenant Amendment Period at any time after demonstrating its ability to be in compliance with the financial covenants prior to the amendment. During the Covenant Amendment Period, the financial maintenance covenants are as follows: |
| |
Period(s) Ending | CBL Leverage Ratio no higher than: |
Fiscal quarters ending 6/30/2012 - 12/31/2012 | 6.50x |
Fiscal quarter ending 3/31/2013 | 5.75x |
Fiscal quarter ending 6/30/2013 | 4.50x |
Fiscal quarter ending 9/30/2013 | 4.00x |
Fiscal quarter ending 12/31/2013 and the end of any fiscal quarter ended thereafter | 3.50x |
| |
Period(s) Ending | Fixed Charge Coverage Ratio at least: |
Fiscal quarters ending 6/30/2012 - 6/30/2013 | 1.00x |
Fiscal quarter ending 9/30/2013 and the end of any fiscal quarter ended thereafter | 1.15x |
At December 31, 2012 and through the termination of the Credit Facility, the company was in compliance with its financial covenants. The covenants during the Covenant Amendment Period, as well as its duration, were based upon the company's forecasts.
During the Covenant Amendment Period, the limits on capital expenditures are $125 million for fiscal year 2012, $85 million for fiscal year 2013, and return in 2014 to $150 million per year thereafter plus carryovers from the prior year. In addition, during the Covenant Amendment Period, CBL must have Available Liquidity (the sum of (i) the available balance under the Revolver, and (ii) unrestricted cash and cash equivalents) of $50 million and is subject to further limits on prepaying debt, making acquisitions, investments and distributions; after the Covenant Amendment Period, these additional restrictions will not apply.
During the Covenant Amendment Period: (a) the Term Loan and Revolver bear interest, at CBL's election, at a rate of LIBOR plus 4.75% or the Base Rate plus 3.75%; (b) the letter of credit fee is 4.75%; and (c) the commitment fee on the daily unused portions of the Revolver is 0.75%.
The interest rate for the Term Loan was 5.00% and 3.56% at December 31, 2012 and December 31, 2011, respectively. The Term Loan requires quarterly principal repayments of $4 million through June 30, 2013 and quarterly principal repayments of $8 million beginning September 30, 2013 through March 31, 2016, with any remaining principal balance due at June 30, 2016 subject to the early maturity clause described above. The Term Loan may be repaid early without penalty, but amounts repaid under the Term Loan may not be reborrowed.
At December 31, 2012, there were $40 million of borrowings under the Revolver used to fund working capital. In addition, $22 million of the Revolver was used to support letters of credit, leaving an available balance of $88 million. At December 31, 2011, there were no borrowings under the Revolver other than having used $26 million to support letters of credit, leaving an available balance of $124 million.
CBL's obligations under the Credit Facility are guaranteed on a senior secured basis by CBII and all of CBL's material domestic subsidiaries. The obligations under the Credit Facility are secured by substantially all of the assets of CBL and its domestic subsidiaries, including trademarks, 100% of the stock of substantially all of CBL's domestic subsidiaries and no more than 65% of the stock of CBL's direct material foreign subsidiaries. CBII's obligations under its guarantee are secured by a pledge of the stock of CBL. The Credit Facility also places similar customary limitations on the ability of CBL and its subsidiaries to incur additional debt, create liens, dispose of assets and make investments and capital expenditures, as well as limitations on CBL's ability to make loans, distributions or other transfers to CBII. However, payments to CBII are permitted: (i) whether or not any event of default exists or is continuing under the Credit Facility, for all routine operating expenses in connection with the company's normal operations and to fund certain liabilities of CBII, including interest and principal payments on the Senior Notes (defined below), Convertible Notes and any notes used to refinance existing Senior Notes and Convertible Notes, and (ii), subject to no continuing event of default and compliance with the financial covenants, for other financial needs, including (a) payment of dividends and distributions to the company's shareholders and (b) repurchases of the company's common stock.
7½% SENIOR NOTES
The 7½% Senior Notes were callable, in whole or from time to time in part at 101.25% of par value and at par value after November 1, 2012. The indentures for the 7½% Senior Notes contain covenants that limit the ability of the company and its subsidiaries to incur debt and issue preferred stock, dispose of assets, make investments, pay dividends or make distributions in respect of the company's capital stock, create liens, merge or consolidate, issue or sell stock of subsidiaries, enter into transactions with certain shareholders or affiliates, and guarantee company debt. These covenants are generally less restrictive than the covenants under the Credit Facility or the preceding senior secured credit facility discussed further below.
4.25% CONVERTIBLE SENIOR NOTES
In February 2008, the company issued $200 million of Convertible Notes. Interest on the Convertible Notes is payable semiannually in arrears at a rate of 4.25% per annum, beginning August 15, 2008. The Convertible Notes are unsecured, unsubordinated obligations of the parent company and rank equally with the 7½% Senior Notes.
The company's $200 million of Convertible Notes:
| |
• | are convertible at an initial conversion rate of 44.5524 shares of common stock per $1,000 in principal amount, equivalent to an initial conversion price of approximately $22.45 per share of common stock. The conversion rate is subject to adjustment based on certain dilutive events, including stock splits, stock dividends and other distributions (including cash dividends) in respect of the common stock. Holders of the Convertible Notes may tender their notes for conversion between May 15 and August 14, 2016, in multiples of $1,000 in principal amount, without limitation. Prior to May 15, 2016, holders of the Convertible Notes may tender the notes for conversion only under certain circumstances, in accordance with their terms. |
| |
• | may be settled, upon conversion, in shares, in cash or in any combination thereof at the company's option; the company's current intent and policy is to settle with a cash amount equal to the principal portion together with shares of the company's common stock to the extent that the obligation exceeds such principal portion. |
| |
• | are callable for redemption beginning February 19, 2014, under certain circumstances relating to the company's common stock trading price. |
| |
• | are accounted for in two components: (i) a debt component included in "Long-term debt, net of current portion" recorded at the issuance date, representing the estimated fair value of a similar debt instrument without the debt-for-equity conversion feature; and (ii) an equity component included in "Capital surplus" representing the issuance date estimated fair value of the conversion feature. This separation results in the debt being carried at a discount, which is accreted to the principal amount of the debt component using the effective interest rate method over the expected life of the Convertible Notes (through the maturity date). |
To estimate the fair value of the debt component upon issuance, the company discounted the principal balance to result in an effective interest rate of 12.50%, the rate of similar instruments without the debt-for-equity conversion feature at the issuance date; this effective interest rate remains unchanged through the fourth quarter of 2012. The fair value of the equity component was estimated as the difference between the full principal amount and the estimated fair value of the debt component, net of an allocation of issuance costs and income tax effects. These were Level 3 fair value measurements (described in Note 12) and will be reconsidered in the event that any of the Convertible Notes are converted before their maturity.
The carrying amounts of the debt and equity components of the Convertible Notes are as follows:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Principal amount of debt component1 | $ | 200,000 |
|
| $ | 200,000 |
|
Unamortized discount | (46,918 | ) |
| (56,633 | ) |
Net carrying amount of debt component | $ | 153,082 |
|
| $ | 143,367 |
|
| | | |
Equity component | $ | 84,904 |
| | $ | 84,904 |
|
Issuance costs and income taxes | (3,210 | ) | | (3,210 | ) |
Equity component, net of issuance costs and income taxes | $ | 81,694 |
|
| $ | 81,694 |
|
| |
1 | As of December 31, 2012 and 2011, the Convertible Notes' “if-converted” value did not exceed their principal amount because the company's common stock price was below the conversion price of the Convertible Notes. |
The interest expense related to the Convertible Notes was as follows:
|
| | | | | | | | | | | |
| December 31, |
(In thousands) | 2012 |
| 2011 |
| 2010 |
4.25% coupon interest | $ | 8,500 |
|
| $ | 8,500 |
|
| $ | 8,500 |
|
Amortization of deferred financing fees | 469 |
|
| 469 |
|
| 469 |
|
Amortization of discount on the debt component | 9,715 |
|
| 8,606 |
|
| 7,623 |
|
| $ | 18,684 |
|
| $ | 17,575 |
|
| $ | 16,592 |
|
PRECEDING CREDIT FACILITY AND 87/8% SENIOR NOTES
In July 2011, CBL entered into the Credit Facility using the proceeds to retire the preceding senior secured credit facility ("Preceding Credit Facility") and purchase $133 million of CBII's 87/8% Senior Notes due in 2015 in a tender offer at 103.333% of their par value. The company called the remaining $44 million of the 87/8% Senior Notes for redemption in August 2011 at 102.958% of their par value, using the remainder of the proceeds from the Credit Facility together with available cash to redeem them. Expenses related to the refinancing activity of $12 million in 2011 are included in "Other income (expense), net" on the Consolidated Statements of Income and "Loss on debt extinguishment, net" on the Consolidated Statements of Cash Flow. The expenses included the write-off of remaining deferred financing fees from the Preceding Credit Facility and the 87/8% Senior Notes and total premiums paid to retire the 87/8% Senior Notes.
7.875% SENIOR SECURED NOTES - SUBSEQUENT EVENT
On February 5, 2013, CBII and its main operating subsidiary, CBL, completed the offering of $425 million of 7.875% senior secured notes due February 1, 2021. The notes were issued at a discount, 99.274% of par, resulting in an effective interest rate of 8.0%.
The 7.875% Notes are guaranteed on a senior secured basis by all of CBII's and CBL's existing direct and indirect domestic subsidiaries, other than de minimis subsidiaries, and by certain future direct and indirect domestic subsidiaries. The 7.875% Notes and the guarantees are secured, subject to certain exceptions and permitted liens, on a first-priority basis by liens on CBII's, CBL's and the guarantors' existing and after acquired material domestic real estate, 100% of the stock of substantially all of CBII's and CBL's domestic subsidiaries and up to 65% of the stock of certain foreign subsidiaries, and certain intellectual property. The 7.875% Notes and the guarantees are secured, on a second-priority basis, by liens on the assets that secure CBII's and CBL's obligations under the new ABL Facility described below on a first-priority basis, including present and future receivables, inventory, equipment and substantially all of CBII's, CBL's and the guarantors' other domestic assets that do not secure the 7.875% Notes on a first-priority basis.
The 7.875% Notes bear interest of 7.875% per year (payable semi-annually in arrears on February 1 and August 1 of each year, beginning on August 1, 2013). On or before February 1, 2016, CBII and CBL may redeem on one or more occasions up to 35% of the aggregate principal amounts with cash proceeds from certain equity sales at a redemption price of 107.875% of the principal amount plus accrued interest, provided that at least 65% of the original aggregate principal amount of the 7.875% Notes remains outstanding after each such redemption. Also, on or before February 5, 2016, CBII and CBL may redeem a portion of the 7.875% Notes at a redemption price of 103% of the principal amount plus accrued interest, provided that no more $42.5 million aggregate principal amount may be redeemed each year. CBII and CBL may also redeem the 7.875% Notes as follows:
|
| | | |
If redeemed during the 12-month period commencing February 1, | | Redemption Price |
2016 | | 105.906 | % |
2017 | | 103.938 | % |
2018 | | 101.969 | % |
2019 and thereafter | | 100.000 | % |
Upon a change of control of CBII, CBII and CBL will be required to make an offer to purchase the notes at 101% of their principal amount, plus accrued interest.
The 7.875% Notes contain customary covenants that will, among other things and subject to a number of qualifications and exceptions, limit the ability of CBII and its subsidiaries to incur additional indebtedness and issue preferred stock, sell assets, make investments or other restricted payments, pay dividends or make distributions in respect of the capital stock of CBII and its subsidiaries, create certain liens, merge or consolidate, issue or sell preferred stock of subsidiaries, place limits on dividends and other payment restrictions affecting certain subsidiaries, enter into transactions with certain stockholders or affiliates and guarantee debt. If the 7.875% Notes are, in the future, rated investment grade by Standard & Poor's Ratings Group and Moody's Investors Services, Inc., certain of these covenants will be suspended and will not apply to the 7.875% Notes, so long as the 7.875% Notes continue to be rated investment grade by both rating agencies.
The 7.875% Notes include customary events of default, including: failure to pay principal or interest when due; acceleration of other debt agreements representing more than $30 million of indebtedness of CBII and CBL and certain subsidiaries; the entry of non-appealable judgments in excess of $30 million against CBII or CBL and certain subsidiaries; and certain bankruptcy events.
ASSET-BASED LENDING FACILITY - SUBSEQUENT EVENT
CBII and CBL also entered into a 5-year secured ABL Facility concurrently with the closing of the 7.875% Notes offering on February 5, 2013. The ABL Facility has a maximum borrowing capacity of $200 million, subject to a borrowing base calculation based on specified percentages of domestic receivables, certain inventory and certain domestic machinery and equipment with the potential for additional advances against foreign receivables. The ABL Facility matures at the earlier of February 5, 2018 or 60 days prior to the maturity of the 4.25% Convertible Senior Notes due August 15, 2016, unless such notes have been satisfactorily refinanced. The ABL Facility also includes a $7.5 million term loan (the "ABL Term Loan"), which requires annual repayments of approximately $2 million commencing April 1, 2013. The initial borrowing capacity of the ABL Facility other than the ABL Term Loan was $112 million, including $22 million in the Fixed Asset Sub-Line. The initial borrowings under the ABL Facility were $37 million with additional capacity used to support $21 million in letters of credit, leaving $54 million of availability at commencement.
Loans under the ABL Facility bear interest at:
| |
• | A rate equal to LIBOR plus a margin of from 1.75% to 2.25%, or Base Rate plus a margin of from 0.25% to 0.75%, determined based on levels of borrowing availability reset each fiscal quarter, except that through June 30, 2013, at a rate equal to LIBOR plus 2.00% or Base Rate plus 0.50%; |
| |
• | In the case of the Fixed Asset Sub-Line, a rate equal to LIBOR plus a margin from 2.25% to 2.75%, or Base Rate plus a margin of from 0.75% to 1.25%, determined based on levels of borrowing availability reset each fiscal quarter, except through June 30, 2013, at a rate equal to LIBOR plus 2.50% or Base Rate plus 1.00%; and |
| |
• | In the case of the ABL Term Loan, a rate equal to LIBOR plus a margin from 2.75% to 3.25%, or Base Rate plus a margin of from 1.25% to 1.75%, determined based on levels of borrowing availability reset each fiscal quarter. |
At commencement, the weighted average interest rate for the ABL Facility was LIBOR plus 2.42%, or 2.67%.
Obligations under the new ABL Facility are secured by a first-priority security interest in present and future domestic receivables, inventory, equipment and substantially all other domestic assets that are not under the first-priority security interest of the 7.875% Notes, all subject to certain exceptions and permitted liens and by a second-priority interest in the existing and
after acquired material domestic real estate, certain intellectual property and a pledge of 100% of the stock of substantially all of the CBII, CBL and guarantors' domestic subsidiaries and up to 65% of the stock of certain foreign subsidiaries held by CBII, CBL and the guarantors, and proceeds relating thereto. Under the ABL Facility, CBL and non-de minimis domestic subsidiaries are borrowers. The ABL Facility is guaranteed on a full and unconditional basis by CBII and limited domestic subsidiaries of CBII, with the potential for additional guarantees from foreign subsidiaries of CBII. In addition, certain foreign subsidiaries of CBII may become borrowers under the ABL Facility, and certain foreign subsidiaries may guarantee those foreign borrowings.
The ABL Facility contains a fixed charge coverage ratio covenant that only becomes applicable when excess availability (as defined under such facility) is less than 10% of the maximum stated revolver amount thereunder. The ABL Facility also contains a covenant requiring CBII and its subsidiaries to maintain substantially all its cash in accounts that are subject to the control of the collateral agent under the ABL Facility which only becomes applicable when (a) an event of default under the facility occurs and is continuing or (b) excess availability (as defined under such facility) is less than 12.5% of the maximum stated revolver amount thereunder.
The ABL facility also contains other customary affirmative and negative covenants, including limitations on CBII and its subsidiaries' ability to incur indebtedness, create or permit the existence of liens over their assets, engage in certain mergers, asset sales and liquidations, prepay certain indebtedness, pay dividends and other "restricted payments," and engage in transactions with their affiliates, in each case subject to customary exceptions. The company expects to remain in compliance with the covenants of the ABL facility for at least twelve months from the balance sheet date.
Note 11 — Hedging
Derivative instruments are carried at fair value in the Consolidated Balance Sheets. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gains or losses is deferred as a component of "Accumulated other comprehensive income (loss)" and reclassified into net income in the same period during which the hedged transaction affects net income. Gains and losses on derivatives representing hedge ineffectiveness are recognized in net income currently. See further information regarding fair value measurements of derivatives in Note 12.
To manage its exposure to exchange rates on the conversion of euro-based revenue into U.S. dollars, the company uses average rate euro put options, average rate collars (a purchased average rate euro put option paired with a sold average rate euro call option) and average rate euro forward contracts. In some cases, the company may enter into an average rate euro put and an average rate euro call at the same strike rate to effectively lock in the exchange rate of the notional amount similar to an average rate euro forward. Average rate euro put options require an upfront premium payment and reduce the risk of a decline in the value of the euro without limiting the benefit of an increase in the value of the euro. Average rate euro call options sold by the company require an upfront premium payment to be received from the counterparty and limit the benefit of an increase in the value of the euro without limiting the risk of a decline in the value of the euro. Average rate forward contracts lock in the value of the euro and do not require an upfront premium. These instruments are designated as cash flow hedges. At December 31, 2012, the amount of unrealized net losses on the company's currency hedging portfolio that would be reclassified to net income, if realized, in the next twelve months is $23 million; these net losses were deferred in "Accumulated other comprehensive income (loss)."
Most of the company's foreign operations use the U.S. dollar as their functional currency. As a result, balance sheet translation adjustments due to currency fluctuations are recognized currently in "Cost of sales." To reduce the resulting volatility, the company also enters into 30-day euro forward contracts each month to economically hedge the net monetary assets exposed to euro exchange rates. These 30-day euro forward contracts are not designated as hedging instruments, and gains and losses on these forward contracts are recognized currently in "Cost of sales."
|
| | | | | | | | | | | |
| Year ended December 31, |
(In thousands) | 2012 | | 2011 | | 2010 |
Gains (losses) on 30-day euro forward contracts | $ | (2,812 | ) | | $ | 4,267 |
| | $ | 8,437 |
|
Gains (losses) from fluctuations in the value of the net monetary assets exposed to euro exchange rates | (2,187 | ) | | (13,115 | ) | | (11,137 | ) |
The company also enters into bunker fuel forward contracts for its shipping operations, which permit it to lock in fuel purchase prices for up to three years and thereby minimize the volatility that changes in fuel prices could have on its operating results. These bunker fuel forward contracts are designated as cash flow hedging instruments. At December 31, 2012, the amount of unrealized net gains on the company's bunker fuel hedging portfolio that would be reclassified to net income, if realized, in the next twelve months is $6 million; these net gains were deferred in "Accumulated other comprehensive income (loss)." In 2011, the company reduced its expected total bunker fuel consumption and changed the ports where bunker fuel is purchased through the implementation of a new shipping configuration. These changes resulted in recognition of $12 million of
unrealized gains on bunker fuel contracts in "Cost of sales" in the Consolidated Statements of Income in 2011 originally intended to hedge bunker fuel purchases in future periods. These unrealized gains, previously deferred in "Accumulated other comprehensive income (loss)," were recognized because the forecasted hedged bunker fuel purchases, as documented by the company, became probable not to occur. Cash flow hedging relationships of many of the affected bunker fuel forward contracts were reapplied to other bunker fuel purchases, however, accounting standards require these to be based on the market prices at the date the new hedging relationships were established, even though there is no change in the hedging instrument. Bunker fuel forward contracts that were in excess of expected core fuel demand were sold and gains of $2 million were realized. In December 2011, the company sold certain bunker fuel forward contracts representing 74,655 metric tons with maturity dates varying from January 2012 to December 2013; because the forecasted hedged transactions were still probable of occurring, the effective portion of gains or losses will continue to be deferred in "Accumulated other comprehensive income" until each maturity date.
At December 31, 2012, the company's hedge portfolio was comprised of the following outstanding positions:
|
| | | |
| Notional Amount | Contract Average Rate/Price | Settlement Period |
Derivatives designated as hedging instruments: | | | |
Currency derivatives: | | | |
Purchased euro put options | €212 million | $1.20/€ | 2013 |
Sold euro call options | €212 million | $1.28/€ | 2013 |
Average rate forward contracts | €148 million | $1.23/€ | 2013 |
| | | |
3.5% Rotterdam Barge/Singapore 180 fuel derivatives: | | | |
Bunker fuel forward contracts1 | 76,701 mt | $497/mt | 2013 |
Bunker fuel forward contracts1 | 108,416 mt | $587/mt | 2014 |
Bunker fuel forward contracts | 74,640 mt | $564/mt | 2015 |
| | | |
Derivatives not designated as hedging instruments: | | | |
30-day euro forward contracts | €50 million | $1.32/€ | January 2013 |
| |
1 | As described in the paragraph above, new cash flow hedge relationships were established for certain bunker fuel forward contracts in 2011. These changes result in hedge rates for accounting purposes that are different from those in the hedge contract terms. |
Activity related to the company's derivative assets and liabilities designated as hedging instruments is as follows:
|
| | | | | | | |
(In thousands) | Currency Hedge Portfolio | | Bunker Fuel Forward Contracts |
Balance at December 31, 2010 | $ | 293 |
| | $ | 27,314 |
|
Realized (gains) losses included in net income | (501 | ) | | (37,019 | ) |
Purchases (sales), net1 | 5,013 |
| | (10,296 | ) |
Changes in fair value | 427 |
| | 34,755 |
|
Balance at December 31, 2011 | $ | 5,232 |
| | $ | 14,754 |
|
Realized (gains) losses included in net income | (651 | ) | | (16,053 | ) |
Purchases (sales), net1 | 850 |
| | — |
|
Changes in fair value | (28,646 | ) | | 9,871 |
|
Balance at December 31, 2012 | $ | (23,215 | ) | | $ | 8,572 |
|
| |
1 | Purchases (sales) represent the cash premiums paid upon the purchase of euro put options or received upon the sale of euro call options and sales of bunker fuel forward contracts prior to their expiration. Bunker fuel forward contracts require no up-front cash payment and have an initial fair value of zero; settlements on the forward contracts (swaps) occur upon their maturity. |
Deferred net gains (losses) in "Accumulated other comprehensive income (loss)" at December 31, 2012 are expected to be reclassified into income as follows:
(In thousands)
|
| | | | | | | | | | | | |
Expected Period of Recognition | | Currency Hedge Portfolio | | Bunker Fuel Forward Contracts | | Total |
2013 | | $ | (23,476 | ) | | $ | 6,128 |
| | $ | (17,348 | ) |
2014 | | — |
| | (98 | ) | | (98 | ) |
2015 | | — |
| | 888 |
| | 888 |
|
| | $ | (23,476 | ) | | $ | 6,918 |
| | $ | (16,558 | ) |
The following table summarizes the effect of the company's derivatives designated as cash flow hedging instruments on OCI and earnings:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2012 | | Year Ended December 31, 2011 |
(In thousands) | Currency Hedge Portfolio | | Bunker Fuel Forward Contracts | | Total | | Currency Hedge Portfolio | | Bunker Fuel Forward Contracts | | Total |
Gain (loss) recognized in OCI on derivative (effective portion) | $ | (27,467 | ) | | $ | 10,539 |
| | $ | (16,928 | ) | | $ | 14,243 |
| | $ | 24,660 |
| | $ | 38,903 |
|
Gain (loss) reclassified from AOCI into income (effective portion)1 | 1,240 |
| | 16,053 |
| | 17,293 |
| | 7,805 |
| | 37,019 |
| | 44,824 |
|
Gain (loss) recognized in income on derivative (ineffective portion)1 | — |
| | (668 | ) | | (668 | ) | | — |
| | 10,095 |
| | 10,095 |
|
| |
1 | Both the gain (loss) reclassified from accumulated OCI into income (effective portion) and the gain (loss) recognized in income on derivative (ineffective portion), if any, are included in "Net sales" for the currency hedge portfolio and "Cost of sales" for bunker fuel forward contracts. |
Note 12 — Fair Value Measurements
Fair value is the price to hypothetically sell an asset or transfer a liability in an orderly manner in the principal market for that asset or liability. Accounting standards prioritize the use of observable inputs in measuring fair value. The level of a fair value measurement is determined entirely by the lowest level input that is significant to the measurement. The three levels are (from highest to lowest):
Level 1 – observable prices in active markets for identical assets and liabilities;
Level 2 – observable inputs other than quoted market prices in active markets for identical assets and liabilities, which include quoted prices for similar assets or liabilities in an active market and market-corroborated inputs; and
Level 3 – unobservable inputs.
The following table summarizes financial assets and liabilities carried at fair value, including derivative instruments on a gross basis, and the location of these instruments on the Consolidated Balance Sheets as of December 31, 2012 and 2011:
|
| | | | | | | | | | | | | | | | | |
| | | Assets (Liabilities) | | Fair Value Measurements Using |
(In thousands) | Balance Sheet Location | | at Fair Value | | Level 1 | | Level 2 | | Level 3 |
Derivatives1: | | | | | | | | | |
Currency hedge portfolio | Other current assets | | $ | 192 |
| | $ | — |
| | $ | 192 |
| | $ | — |
|
Currency hedge portfolio | Other current assets | | (2,550 | ) | | — |
| | (2,550 | ) | | — |
|
Currency hedge portfolio | Accrued liabilities | | 1,992 |
| | — |
| | 1,992 |
| | — |
|
Currency hedge portfolio | Accrued liabilities | | (22,849 | ) | | — |
| | (22,849 | ) | | — |
|
30-day euro forward contracts | Other current assets | | 4 |
| | — |
| | 4 |
| | — |
|
30-day euro forward contracts | Other current assets | | (11 | ) | | — |
| | (11 | ) | | — |
|
30-day euro forward contracts | Accrued liabilities | | 1 |
| | — |
| | 1 |
| | — |
|
30-day euro forward contracts | Accrued liabilities | | (24 | ) | | — |
| | (24 | ) | | — |
|
Bunker fuel forward contracts | Other current assets | | 4,001 |
| | — |
| | 4,001 |
| | — |
|
Bunker fuel forward contracts | Investments and other assets, net | | 1,889 |
| | — |
| | 1,889 |
| | — |
|
Bunker fuel forward contracts | Investments and other assets, net | | (1,059 | ) | | — |
| | (1,059 | ) | | — |
|
Bunker fuel forward contracts | Accrued liabilities | | 3,741 |
| | — |
| | 3,741 |
| | — |
|
Available-for-sale investment | Other current assets | | 1,668 |
| | 1,668 |
| | — |
| | — |
|
December 31, 2012 | | | $ | (13,005 | ) | | $ | 1,668 |
| | $ | (14,673 | ) | | $ | — |
|
Derivatives1: | | | | | | | | | |
Currency hedge portfolio | Other current assets | | $ | 5,232 |
| | $ | — |
| | $ | 5,232 |
| | $ | — |
|
30-day euro forward contracts | Other current assets | | 650 |
| | — |
| | 650 |
| | — |
|
Bunker fuel forward contracts | Other current assets | | 17,490 |
| | — |
| | 17,490 |
| | — |
|
Bunker fuel forward contracts | Other current assets | | (5,460 | ) | | — |
| | (5,460 | ) | | — |
|
Bunker fuel forward contracts | Investments and other assets, net | | 7,232 |
| | — |
| | 7,232 |
| | — |
|
Bunker fuel forward contracts | Investments and other assets, net | | (3,990 | ) | | — |
| | (3,990 | ) | | — |
|
Bunker fuel forward contracts | Other liabilities | | 577 |
| | — |
| | 577 |
| | — |
|
Bunker fuel forward contracts | Other liabilities | | (1,095 | ) | | — |
| | (1,095 | ) | | — |
|
Available-for-sale investment | Investments and other assets, net | | 2,683 |
| | 2,683 |
| | — |
| | — |
|
December 31, 2011 | | | $ | 23,319 |
| | $ | 2,683 |
| | $ | 20,636 |
| | $ | — |
|
| |
1 | Currency hedge portfolio and bunker fuel forward contracts are designated as hedging instruments. 30-day euro forward contracts are not designated as hedging instruments. To the extent derivatives in an asset position and derivatives in a liability position are with the same counterparty, they are netted in the Consolidated Balance Sheets because the company enters into master netting arrangements with each of its hedging partners. See also Note 11. |
The company values fuel hedging positions by applying an observable discount rate to the current forward prices of identical hedge positions. The company values currency hedging positions by utilizing observable or market-corroborated inputs such as exchange rates, volatility and forward yield curves. The company trades only with counterparties that meet certain liquidity and creditworthiness standards, and does not anticipate non-performance by any of these counterparties. The company does not require collateral from its counterparties, nor is it obligated to provide collateral when contracts are in a liability position. However, consideration of non-performance risk is required when valuing derivative instruments, and the company includes an adjustment for non-performance risk in the recognized measure of derivative instruments to reflect the full credit default spread ("CDS") applied to a net exposure by counterparty. When there is a net asset position, the company uses the counterparty's CDS; when there is a net liability position, the company uses its own estimated CDS. CDS is generally not a significant input in measuring fair value, and was not significant for any of the company's derivative instruments in any period presented. See further discussion and tabular disclosure of hedging activity in Note 11.
Financial instruments not carried at fair value consist of the company's parent company debt and subsidiary debt. See further fair value discussion and tabular disclosure in Note 10.
Fair value measurements of benefit plan assets included in net benefit plan liabilities are based on quoted market prices in active markets (Level 1) or quoted prices in inactive markets (Level 2) as shown in Note 14. The carrying amounts of cash and equivalents, accounts receivable, other receivables including current and non-current finance receivables, and accounts payable approximate fair value. Level 3 fair value measurements are used in the impairment reviews of goodwill and intangible assets, which take place annually during the fourth quarter, or as circumstances indicate the possibility of impairment. Level 3 fair
value measurements are also used in measuring impairments related to long-lived assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable and in periodic assessments for other-than-temporary impairment of the company's equity method investment in the Danone JV. The 2012 Level 3 assessment of the fair value of the investment in the Danone JV was based on expected cash flows. The initial Level 3 measurement of the equity method investment in the Danone JV occurred in 2010 when the European smoothie business was deconsolidated and the joint venture was established.
Note 13 — Leases
Total rental expense consists of the following:
|
| | | | | | | | | | | |
(In thousands) | 2012 | | 2011 | | 2010 |
Gross rentals | | | | | |
Ships and containers | $ | 198,137 |
| | $ | 175,905 |
| | $ | 165,562 |
|
Other | 42,252 |
| | 40,879 |
| | 39,063 |
|
| 240,389 |
| | 216,784 |
| | 204,625 |
|
Sublease rentals | (21,961 | ) | | (5,416 | ) | | (4,679 | ) |
| $ | 218,428 |
| | $ | 211,368 |
| | $ | 199,946 |
|
The company leases eleven cargo ships (eight refrigerated and three containerized) through 2014 under a sale-leaseback, with options for up to an additional five years, and four ships through 2013. No purchase options exist on ships under operating leases. A deferred gain on the 2007 sale-leaseback of eleven refrigerated cargo ships is being recognized as a reduction of "Cost of sales" over the base term of the leases, through 2014. In 2011, the company implemented a new shipping configuration involving shipment of part of its core volume in container equipment on board the ships of certain third-party container shipping operators. As a result of this change, five chartered cargo ships were subleased until the end of 2012, and eight ship charters were not renewed for 2013. In 2011, the company accelerated $4 million of ship charter expense, net of expected sublease income, due to this reconfiguration for two ships that were taken out of the company's shipping rotation. In the first quarter of 2012, the other three ships were taken out of the shipping rotation, and the company accelerated $6 million of losses on these ship sublease arrangements, net of $2 million of related sale-leaseback gain amortization during the sublease period.
The company also leases more than 13,000 containers and approximately 3,000 to 4,000 generator sets and chassis used for inland transportation of these containers. These leases range from 5-8 years and are used for both ocean and ground transportation of bananas, other produce and other cargo. Certain of these lease arrangements include financial covenants that reference those under the company's Credit Facility. As of the date of this filing, all but one of these lease arrangements have been amended to reference the financial covenants of the ABL Facility in connection with the refinancing activities described in Note 10; negotiations for the last lease are underway, and remaining lease payments on this lease total $16 million. At December 31, 2012, the company was in compliance with these financial covenants and expects to remain in compliance for at least twelve months from the balance sheet date.
A portion of the company's operating leases of containers contain residual value guarantees under which the company guarantees a certain minimum value of the containers at the end of the lease. If the company does not exercise its purchase option at the end of the lease, and the lessor cannot sell the containers for at least the guaranteed amount, the company will have to pay the difference to the lessor. The company estimates that the residual value guarantees are approximately $16 million, $21 million and $26 million at December 31, 2012, 2011 and 2010, respectively. The company also estimates that the fair value of these residual value guarantees are nominal because the fair value of the containers at the end of the lease term is expected to exceed the residual value that was guaranteed under the lease. Therefore, the company does not expect to make payments under the residual value guarantees and has not recorded a liability in the consolidated financial statements.
Portions of the minimum rental payments for ships constitute reimbursement for ship operating costs paid by the lessor. In addition, the company incurs a significant amount of short-term rental expense related to leases of ships and farm land for growing lettuce, which are not included in the future minimum rental payments table below.
Future minimum rental payments required under operating leases having initial or remaining non-cancelable lease terms in excess of one year at December 31, 2012 are as follows:
|
| | | | | | | | | | | |
(In thousands) | Ships and Containers | | Other | | Total |
2013 | $ | 101,075 |
| | $ | 22,496 |
| | $ | 123,571 |
|
2014 | 52,349 |
| | 16,140 |
| | 68,489 |
|
2015 | 37,550 |
| | 12,885 |
| | 50,435 |
|
2016 | 29,447 |
| | 8,022 |
| | 37,469 |
|
2017 | 20,456 |
| | 7,367 |
| | 27,823 |
|
Later years | 10,549 |
| | 23,532 |
| | 34,081 |
|
BUILD-TO-SUIT LEASE FOR MIDWEST SALAD PLANT CONSOLIDATION
In June 2012, the company entered into a 20-year lease agreement for a salad production and warehousing facility in the Midwest that will replace three existing facilities in the region. The lease agreement contains two 5-year extension periods. Though the construction costs are being financed by the lessor, because of the specialized nature of the facility the company is acting as the construction agent and will be responsible for all construction activity during the construction period. This results in the company owning the facility for accounting purposes and as such, the company has recognized as of December 31, 2012 an asset of $28 million included in "Property, plant and equipment, net" and a corresponding $28 million obligation for the construction in progress of the leased facility included in "Other liabilities," which represents the cumulative cost of the facility through the balance sheet date. Total construction costs are expected to be approximately $40 million through completion in mid-2013.
Note 14 — Pension and Severance Benefits
The company and its subsidiaries have several defined benefit and defined contribution pension plans covering domestic and foreign employees and have severance plans covering Central American employees. Pension plans covering eligible salaried and hourly employees and Central American severance plans for all employees call for benefits to be based upon years of service and compensation rates. The company uses a December 31 measurement date for all of its plans.
Pension and severance expense consists of the following: |
| | | | | | | | | | | |
| Domestic Plans |
(In thousands) | 2012 | | 2011 | | 2010 |
Defined benefit and severance plans: | | | | | |
Service cost | $ | 363 |
| | $ | 447 |
| | $ | 466 |
|
Interest on projected benefit obligation | 1,086 |
| | 1,237 |
| | 1,327 |
|
Expected return on plan assets | (1,477 | ) | | (1,685 | ) | | (1,668 | ) |
Recognized actuarial loss | 374 |
| | 239 |
| | 144 |
|
| 346 |
| | 238 |
| | 269 |
|
Defined contribution plans | 8,544 |
| | 8,718 |
| | 9,225 |
|
Total pension and severance expense | $ | 8,890 |
| | $ | 8,956 |
| | $ | 9,494 |
|
| | | | | |
| Foreign Plans |
(In thousands) | 2012 | | 2011 | | 2010 |
Defined benefit and severance plans: | | | | | |
Service cost | $ | 6,783 |
| | $ | 6,291 |
| | $ | 6,105 |
|
Interest on projected benefit obligation | 3,903 |
| | 4,044 |
| | 4,195 |
|
Expected return on plan assets | (32 | ) | | (34 | ) | | (37 | ) |
Recognized actuarial loss | 570 |
| | 647 |
| | 821 |
|
Amortization of prior service cost | 128 |
| | 128 |
| | 128 |
|
| 11,352 |
| | 11,076 |
| | 11,212 |
|
Net settlement gain | — |
| | (134 | ) | | (118 | ) |
| 11,352 |
| | 10,942 |
| | 11,094 |
|
Defined contribution plans | 466 |
| | 428 |
| | 410 |
|
Total pension and severance expense | $ | 11,818 |
| | $ | 11,370 |
| | $ | 11,504 |
|
The company's pension and severance benefit obligations relate primarily to Central American benefits which, in accordance with local government regulations, are generally not funded until benefits are paid. Domestic pension plans are funded in accordance with the requirements of the Employee Retirement Income Security Act.
In 2011 and 2010, net settlement gains, as shown above, resulted from severance payments made to employees terminated in Panama. There were no net settlement gains in 2012.
Financial information with respect to the company's domestic and foreign defined benefit pension and severance plans is as follows:
|
| | | | | | | | | | | | | | | |
| Domestic Plans Year Ended December 31, | | Foreign Plans Year Ended December 31, |
(In thousands) | 2012 | | 2011 | | 2012 | | 2011 |
Fair value of plan assets at beginning of year | $ | 18,505 |
| | $ | 19,249 |
| | $ | 5,073 |
| | $ | 5,014 |
|
Actual return on plan assets | 2,244 |
| | (244 | ) | | 47 |
| | 74 |
|
Employer contributions | 1,274 |
| | 1,936 |
| | 8,372 |
| | 8,409 |
|
Benefits paid | (2,555 | ) | | (2,436 | ) | | (8,275 | ) | | (8,424 | ) |
Foreign exchange | — |
| | — |
| | (41 | ) | | — |
|
Fair value of plan assets at end of year | $ | 19,468 |
| | $ | 18,505 |
| | $ | 5,176 |
| | $ | 5,073 |
|
| | | | | | | |
Projected benefit obligation at beginning of year | $ | 26,774 |
| | $ | 25,665 |
| | $ | 59,228 |
| | $ | 57,454 |
|
Service and interest cost | 1,449 |
| | 1,684 |
| | 10,686 |
| | 10,335 |
|
Actuarial loss (gain) | 1,665 |
| | 1,861 |
| | (942 | ) | | (79 | ) |
Benefits paid | (2,555 | ) | | (2,436 | ) | | (8,275 | ) | | (8,424 | ) |
Foreign exchange | — |
| | — |
| | (12 | ) | | (58 | ) |
Projected benefit obligation at end of year | $ | 27,333 |
| | $ | 26,774 |
| | $ | 60,685 |
| | $ | 59,228 |
|
| | | | | | | |
Plan assets less than projected benefit obligation | $ | (7,865 | ) | | $ | (8,269 | ) | | $ | (55,509 | ) | | $ | (54,155 | ) |
The short-term portion of the foreign plans' unfunded status was approximately $5 million and $9 million as of December 31, 2012 and 2011, respectively. There is no short-term portion of the domestic plans' unfunded status at both December 31, 2012 and 2011. The foreign plans' accumulated benefit obligation was $45 million and $46 million as of December 31, 2012 and 2011, respectively. The domestic plans' accumulated benefit obligation was $27 million as of both December 31, 2012 and 2011.
The following weighted-average assumptions were used to determine the projected benefit obligations for the company's domestic pension plans and foreign pension and severance plans:
|
| | | | | | | | | | | |
| Domestic Plans December 31, | | Foreign Plans December 31, |
| 2012 | | 2011 | | 2012 | | 2011 |
Discount rate | 3.50 | % | | 4.25 | % | | 6.75 | % | | 6.75 | % |
Rate of compensation increase | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.00 | % |
The company's long-term rate of return on plan assets is based on the strategic asset allocation and future expected returns on plan assets. The following weighted-average assumptions were used to determine the net periodic benefit cost for the company's domestic pension plans and foreign pension and severance plans:
|
| | | | | | | | | | | |
| Domestic Plans December 31, | | Foreign Plans December 31, |
| 2012 | | 2011 | | 2012 | | 2011 |
Discount rate | 4.25 | % | | 5.00 | % | | 6.75 | % | | 8.00 | % |
Rate of compensation increase | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.00 | % |
Long-term rate of return on plan assets | 8.00 | % | | 8.00 | % | | 1.00 | % | | 1.00 | % |
Included in "Accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets are the following amounts that have not yet been recognized in net periodic pension cost:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Unrecognized actuarial losses | $ | 23,156 |
| | $ | 24,263 |
|
Unrecognized prior service costs | 820 |
| | 948 |
|
The total prior service cost and actuarial loss included in "Accumulated other comprehensive income (loss)" and expected to be included in net periodic pension cost during the next twelve months is $1 million.
The weighted-average asset allocations of the company's domestic pension plans and foreign pension and severance plans by asset category are as follows:
|
| | | | | | | | | | | |
| Domestic Plans December 31, | | Foreign Plans December 31, |
| 2012 | | 2011 | | 2012 | | 2011 |
Asset category: | | | | | | | |
Equity securities | 75 | % | | 71 | % | | 4 | % | | — |
|
Fixed income securities | 23 | % | | 26 | % | | 54 | % | | 54 | % |
Cash and equivalents | 2 | % | | 3 | % | | 42 | % | | 46 | % |
The primary investment objective for the domestic plans is preservation of capital with a reasonable amount of long-term growth and income without undue exposure to risk. This is provided by a balanced strategy using fixed income securities, equities and cash equivalents. The target allocation of the overall fund is 75% equities and 25% fixed income securities. The cash position is maintained at a level sufficient to provide for the liquidity needs of the fund. For the funds covering the foreign plans, the asset allocations are primarily mandated by the applicable governments, with an investment objective of minimal risk exposure.
Mutual funds, domestic common stock, corporate debt securities and mortgage-backed pass-through securities held in the plans are publicly traded and are valued using the net asset value, or closing price of the investment at the measurement date. There have been no changes in the methodologies used at December 31, 2012 and 2011. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The fair values of assets of the company's pension plans were as follows:
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
(In thousands) | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) |
December 31, 2012 | | | | | | | |
Domestic pension plans: | | | | | | | |
Money market accounts | $ | 393 |
| | $ | 393 |
| | $ | — |
| | $ | — |
|
Mutual funds: | | | | | | | |
Domestic | 7,207 |
| | 7,207 |
| | — |
| | — |
|
International | 2,280 |
| | 2,280 |
| | — |
| | — |
|
Domestic large-cap common stock | 5,045 |
| | 5,045 |
| | — |
| | — |
|
Fixed income securities: | | | | | | | |
Corporate bonds | 2,442 |
| | — |
| | 2,442 |
| | — |
|
Mortgage/asset-backed securities | 1,795 |
| | — |
| | 1,795 |
| | — |
|
Other | 306 |
| | 28 |
| | 278 |
| | — |
|
Total assets of domestic pension plans | 19,468 |
| | 14,953 |
| | 4,515 |
| | — |
|
Foreign pension and severance plans: | | | | | | | |
Cash and equivalents | 2,158 |
| | 2,158 |
| | — |
| | — |
|
Equity | 199 |
| | 199 |
| | — |
| | — |
|
Fixed income securities | 2,819 |
| | — |
| | 2,819 |
| | — |
|
Total assets of foreign pension and severance plans | 5,176 |
| | 2,357 |
| | 2,819 |
| | — |
|
Total assets of pension and severance plans | $ | 24,644 |
| | $ | 17,310 |
| | $ | 7,334 |
| | $ | — |
|
December 31, 2011 | | | | | | | |
Domestic pension plans: | | | | | | | |
Money market accounts | $ | 538 |
| | $ | 538 |
| | $ | — |
| | $ | — |
|
Mutual funds: | | | | | | | |
Domestic | 6,546 |
| | 6,546 |
| | — |
| | — |
|
International | 1,912 |
| | 1,912 |
| | — |
| | — |
|
Domestic large-cap common stock | 4,717 |
| | 4,717 |
| | — |
| | — |
|
Fixed income securities: | | | | | | | |
Corporate bonds | 2,642 |
| | — |
| | 2,642 |
| | — |
|
Mortgage/asset-backed securities | 1,968 |
| | — |
| | 1,968 |
| | — |
|
Other | 182 |
| | — |
| | 182 |
| | — |
|
Total assets of domestic pension plans | 18,505 |
| | 13,713 |
| | 4,792 |
| | — |
|
Foreign pension and severance plans: | | | | | | | |
Cash and equivalents | 2,347 |
| | 2,347 |
| | — |
| | — |
|
Fixed income securities | 2,726 |
| | — |
| | 2,726 |
| | — |
|
Total assets of foreign pension and severance plans | 5,073 |
| | 2,347 |
| | 2,726 |
| | — |
|
Total assets of pension and severance plans | $ | 23,578 |
| | $ | 16,060 |
| | $ | 7,518 |
| | $ | — |
|
The company expects to contribute approximately $1 million, including discretionary contributions, to its domestic defined benefit pension plans and expects to contribute approximately $7 million to its foreign pension and severance plans in 2013.
Expected benefit payments for the company's domestic defined benefit pension plans and foreign pension and severance plans are as follows:
|
| | | | | | | |
(In thousands) | Domestic Plans | | Foreign Plans |
2013 | $ | 2,046 |
| | $ | 7,211 |
|
2014 | 2,028 |
| | 7,457 |
|
2015 | 2,022 |
| | 8,149 |
|
2016 | 1,987 |
| | 9,054 |
|
2017 | 1,941 |
| | 9,499 |
|
2018-2022 | 8,889 |
| | 44,778 |
|
The company is also a participant in several multiemployer defined benefit plans based in the United Kingdom and the United States. Expense is recognized as the company is notified of funding requirements. Expense recognized related to these multiemployer plans in 2012, 2011 and 2010 was not significant. The company does not expect future contribution requirements to be material.
Note 15 — Income Taxes
"Income tax (expense) benefit" in the Consolidated Statements of Income consists of the following:
|
| | | | | | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 | | 2010 |
Current: | | | | | |
U.S. Federal | $ | — |
| | $ | — |
| | $ | 1,300 |
|
U.S. State and local | (1,353 | ) | | (1,564 | ) | | 1,354 |
|
International | (13,569 | ) | | (11,036 | ) | | 437 |
|
Total current tax (expense) benefit | $ | (14,922 | ) | | $ | (12,600 | ) | | $ | 3,091 |
|
Deferred: | | | | | |
U.S. Federal | $ | (82,098 | ) | | $ | 90,148 |
| | $ | — |
|
U.S. State and local | (6,456 | ) | | 7,261 |
| | 33 |
|
International | (1,763 | ) | | (2,609 | ) | | (1,524 | ) |
Total deferred tax (expense) benefit | $ | (90,317 | ) | | $ | 94,800 |
| | $ | (1,491 | ) |
Total (expense) benefit for income taxes | $ | (105,239 | ) | | $ | 82,200 |
| | $ | 1,600 |
|
Cash payments for income taxes were $8 million, $17 million and $9 million in 2012, 2011 and 2010, respectively.
The components of deferred income taxes included on the Consolidated Balance Sheets are as follows:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Deferred tax benefits: | | | |
Net operating loss carryforwards | $ | 231,326 |
| | $ | 196,114 |
|
Other tax carryforwards | 3,065 |
| | 1,768 |
|
Employee benefits | 30,040 |
| | 30,489 |
|
Accrued expenses | 25,201 |
| | 24,840 |
|
Depreciation and amortization | 20,193 |
| | 15,935 |
|
Other | 5,067 |
| | 2,544 |
|
Total deferred tax assets | 314,892 |
| | 271,690 |
|
Valuation allowance | (246,425 | ) | | (104,256 | ) |
Deferred tax assets, net of valuation allowance | $ | 68,467 |
| | $ | 167,434 |
|
Deferred tax liabilities: | | | |
Depreciation and amortization | (4,097 | ) | | — |
|
Growing crops | (18,331 | ) | | (17,379 | ) |
Trademarks | (127,533 | ) | | (136,696 | ) |
Discount on Convertible Notes | (18,285 | ) | | (22,017 | ) |
Other | (2,606 | ) | | (4,397 | ) |
Total deferred tax liabilities | (170,852 | ) | | (180,489 | ) |
Net deferred tax liabilities | $ | (102,385 | ) | | $ | (13,055 | ) |
Deferred taxes are included in the following captions in the Consolidated Balance Sheets:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Other current assets | $ | 7,406 |
| | $ | 26,685 |
|
Investments and other assets, net | 1,837 |
| | 3,508 |
|
Deferred income | — |
| | — |
|
Deferred tax liabilities | (111,628 | ) | | (43,248 | ) |
Net deferred tax liability | $ | (102,385 | ) | | $ | (13,055 | ) |
U.S. federal net operating loss carryforwards ("NOLs") were $352 million and $285 million as of December 31, 2012 and 2011, respectively. The U.S. NOLs existing at December 31, 2012 will expire between 2024 and 2029. Foreign NOLs were $672 million and $485 million at December 31, 2012 and 2011, respectively. U.S. state NOLs were $326 million and $323 million as of December 31, 2012 and 2011, respectively. The U.S. state NOLs will expire between 2013 and 2023. Foreign NOLs existing at December 31, 2012 of $498 million will expire between 2013 and 2026. The remaining $174 million of foreign NOLs existing at December 31, 2012 have an indefinite carryforward period.
In the fourth quarter of 2012, the company recorded a $130 million valuation allowance against most of its U.S. federal and state deferred tax assets, which are primarily NOLs. The assessment of the realization of the deferred tax assets was based primarily on the 3-year cumulative loss position incurred as of December 31, 2012 in the company's North American businesses resulting from the restructuring and relocation activities described in Note 3, the trademark impairment described in Note 8 and the reserve for grower receivables described in Note 4. As a result of the negative indicator, all evidence to support the realization of the deferred tax assets was reevaluated, including existing deferred tax liabilities, tax planning strategies consistent with current business plans and forecasted future taxable income. The primary positive evidence related to forecasts of future taxable income; however, accounting guidance restricts the amount of reliance that can be placed on future taxable income because it is not objectively verifiable. A sustained period of profitability in the company's North American businesses will be required before the full amount of the valuation allowance would be reversed. Until such time, the utilization of existing U.S. net operating losses or generation of additional U.S. net operating losses will not result in income tax expense or benefit as the corresponding valuation allowance will be released or established for the same value and as such have a significant impact on the company's effective tax rate.
In the second quarter of 2011, as a result of sustained improvements in the performance of the company's North American businesses and the benefits of debt reduction over several years, the company generated annual U.S. taxable income beginning with tax year 2009 through 2011, and expected the trend to continue, even if seasonal losses may have been incurred in interim
periods or due to certain significant events such as the events described above. In 2011, the company's forecast included increased visibility to North American banana pricing and stabilized sourcing costs. As a result of the considerations of the positive evidence, which outweighed the negative evidence at the time, the company recognized an $87 million income tax benefit in the second quarter of 2011 for the reversal of valuation allowances against all of the U.S. federal deferred tax assets and a portion of the state deferred tax assets, primarily NOLs, which are more likely than not to be realized in the future. The income tax benefit recorded in 2011 also did not affect the amount of cash that the company paid for taxes and did not affect the company's liquidity, borrowing ratios or the availability of other capital resources.
The company's overall effective tax rate may also vary significantly from period to period due to the level and mix of income among domestic and foreign jurisdictions and the creation or release of valuation allowance. Many of these foreign jurisdictions have tax rates that are lower than the U.S. statutory rate, and the company continues to maintain full valuation allowances on deferred tax assets in some of these foreign jurisdictions. Other items that do not otherwise affect the company's earnings can also affect the overall effective tax rate, such as the effect of changing exchange rates on intercompany balances that can change the mix of income among domestic and foreign jurisdictions. The 2012 income tax expense also includes $4 million of out of period adjustment expense. The company does not believe the error was material to any prior or current year financial statements. Income before taxes attributable to foreign operations was $38 million, $11 million and $11 million in 2012, 2011 and 2010, respectively.
Undistributed earnings of foreign subsidiaries, which were approximately $1.6 billion at December 31, 2012, have been permanently reinvested in foreign operations. Accordingly, no provision for U.S. federal and state income taxes has been recorded on these earnings.
"Income tax (expense) benefit" differs from income taxes computed at the U.S. federal statutory rate for the following reasons:
|
| | | | | | | | | | | |
(In thousands) | 2012 | | 2011 | | 2010 |
Income tax (expense) benefit computed at U.S. federal statutory rate | $ | 104,228 |
| | $ | 8,882 |
| | $ | (20,658 | ) |
State income taxes, net of federal benefit | (5,076 | ) | | (856 | ) | | (1,149 | ) |
Impact of foreign operations | (15,100 | ) | | (9,750 | ) | | (25,508 | ) |
Change in valuation allowance | (133,135 | ) | | 85,375 |
| | 38,794 |
|
Goodwill | (52,500 | ) | | — |
| | — |
|
Tax contingencies | (2,230 | ) | | (1,167 | ) | | 9,764 |
|
Other | (1,426 | ) | | (284 | ) | | 357 |
|
Income tax (expense) benefit | $ | (105,239 | ) | | $ | 82,200 |
| | $ | 1,600 |
|
At December 31, 2012, 2011 and 2010, the company had unrecognized tax benefits of approximately $6 million, $4 million and $7 million, respectively, which could affect the company’s effective tax rate, if recognized. Interest and penalties included in “Income tax (expense) benefit” were less than $1 million , $2 million and $4 million in 2012, 2011 and 2010, respectively, and the cumulative interest and penalties included in the Consolidated Balance Sheets at both December 31, 2012 and 2011 were $1 million.
A summary of the activity for the company’s unrecognized tax benefits follows:
|
| | | | | | | | | | | |
(In thousands) | 2012 | | 2011 | | 2010 |
Balance as of beginning of the year | $ | 6,308 |
| | $ | 10,295 |
| | $ | 15,825 |
|
Additions of tax positions of prior years | 3,815 |
| | 4,955 |
| | — |
|
Settlements | — |
| | (5,843 | ) | | — |
|
Reductions due to lapse of the statute of limitations | (4,196 | ) | | (3,054 | ) | | (4,715 | ) |
Foreign currency exchange change | (2 | ) | | (45 | ) | | (815 | ) |
Balance as of end of the year | $ | 5,925 |
| | $ | 6,308 |
| | $ | 10,295 |
|
During the next twelve months, it is reasonably possible that unrecognized tax benefits impacting the effective tax rate could be recognized as a result of the expiration of statutes of limitation in the amount of $1 million plus accrued interest and penalties. The following tax years remain subject to examinations by major tax jurisdictions:
|
| |
| Tax Years |
Tax Jurisdiction: | |
United States | 2008 – current |
Germany | 2001 – current |
Italy | 2007 – current |
Netherlands | 2006 – current |
Switzerland | 2008 – current |
Note 16 — Stock-Based Compensation
The company may issue up to an aggregate of 10.5 million shares of common stock as stock awards (including restricted stock units), stock options, performance awards and stock appreciation rights ("SARs") under its stock incentive plan; at December 31, 2012, 1.6 million shares were available for future grants. Stock awards and stock options issued to the company's chief executive officer are under a separate plan as described in Note 1. Stock options provide for the purchase of shares of common stock at fair market value at the date of grant. The company issues new shares when grants of restricted stock units vest or when options are exercised under the stock plans. Stock compensation expense totaled $8 million, $10 million and $14 million for the years ended December 31, 2012, 2011 and 2010, respectively.
RESTRICTED STOCK UNITS
The company's share-based awards primarily consist of restricted stock units, which generally vest over four years. The fair value of the awards at the grant date is expensed over the period from the grant date to the date the employee is no longer required to provide service to earn the award. Prior to vesting, grantees are not eligible to vote or receive dividends on the restricted stock units.
A summary of the activity and related information for the company's restricted stock units follows: |
| | | | | | |
| 2012 |
(In thousands, except per share amounts) | Units | | Weighted average grant date price |
Unvested units at January 1, 2012 | 1,840 |
| | $ | 12.18 |
|
Units granted | 778 |
| | 9.38 |
|
Units vested | (622 | ) | | 12.83 |
|
Units forfeited | (645 | ) | | 11.07 |
|
Unvested units at December 31, 2012 | 1,351 |
| | $ | 10.80 |
|
Restricted stock unit compensation expense totaled $8 million, $8 million and $10 million for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012, there was $8 million of total unrecognized pre-tax compensation cost related to unvested restricted stock unit awards. This cost is expected to be recognized over a weighted-average period of approximately two years. The weighted average grant date price in 2011 and 2010 was $10.23 and $14.83, respectively.
LONG-TERM INCENTIVE PROGRAM
The company has established a Long-Term Incentive Program ("LTIP") for certain executive level employees. Awards are intended to be performance-based compensation as defined in Section 162(m) of the Internal Revenue Code. As discussed in Note 1, LTIP awards cover three year performance cycles and are measured partly on performance criteria (cumulative earnings per share or cumulative free cash flow generation) and partly on market criteria (total shareholder return relative to a peer group of companies). In 2010, the LTIP was modified to allow a portion of the awards to be paid in cash in an amount substantially equal to the estimated tax liability triggered by such awards. LTIP awards outstanding in 2010 were modified, which changed them to liability-classified awards from equity-classified awards. Both liability-classified and equity-classified awards recognize the fair value of the award ratably over the performance period; however, equity-classified awards only measure the fair value at the grant date, whereas liability-classified awards measure the fair value at each reporting date, with changes in the fair value of the award cumulatively adjusted through compensation expense each period. For modified awards, expense is recognized at the greater of the equity-method or the liability-method. For the 2012-2014 and 2011-2013 periods, up
to 0.3 million and 0.1 million shares, respectively, could be awarded depending on the company’s achievement of the metrics. The company awarded approximately 0.1 million shares and approximately $1 million in cash payments for the 2009-2011 plan in March 2012 and approximately 0.1 million shares and approximately $1 million in cash payments for the 2008-2010 plan in March 2011. No shares and no cash payments for the 2010-2012 plan will be awarded.
STOCK OPTIONS
The table below includes hiring inducement stock option grants for 1,440,062 shares made to the company's new chief executive officer in October 2012 and for 325,000 shares made to the company’s former chief executive officer in January 2004, both in accordance with New York Stock Exchange rules. In addition, options of less than 0.1 million shares were outstanding at December 31, 2012 under the stock incentive plan, which excludes options granted to the current and former chief executive officers. These options generally vested over four years and are exercisable for a period not in excess of ten years, through 2013.
A summary of the activity and related information for the company's stock options follows:
|
| | | | | | |
| 2012 |
(In thousands, except per share amounts) | Shares | | Weighted average exercise price |
Under option at January 1, 2012 | 817 |
| | $ | 18.73 |
|
Options granted | 1,440 |
| | 7.68 |
|
Options exercised | — |
| | — |
|
Options forfeited or expired | (430 | ) | | 15.92 |
|
Under option at December 31, 2012 | 1,827 |
| | $ | 10.68 |
|
Options exercisable at December 31, 2012 | 388 |
| | $ | 21.85 |
|
At December 31, 2012, there was $3 million of total unrecognized pre-tax compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately two years. Options outstanding as of December 31, 2012 had a weighted average remaining contractual life of four years and had exercise prices ranging from $7.68 to $23.16. The following table provides further information on the range of exercise prices:
|
| | | | | | | | | | | |
| Options Outstanding and Exercisable |
(In thousands, except per share amounts) | Shares | | Weighted average exercise price | | Weighted average remaining life | | Aggregate Intrinsic Value |
Exercise price: | | | | | | | |
$15.05 | 63 |
| | $ | 15.05 |
| | 1 month | | — |
|
$23.16 | 325 |
| | 23.16 |
| | 1 month | | — |
|
The estimated weighted average fair value per option share granted was $2.68 for 2012 using a Black-Scholes option pricing model based on market prices and the following assumptions at the date of option grant: weighted average risk-free interest rate of 3.4%, dividend yield of 0%, volatility factor for the company's common stock of 50% and a weighted average expected life of three years for options not forfeited.
Note 17 — Shareholders' Equity
The company's Certificate of Incorporation authorizes 20 million shares of preferred stock and 150 million shares of common stock. At December 31, 2012, shares of common stock were reserved for the following purposes:
|
| | |
Issuance upon conversion of the Convertible Notes (see Note 10) | 11.8 | million |
Issuance upon exercise of stock options and other stock awards (see Note 16) | 4.5 | million |
The company's shareholders' equity includes "Accumulated other comprehensive income (loss)" at December 31, 2012 comprised of unrealized losses on derivatives of $17 million, unrealized translation losses of less than $1 million, an increase in the fair value of an available-for-sale investment of less than $1 million and unrecognized prior service costs and actuarial losses of $24 million. The balance of "Accumulated other comprehensive income (loss)" at December 31, 2011 included unrealized gains on derivatives of $18 million, unrealized translation gains of less than $1 million, a decrease in the fair value
of an available-for-sale investment of less than $1 million and unrecognized prior service costs and actuarial losses of $25 million.
In 2006, the board of directors suspended the payment of dividends. Any future payments of dividends would require approval of the board of directors. See Note 10 for further description of limitations on the company's ability to pay dividends under the Senior Notes and Credit Facility as well as the 7.875% Notes and ABL Facility that were issued on February 5, 2013.
Note 18 — Segment Information
The company reports the following three business segments:
| |
• | Bananas: Includes the sourcing (purchase and production), transportation, marketing and distribution of bananas. |
| |
• | Salads and Healthy Snacks: Includes ready-to-eat, packaged salads, referred to in the industry as "value-added salads" and other value-added products, such as healthy snacking items, fresh vegetable and fruit ingredients used in food service; processed fruit ingredients; and the company's equity-method investment in Danone Chiquita Fruits, which sells Chiquita-branded fruit smoothies in Europe (see Note 7). |
| |
• | Other Produce: Includes the sourcing, marketing and distribution of whole fresh produce other than bananas. As part of the 2012 restructuring plan, the company exited the North American deciduous business at the end of the California grape season in December 2012. Going forward, the primary product of the Other Produce segment is pineapples. |
Certain corporate expenses are not allocated to the reportable segments and are included in "Corporate costs." Inter-segment transactions are eliminated. Segment information represents only continuing operations. See Note 20 for information related to discontinued operations.
Financial information for each segment follows:
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Bananas1 | | Salads and Healthy Snacks2 | | Other Produce3 | | Corporate Costs4 | | Consolidated |
2012 | | | | | | | | | |
Net sales | $ | 1,985,472 |
| | $ | 952,882 |
| | $ | 139,983 |
| | $ | — |
| | $ | 3,078,337 |
|
Segment results | 77,454 |
| | (218,292 | ) | | (18,120 | ) | | (94,876 | ) | | (253,834 | ) |
Depreciation and amortization | 18,518 |
| | 35,828 |
| | 421 |
| | 8,387 |
| | 63,154 |
|
Equity in (losses) earnings of investees | 344 |
| | (33,777 | ) | | — |
| | — |
| | (33,433 | ) |
Total assets | 1,082,685 |
| | 494,348 |
| | 33,418 |
| | 87,311 |
| | 1,697,762 |
|
Expenditures for long-lived assets | 23,351 |
| | 23,070 |
| | 131 |
| | 6,888 |
| | 53,440 |
|
2011 | | | | | | | | | |
Net sales | $ | 2,022,969 |
| | $ | 953,464 |
| | $ | 162,863 |
| | $ | — |
| | 3,139,296 |
|
Segment results | 127,175 |
| | 7,035 |
| | (36,757 | ) | | (63,713 | ) | | 33,740 |
|
Depreciation and amortization | 18,850 |
| | 36,835 |
| | 480 |
| | 4,762 |
| | 60,927 |
|
Equity in (losses) earnings of investees | 350 |
| | (6,664 | ) | | — |
| | — |
| | (6,314 | ) |
Total assets | 1,122,537 |
| | 714,129 |
| | 38,160 |
| | 63,133 |
| | 1,937,959 |
|
Expenditures for long-lived assets | 36,124 |
| | 33,421 |
| | 225 |
| | 5,765 |
| | 75,535 |
|
2010 | | | | | | | | | |
Net sales | $ | 1,937,748 |
| | $ | 1,028,475 |
| | $ | 261,209 |
| | $ | — |
| | 3,227,432 |
|
Segment results | 80,591 |
| | 95,268 |
| | 5,363 |
| | (70,426 | ) | | 110,796 |
|
Depreciation and amortization | 18,568 |
| | 39,803 |
| | 175 |
| | 2,470 |
| | 61,016 |
|
Equity in (losses) earnings of investees | 1,472 |
| | (4,837 | ) | | 440 |
| | — |
| | (2,925 | ) |
Total assets | 1,100,391 |
| | 702,639 |
| | 105,303 |
| | 158,813 |
| | 2,067,146 |
|
Expenditures for long-lived assets | 29,828 |
| | 28,429 |
| | 36 |
| | 7,249 |
| | 65,542 |
|
| |
1 | Bananas segment results includes the acceleration of losses on ship arrangements of $4 million net of sublease income in the fourth quarter of 2011 and $6 million net of $2 million of related sale-leaseback gain amortization during the sublease period in the first quarter of 2012. As part of the company's European shipping reconfiguration, five ships, two in the fourth quarter of 2011 and three in the first quarter of 2012, were removed from service and subleased. The primary leases for an equivalent number of ships were not renewed at the end of 2012. These accelerated sublease losses are included in "Cost of sales." |
| |
2 | Salads and Healthy Snacks segment results includes $1 million in "Cost of sales" primarily related to inventory write-offs to exit healthy snacking products that were not sufficiently profitable and $1 million in "Selling, general and administrative" to restructure the European healthy snacking sales force. These costs were recognized and related actions completed during the first quarter of 2012. Includes $1 million in "Selling, general and administrative" in the second quarter of 2012, primarily related to the closure of a research and development facility. Salads and Healthy Snacks segment results and equity in (losses) earnings of investees includes $32 million in 2012 to fully impair the company's equity-method investment and related assets and to record estimates of probable cash obligations to the Danone JV. See Notes 7 and 20 for further information related to investments in and income from equity method investments. Includes $180 million ($171 million, net of tax) of goodwill and trademark impairments in 2012 as described in Note 1. Includes a $32 million gain on the deconsolidation of the European smoothie business in 2010 as described in Note 20. |
| |
3 | Other Produce segment results includes $2 million in "Cost of sales" primarily related to inventory write-offs to exit low-margin other produce in 2012, $1 million in "Selling, general and administrative" related to a lease accrual in 2012 and a reserve of $32 million for advances made to a Chilean grower in the second quarter of 2011 as described in Note 4. |
| |
4 | Corporate costs includes "Restructuring and relocation costs" further detailed in Note 3. |
The reconciliation of segment results to “Operating income (loss)” is as follows:
|
| | | | | | | | | | | |
(In thousands) | 2012 | | 2011 | | 2010 |
Segment results | $ | (253,834 | ) | | $ | 33,740 |
| | $ | 110,796 |
|
Other income attributed to Other Produce | — |
| | — |
| | (2,525 | ) |
Other income attributed to Corporate costs | — |
| | — |
| | (611 | ) |
Operating income (loss) | $ | (253,834 | ) | | $ | 33,740 |
| | $ | 107,660 |
|
Financial information by geographic area is as follows:
|
| | | | | | | | | | | |
(In thousands) | 2012 | | 2011 | | 2010 |
Net sales: | | | | | |
United States | $ | 1,773,210 |
| | $ | 1,793,580 |
| | $ | 1,895,207 |
|
| | | | | |
Italy | 213,386 |
| | 229,138 |
| | 206,767 |
|
Germany | 191,673 |
| | 199,084 |
| | 198,665 |
|
Other Core Europe | 549,131 |
| | 597,343 |
| | 606,522 |
|
Total Core Europe1 | 954,190 |
| | 1,025,565 |
| | 1,011,954 |
|
Other international | 350,937 |
| | 320,151 |
| | 320,271 |
|
Foreign net sales | 1,305,127 |
| | 1,345,716 |
| | 1,332,225 |
|
Total net sales | $ | 3,078,337 |
| | $ | 3,139,296 |
| | $ | 3,227,432 |
|
| |
1 | Core Europe includes the 27 member states of the European Union, Switzerland, Norway and Iceland. |
Property, plant and equipment by geographic area:
|
| | | | | | | |
| December 31, |
(In thousands) | 2012 | | 2011 |
Property, plant and equipment, net: | | | |
United States | $ | 226,587 |
| | $ | 202,713 |
|
Central and South America | 142,573 |
| | 133,072 |
|
Other international | 26,139 |
| | 33,902 |
|
Total property, plant and equipment, net | $ | 395,299 |
| | $ | 369,687 |
|
The company’s products are sold throughout the world and its principal production and processing operations are conducted in the United States, Central America and South America. The company’s earnings are heavily dependent upon products grown and purchased in Central and South America. These activities are a significant factor in the economies of the countries where the company produces bananas and related products, and are subject to the risks that are inherent in operating in such foreign countries, including government regulation, currency restrictions, fluctuations and other restraints, import and export restrictions, burdensome taxes, expropriation, threats to employees, political instability, terrorist activities, including extortion, and U.S. and foreign governmental action in relation to the company. Certain of these operations are substantially dependent upon leases and other agreements with these governments.
The company is also subject to a variety of government regulations in most countries where it markets bananas and other fresh products, including health, food safety and customs requirements, import tariffs, currency exchange controls and taxes.
Note 19 — Contingencies
The company had accruals of $4 million and $3 million related to contingencies and legal proceedings in Europe at each of December 31, 2012 and 2011, respectively. While other contingent liabilities described below may be material to the financial statements, the company has determined that losses in these matters are not probable and has not accrued any other amounts. Regardless of their outcomes, the company has paid, and will likely continue to incur, significant legal and other fees to defend itself in these proceedings, which may significantly affect the company's financial statements.
COLOMBIA-RELATED MATTERS
Tort Lawsuits. Between June 2007 and March 2011, nine civil tort lawsuits were filed against the company by Colombian nationals in U.S. federal courts. These lawsuits assert claims under various state and federal laws, including the Alien Tort Statute (the "ATS lawsuits"). The over 6,000 plaintiffs in the ATS lawsuits claim to be persons injured, or family members or legal heirs of individuals allegedly killed or injured, by armed groups that received payments from the company's former Colombian subsidiary. The company had voluntarily disclosed these payments to the U.S. Department of Justice as having been made by the subsidiary to protect its employees from risks to their safety if the payments were not made. This self-disclosure led to the company's 2007 plea to one count of Engaging in Transactions with a Specially-Designated Global Terrorist Group without having first obtained a license from the U.S. Department of Treasury's Office of Foreign Assets Control. The plaintiffs claim that, as a result of such payments, the company should be held legally responsible for the alleged injuries. Eight of the ATS lawsuits seek unspecified compensatory and punitive damages, as well as attorneys' fees and costs, with one seeking treble damages and disgorgement of profits without explanation. The other ATS lawsuit contains a specific demand of $10 million in compensatory damages and $10 million in punitive damages for each of the several hundred alleged victims in that suit. The company also has received requests to participate in mediation in Colombia concerning similar claims, which could be
followed by litigation in Colombia. All of the ATS lawsuits have been centralized in the U.S. District Court for the Southern District of Florida for consolidated or coordinated pretrial proceedings (“MDL Proceeding”). The company believes the plaintiffs' claims are without merit and is defending itself vigorously.
Between June 2011 and March 2012, the court dismissed certain of the plaintiffs' claims, but allowed the plaintiffs to move forward with some ATS claims and claims asserted under Colombian law. The company believes it has strong defenses to the remaining claims. In March 2012, the court granted the company's motion for interlocutory appeal of legal questions raised by the court's refusal to dismiss certain ATS claims, and, in September 2012, the United States Court of Appeals for the Eleventh Circuit granted permission to pursue the interlocutory appeal. In November 2012, the Eleventh Circuit stayed appellate proceedings until the Supreme Court issues a decision in Kiobel v. Royal Dutch Shell, No. 10-1491, expected by June 2013, and the district court stayed proceedings in the ATS lawsuits until the Eleventh Circuit completes its interlocutory review. In addition, the company has filed in the district court a motion to dismiss all of the ATS lawsuits on forum non conveniens grounds. That motion is pending.
In addition to the ATS lawsuits, between March 2008 and March 2011, four tort lawsuits were filed against the company by American citizens who allege that they were kidnapped and held hostage by an armed group in Colombia, or that they are the survivors or the estate of a survivor of American nationals kidnapped and/or killed by the same group in Colombia. The plaintiffs in these cases make claims under the Antiterrorism Act and state tort laws (the "ATA lawsuits") and contend that the company is liable because its former Colombian subsidiary allegedly provided material support to the armed group. The ATA lawsuits, which also have been centralized in the MDL Proceeding, seek unspecified compensatory damages, treble damages, attorneys' fees and costs and punitive damages. The company believes the plaintiffs' claims are without merit and is defending itself vigorously.
In February 2010, the company's motion to dismiss one of the ATA lawsuits was granted in part and denied in part and in March 2012, the company's motions to dismiss the other ATA lawsuits were denied. In November 2012, one of the ATA lawsuits was dismissed after the parties reached a confidential settlement agreement. The company believes it has strong defenses to the remaining claims in the ATA lawsuits.
Insurance Recovery. The company has primary and excess general liability insurance policies with substantial limits that the company believes should provide coverage for defense costs, settlements or judgments incurred in connection with the ATA and ATS lawsuits. The insurers have either reserved the right to deny coverage or denied coverage for these lawsuits, and except as discussed below there can be no assurance that the insurers will provide coverage for these claims. In 2008, the company commenced litigation in state court in Ohio against three of its primary insurers seeking coverage for defense costs incurred in connection with the ATA and ATS lawsuits; a fourth primary insurer was joined to that lawsuit in early 2009. Later in 2009, the company entered into settlement agreements under which three of its primary insurers agreed to pay, in total, approximately 40 percent of the company's defense costs in the ATA and ATS lawsuits. In late 2012, one of these settling insurers paid the full amount of a settlement in an ATA lawsuit. In December 2011, the Ohio state trial court entered a final judgment against the fourth primary insurer, National Union, ruling that National Union is obligated to pay all defense costs reasonably incurred by the company in the defense of ATS and ATA lawsuits that allege that injury or damage occurred during the period of the National Union primary policies, except to the extent that such defense costs have been reimbursed by other primary insurers pursuant to their settlements with the company. National Union appealed the trial court's rulings to the Ohio Court of Appeals. In March 2013, the Ohio Court of Appeals reversed the trial court's ruling and held that National Union is not obligated to provide coverage for defense costs in the ATS and ATA lawsuits. As of December 31, 2012, National Union had paid the company $11 million as reimbursement for defense costs. This sum is being deferred in "Other Liabilities" on the Condensed Consolidated Balance Sheet because National Union asserts that it is entitled to obtain reimbursement of this amount from the company based on the outcome of its appeal in the coverage case. In its ruling in March 2013, the Ohio Court of Appeals remanded the case to the trial court to determine whether National Union is entitled to repayment of the defense costs that it has already paid. The company intends to seek review by the Ohio Supreme Court of the March 2013 ruling of the Ohio Court of Appeals.
Colombia Investigation. The Colombian Attorney General's Office has been conducting an investigation into payments made by companies in the banana industry to paramilitary groups in Colombia. Included within the scope of the investigation are the payments that were the subject of the company's 2007 plea in the United States. In March 2012, the prosecutor in charge of the investigation issued a decision which concluded that the company's former Colombian subsidiary had made payments in response to extortion demands and that the payments were not illegal under Colombian law. Based on these findings, the prosecutor closed the investigation. As provided for under Colombian law, the prosecutor's decision was reviewed by senior officials in the Colombian Attorney General's office pursuant to a legal standard specifying that any evidence in the record suggesting that a crime may have occurred is sufficient to justify the reopening of the investigation. Applying this standard, in December 2012, the Colombian Attorney General's Office determined that the investigation should continue and not be closed. The Attorney General's office did not make any finding that persons connected with the company's former Colombian
subsidiary committed wrongdoing of any kind, only that the matter warrants further investigation. The company believes that it has at all times complied with Colombian law.
ITALIAN CUSTOMS AND TAX CASES
1998-2000 Cases. In October 2004, the company's Italian subsidiary, Chiquita Italia, received the first of several notices from various customs authorities in Italy stating that it is potentially liable for additional duties and taxes on the import of bananas by Socoba S.r.l. ("Socoba") from 1998 to 2000 for sale to Chiquita Italia. The customs authorities claim that (i) the amounts are due because these bananas were imported with licenses (purportedly issued by Spain) that were subsequently determined to have been forged and (ii) Chiquita Italia should be jointly liable with Socoba because (a) Socoba was controlled by a former general manager of Chiquita Italia and (b) the import transactions benefited Chiquita Italia, which arranged for Socoba to purchase the bananas from another subsidiary of the company and, after customs clearance, sell them to Chiquita Italia. Chiquita Italia is contesting these claims, principally on the basis of its good faith belief at the time the import licenses were obtained and used that they were valid.
Of the original notices, separate civil customs proceedings were ultimately brought and are now pending against Chiquita Italia in four Italian jurisdictions, Genoa, Trento, Aosta and Alessandria. In Genoa, Chiquita Italia won at the trial level, lost on appeal, and appealed to the Court of Cassation, the highest level of appeal in Italy, where the decision is pending. In Trento, Chiquita Italia lost at the trial level, lost at the initial appeal level in a decision published in February 2012 and has appealed this decision to the Court of Cassation where the decision is pending. In Aosta, Chiquita Italia lost at the trial level in a decision also published in February 2012 and intends to appeal this decision. In Alessandria, Chiquita Italia lost at the trial level, and appealed but the case has been stayed pending a ruling in a separate case in Rome. The Rome case referred to above was brought by Socoba (and Chiquita Italia intervened voluntarily) on the issue of whether the forged Spanish licenses used by Socoba should be regarded as genuine in view of the apparent inability to distinguish between genuine and forged licenses. In an October 2010 decision, the Rome trial court rejected Socoba's claim that the licenses should be considered genuine on the basis that Socoba had not sufficiently demonstrated how similar the forged licenses were to genuine Spanish licenses. Socoba has appealed this decision. In an unrelated case addressing similar forged Spanish licenses used in Belgium, the EU Commission has ruled that these types of licenses were such good forgeries that they needed to be treated as genuine, and Chiquita Italia has brought this decision to the attention of the customs authorities in Genoa and Alessandria to seek relief in relation to the pending customs case. The Genoa customs authorities declined to give the benefit of the decision to Chiquita Italia. Chiquita Italia intends to appeal this Genoa decision to the tax court. The Alessandria customs authorities have so far declined to address the request.
Under Italian law, the amounts claimed in the Trento, Alessandria and Genoa cases have become due and payable notwithstanding the pending appeals. Deposits made in these cases are deferred in "Other current assets" and "Investments and other assets, net" on the Consolidated Balance Sheets pending resolution of the appeals process. If Chiquita Italia ultimately prevails in its appeals, all amounts deposited will be reimbursed with interest. A summary of claims and deposits paid as of December 31, 2012 is as follows:
|
| | | | | |
| Claim (In millions) | Interest and Penalties Claimed (In millions) | Total Claim (In millions) | Deposits Paid Pending Appeal (In millions) | |
Trento | €3.3 | €3.1 | €6.4 | €6.4 | Deposits paid in 36 equal monthly installments ended March 2012. |
Alessandria | €0.3 | €0.2 | €0.5 | €0.5 | Deposits paid in 36 equal monthly installments ended March 2012. |
Genoa | €7.4 | €1.0 | €8.4 | €0.6 | Monthly deposit payments of €118 thousand began in August 2012 and will continue through July 2018, unless a successful appeals process is completed sooner. €6 million of interest was deducted from the original request based on the judge's ruling. The customs authorities have appealed this decision. |
2004-2005 Cases. In 2008, Chiquita Italia was required to provide documents and information to the Italian fiscal police in connection with a criminal investigation into imports of bananas by Chiquita Italia during 2004 and 2005, and the payment of customs duties on these imports. The focus of the investigation was an importation process whereby the company sold some of
its bananas to holders of import licenses who imported the bananas and resold them to Chiquita Italia (indirect import challenge), a practice the company believes was legitimate under both Italian and EU law and was widely accepted by authorities across the EU and by the EC. The Italian prosecutors are pursuing this matter with respect to 2005 only. If criminal liability is ultimately determined, Chiquita Italia could be civilly liable for damages, including applicable duties, taxes and penalties.
Tax authorities issued assessment notices for 2004 and 2005, which were appealed to the first level Rome tax court; in June 2011, the court rejected the appeal for 2004. Chiquita Italia appealed this decision and, in October 2012, the appeals court ruled in favor of Chiquita Italia with respect to 2004. A significant portion of the 2005 income tax assessment has been withdrawn by the tax authorities and an appeal for the remaining part is pending. Separately, customs authorities have also issued assessments for these cases, and Chiquita Italia's appeals of these customs assessments were rejected by the first level Rome tax court and the regional court. Chiquita Italia has appealed the decisions about the customs assessments to the Court of Cassation, the highest level of appeal in Italy. In each case, Chiquita Italia has received payment notifications from the tax and customs authorities, but the 2004 tax assessment has been annulled based on the October 2012 appeals court ruling and the company is claiming reimbursement of payments made. Deposits made under these cases are deferred in "Other current assets" and "Investments and other assets, net" on the Consolidated Balance Sheets pending resolution of the appeals process. If Chiquita Italia ultimately prevails in its appeals, all amounts deposited will be reimbursed with interest. A summary of assessments and deposits paid is as follows:
|
| | | | | |
| Assessment (In millions) | Interest and Penalties Assessed (In millions) | Total Assessment (In millions) | Deposits Paid Pending Appeal (In millions) | |
Income Tax Assessment for 2004/2005 | €12.0 | €19.1 | €31.1 | €1.5 | Monthly deposit payments of €113 thousand began in March 2012. The appeals court ruled in favor of Chiquita Italia in October 2012 for the 2004 assessments and a significant portion of the 2005 assessments have been withdrawn. The company has requested relief from these payments and reimbursement. |
Customs Tax Assessment for 2004/2005 | €18.2 | €10.2 | €28.4 | €7.2 | Monthly deposit payments of €350 thousand began in September 2011 and will continue through September 2017, unless a successful appeals process is completed sooner.
|
The fiscal police investigation also challenged the involvement of an entity of the company incorporated in Bermuda in the sale of bananas directly to Chiquita Italia (direct import challenge), as a result of which the tax authorities claimed additional taxes of €13 million ($17 million) for 2004 and €19 million ($26 million) for 2005, plus interest and penalties. In order to avoid a long and costly tax dispute, in April 2011, Chiquita Italia reached an agreement in principle with the Italian tax authorities to settle the dispute and recorded expense for the settlements at that time. Under the settlement, the tax authorities agreed that the Bermuda corporation's involvement in the importation of bananas was appropriate and Chiquita Italia agreed to an adjustment to the intercompany price paid by Chiquita Italia for the imported bananas it purchased from this company, resulting in a higher income tax liability for those years. Chiquita Italia paid a settlement of €3 million ($4 million) of additional income tax for 2004 and 2005, including interest and penalties, which was significantly below the amounts originally claimed. The portion of the settlement for 2005 is still subject to approval by the Rome tax court; approval is expected in 2013. As part of the settlement, Chiquita Italia also agreed to a pricing adjustment for its intercompany purchases of bananas for the years 2006 through 2009, resulting in payments in June and July 2011 of €2 million ($3 million) of additional tax and interest to fully settle those years. The indirect import challenge described above is not part of the settlement.
Chiquita Italia continues to believe that it acted properly and that all the transactions for which it has received assessment notices were legitimate and reported appropriately, and, aside from those issues already settled, continues to vigorously defend the transactions at issue.
CONSUMPTION TAX REFUNDS
The company has and has had several open cases seeking the refund of certain consumption taxes paid between 1980 and 1990 in various Italian jurisdictions. As gain contingencies, these refunds and any related interest are recognized when realized
and all gain contingencies have been removed. In January 2012, the company received €20 million ($27 million) related to a favorable decision from a court in Salerno, Italy. The claim is not considered resolved or realized, as the decision has been appealed to a higher court. Consequently, the receipt of cash has been deferred in "Other liabilities" on the Consolidated Balance Sheets. Decisions in one jurisdiction have no binding effect on pending claims in other jurisdictions and all unresolved claims may take years to resolve. If the Company were to lose on appeal, it may be required to repay the consumption tax refunds received.
Note 20 — Deconsolidation, Divestitures and Discontinued Operations
DANONE CHIQUITA FRUITS JOINT VENTURE
In May 2010, the company sold 51% of its European smoothie business to Danone S.A. ("Danone") for €15 million ($18 million) and deconsolidated it. The deconsolidation and sale resulted in the creation of Danone Chiquita Fruits SAS (the "Danone JV"), which is a joint venture intended to develop, manufacture and sell packaged fruit juices and fruit smoothies in Europe and is financed by the company and Danone in amounts proportional to their ownership interests. The gain on the deconsolidation and sale of the European smoothie business was $32 million, including a gain of $15 million related to the remeasurement of the retained investment in the European smoothie business to its fair value of $16 million on the closing date. No income tax expense resulted from the gain on the sale because sufficient foreign NOLs were in place and, when those foreign NOLs were used, the related valuation allowance was released. The fair value of the investment was a Level 3 measurement (see Note 12) based upon the consideration paid by Danone for 51% of the Danone JV, including a control discount. The Danone JV is a variable interest entity; however, the company is not the primary beneficiary and does not consolidate it. The Danone JV has obtained sales, local marketing and product supply chain management services from the company's subsidiaries; however, the power to direct the JV's most significant activities is controlled by Danone S.A. The company’s 49% investment in the joint venture is accounted for as an equity-method investment and is included in the Salads and Healthy Snacks segment. See further discussion of the Danone JV in Note 7.
SALE OF COAST CITRUS DISTRIBUTORS
In April 2010, the company sold its 49% investment in Coast Citrus Distributors, Inc. for $18 million in cash, which approximated its carrying value. Prior to the sale, the company accounted for the investment using the equity method.
DISCONTINUED OPERATIONS
In August 2008, the company sold its subsidiary, Atlanta AG. In 2012 and 2010, the company recorded a loss from discontinued operations of $2 million and $3 million, respectively, related to new information about indemnification obligations for tax liabilities prior to the sale. In addition, approximately €6 million ($7 million) was received in 2010 related to consideration from the sale which had been held in escrow to secure any potential obligations of the company under the sale agreement. In the first quarter of 2013, the company settled remaining contingent consideration related to the sale in connection with extending the ripening and services agreement with the buyer.
Note 21 — Quarterly Financial Data (Unaudited)
The following quarterly financial data are unaudited, but in the opinion of management include all necessary adjustments for a fair presentation of the interim results. The company’s results are subject to significant seasonal variations and interim results are not indicative of the results of operations for the 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, as well as seasonally lower consumption of salads in the fourth quarter.
Per share results include the effect, if dilutive, of the assumed conversion of the Convertible Notes, options, warrants and other stock awards into common stock during the period presented. The effects of assumed conversions are determined independently for each respective quarter and year and may not be dilutive during every period due to variations in net income (loss) and average stock price. Therefore, the sum of quarterly per share results will not necessarily equal the per share results for the full year. For the quarters ended December 31, 2012, September 30, 2012 and March 31, 2012, the shares used to calculate diluted EPS would have been 47.0 million, 46.6 million and 46.5 million, respectively, if the company had generated net income. For the quarters ended December 31, 2011 and September 30, 2011, the shares used to calculate diluted EPS would have been 46.4 million and 46.3 million , respectively, if the company had generated net income.
As discussed in Note 1, the company revised the classification of certain ripening expenses during each quarter of 2012 and 2011. The company also corrected out of period adjustments in each quarter during 2012, which included $3 million and $2 million of income tax expense in the first and fourth quarters of 2012 primarily related to 2011; and $3 million of sales rebates in the fourth quarter of 2012 that was primarily related to the second quarter of 2012. These collective corrections had an insignificant effect on all affected annual and quarterly periods and line items based on a quantitative and qualitative evaluation.
|
| | | | | | | | | | | | | | | |
2012 (In thousands, except per share amounts) | March 31 | | June 30 | | Sept. 30 | | Dec. 31 |
Net sales | $ | 793,484 |
| | $ | 833,165 |
| | $ | 714,167 |
| | $ | 737,521 |
|
Cost of sales | 704,971 |
| | 727,607 |
| | 643,578 |
| | 666,884 |
|
Gross profit | 88,513 |
| | 105,558 |
| | 70,589 |
| | 70,637 |
|
Operating income (loss) | (434 | ) | | 17,597 |
| | (66,104 | ) | | (204,893 | ) |
Net income (loss) | (11,142 | ) | | 5,508 |
| | (66,754 | ) | | (332,629 | ) |
| | | | | | | |
Net income (loss) per common share — basic | | | | | | | |
Continuing Operations | (0.24 | ) | | 0.12 |
| | (1.45 | ) | | (7.14 | ) |
Discontinued Operations | — |
| | — |
| | — |
| | (0.04 | ) |
| (0.24 | ) | | 0.12 |
| | (1.45 | ) | | (7.18 | ) |
| | | | | | | |
Net income (loss) per common share — diluted | | | | | | | |
Continuing Operations | (0.24 | ) | | 0.12 |
| | (1.45 | ) | | (7.14 | ) |
Discontinued Operations | — |
| | — |
| | — |
| | (0.04 | ) |
| (0.24 | ) | | 0.12 |
| | (1.45 | ) | | (7.18 | ) |
| | | | | | | |
Common stock market price: | | | | | | | |
High | $ | 10.37 |
| | $ | 8.96 |
| | $ | 7.96 |
| | $ | 8.39 |
|
Low | 8.04 |
| | 4.66 |
| | 4.75 |
| | 6.61 |
|
|
| | | | | | | | | | | | | | | |
2011 (In thousands, except per share amounts) | March 31 | | June 30 | | Sept. 30 | | Dec. 31 |
Net sales | $ | 824,463 |
| | $ | 870,351 |
| | $ | 722,764 |
| | $ | 721,718 |
|
Cost of sales | 689,558 |
| | 717,262 |
| | 641,702 |
| | 649,509 |
|
Gross profit | 134,905 |
| | 153,089 |
| | 81,062 |
| | 72,209 |
|
Operating income (loss) | 42,200 |
| | 13,846 |
| | (10,395 | ) | | (11,911 | ) |
Net income (loss) | 24,202 |
| | 77,775 |
| | (28,826 | ) | | (16,315 | ) |
| | | | | | | |
Net income (loss) per common share — basic | 0.53 |
| | 1.71 |
| | (0.63 | ) | | (0.36 | ) |
Net income (loss) per common share — diluted | 0.52 |
| | 1.68 |
| | (0.63 | ) | | (0.36 | ) |
| | | | | | | |
Common stock market price: | | | | | | | |
High | $ | 17.19 |
| | $ | 16.09 |
| | $ | 13.37 |
| | $ | 9.60 |
|
Low | 13.71 |
| | 12.01 |
| | 8.34 |
| | 7.64 |
|
Note 22 — Supplemental Consolidating Financial Information
The 7.875% Notes are guaranteed jointly and severally and unconditionally on a senior secured basis by all of CBII’s and CBLLC’s existing direct and indirect domestic subsidiaries (the “Guarantor Subsidiaries”) subject to certain exceptions and permitted liens, other than de minimus subsidiaries, and by certain future direct and indirect domestic subsidiaries. CBLLC and each guarantor is 100% owned directly or indirectly by CBII. The following supplemental financial information sets forth, on a consolidating basis, the balance sheets, statements of income, statements of comprehensive income and statements of cash flows for Chiquita Brands International, Inc. (“CBII,” the “Parent Company” and a "Co-Issuer"), for Chiquita Brands L.L.C. (“CBLLC” and a "Co-Issuer"), for the Guarantor Subsidiaries and for Chiquita’s other subsidiaries (the “Non-Guarantor Subsidiaries”).
The supplemental condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include disclosures included in annual financial statements. Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the guarantor or non-guarantor subsidiaries operated as independent entities.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Income |
Year Ended December 31, 2012 |
(in thousands) | | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-issuer) | | (Co-issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net sales | | $ | — |
| | $ | 707,939 |
| | $ | 1,248,854 |
| | $ | 1,987,888 |
| | $ | (866,344 | ) | | $ | 3,078,337 |
|
Cost of sales | | 521 |
| | 657,836 |
| | 1,109,273 |
| | 1,842,302 |
| | (866,892 | ) | | 2,743,040 |
|
Selling, general and administrative | | 41,335 |
| | 26,146 |
| | 97,006 |
| | 111,408 |
| | — |
| | 275,895 |
|
Depreciation | | — |
| | 3,998 |
| | 28,678 |
| | 21,060 |
| | — |
| | 53,736 |
|
Amortization | | — |
| | — |
| | 9,394 |
| | 24 |
| | — |
| | 9,418 |
|
Equity in losses (earnings) of investees and subsidiaries | | 220,010 |
| | 215,479 |
| | (929 | ) | | 33,433 |
| | (434,560 | ) | | 33,433 |
|
Reserve for (recovery of) grower receivables, net | | — |
| | — |
| | (869 | ) | | 205 |
| | — |
| | (664 | ) |
Restructuring and relocation costs | | 11,065 |
| | 6,391 |
| | 13,182 |
| | 4,791 |
| | — |
| | 35,429 |
|
Goodwill and trademark impairment | | — |
| | — |
| | 180,105 |
| | 1,779 |
| | — |
| | 181,884 |
|
Operating income (loss) | | (272,931 | ) | | (201,911 | ) | | (186,986 | ) | | (27,114 | ) | | 435,108 |
| | (253,834 | ) |
Interest income | | — |
| | 24 |
| | 198 |
| | 2,909 |
| | — |
| | 3,131 |
|
Interest expense | | (27,167 | ) | | (17,813 | ) | | (80 | ) | | (239 | ) | | — |
| | (45,299 | ) |
Other income (expense), net | | 320 |
| | (310 | ) | | 1,028 |
| | (2,283 | ) | | (548 | ) | | (1,793 | ) |
Income (loss) from continuing operations before income taxes | | (299,778 | ) | | (220,010 | ) | | (185,840 | ) | | (26,727 | ) | | 434,560 |
| | (297,795 | ) |
Income tax (expense) benefit | | (105,239 | ) | | (3,604 | ) | | 17,855 |
| | (17,553 | ) | | 3,302 |
| | (105,239 | ) |
Income (loss) from continuing operations | | (405,017 | ) | | (223,614 | ) | | (167,985 | ) | | (44,280 | ) | | 437,862 |
| | (403,034 | ) |
Loss from discontinued operations, net of income taxes | | — |
| | — |
| | — |
| | (1,983 | ) | | — |
| | (1,983 | ) |
Net income (loss) | | $ | (405,017 | ) | | $ | (223,614 | ) | | $ | (167,985 | ) | | $ | (46,263 | ) | | $ | 437,862 |
| | $ | (405,017 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Comprehensive Income |
Year Ended December 31, 2012 |
(in thousands) | | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-issuer) | | (Co-issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net income (loss) | | $ | (405,017 | ) | | $ | (223,614 | ) | | $ | (167,985 | ) | | $ | (46,263 | ) | | $ | 437,862 |
| | $ | (405,017 | ) |
Other comprehensive income (loss), net of tax where applicable: | | | | | | | | | | | | |
Unrealized foreign currency translation gains (losses) | | — |
| | — |
| | — |
| | (194 | ) | | — |
| | (194 | ) |
| | | | | | | | | | | | |
Change in fair value of available-for-sale investment | | 1,222 |
| | — |
| | — |
| | — |
| | — |
| | 1,222 |
|
| | | | | | | | | | | | |
Unrealized gains (losses) on derivatives for the period | | — |
| | — |
| | — |
| | (16,928 | ) | | — |
| | (16,928 | ) |
(Gains) reclassified from OCI into net income | | — |
| | — |
| | — |
| | (17,293 | ) | | — |
| | (17,293 | ) |
Unrealized gains (losses) on derivatives | | — |
| | — |
| | — |
| | (34,221 | ) | | — |
| | (34,221 | ) |
| | | | | | | | | | | | |
Actuarial gains (losses) for the period | | — |
| | (898 | ) | | — |
| | 1,087 |
| | — |
| | 189 |
|
Amortization included in pension cost, net of tax | | — |
| | 374 |
| | — |
| | 415 |
| | — |
| | 789 |
|
Defined benefit pension and severance plans | | — |
| | (524 | ) | | — |
| | 1,502 |
| | — |
| | 978 |
|
| | | | | | | | | | | | |
Other comprehensive income (loss) of investments in subsidiaries | | (33,437 | ) | | (32,913 | ) | | — |
| | — |
| | 66,350 |
| | — |
|
| | | | | | | | | | | | |
Comprehensive income (loss) | | $ | (437,232 | ) | | $ | (257,051 | ) | | $ | (167,985 | ) | | $ | (79,176 | ) | | $ | 504,212 |
| | $ | (437,232 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Income |
Year Ended December 31, 2011 |
(in thousands) | | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-issuer) | | (Co-issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net sales | | $ | — |
| | $ | 729,175 |
| | $ | 1,262,295 |
| | $ | 1,971,918 |
| | $ | (824,092 | ) | | $ | 3,139,296 |
|
Cost of sales | | — |
| | 615,927 |
| | 1,100,168 |
| | 1,806,276 |
| | (824,340 | ) | | 2,698,031 |
|
Selling, general and administrative | | 44,815 |
| | 22,070 |
| | 114,899 |
| | 119,681 |
| | — |
| | 301,465 |
|
Depreciation | | — |
| | 4,150 |
| | 28,959 |
| | 18,424 |
| | — |
| | 51,533 |
|
Amortization | | — |
| | — |
| | 9,394 |
| | — |
| | — |
| | 9,394 |
|
Equity in losses (earnings) of investees and subsidiaries | | 63,937 |
| | 1,145 |
| | 295 |
| | 6,314 |
| | (65,377 | ) | | 6,314 |
|
Reserve for (recovery of) grower receivables, net | | — |
| | — |
| | 32,762 |
| | 205 |
| | — |
| | 32,967 |
|
Restructuring and relocation costs | | 2,714 |
| | 913 |
| | 1,963 |
| | 262 |
| | — |
| | 5,852 |
|
Operating income (loss) | | (111,466 | ) | | 84,970 |
| | (26,145 | ) | | 20,756 |
| | 65,625 |
| | 33,740 |
|
Interest income | | — |
| | 123 |
| | 317 |
| | 3,764 |
| | — |
| | 4,204 |
|
Interest expense | | (39,702 | ) | | (11,209 | ) | | (79 | ) | | (596 | ) | | — |
| | (51,586 | ) |
Other income (expense), net | | 125,804 |
| | (137,821 | ) | | 672 |
| | (80 | ) | | (297 | ) | | (11,722 | ) |
Income (loss) from continuing operations before income taxes | | (25,364 | ) | | (63,937 | ) | | (25,235 | ) | | 23,844 |
| | 65,328 |
| | (25,364 | ) |
Income tax (expense) benefit | | 82,200 |
| | (41,041 | ) | | (3,317 | ) | | (15,443 | ) | | 59,801 |
| | 82,200 |
|
Net income (loss) | | $ | 56,836 |
| | $ | (104,978 | ) | | $ | (28,552 | ) | | $ | 8,401 |
| | $ | 125,129 |
| | $ | 56,836 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Comprehensive Income |
Year Ended December 31, 2011 |
(in thousands) | | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-issuer) | | (Co-issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net income (loss) | | $ | 56,836 |
| | $ | (104,978 | ) | | $ | (28,552 | ) | | $ | 8,401 |
| | $ | 125,129 |
| | $ | 56,836 |
|
Other comprehensive income (loss), net of tax where applicable: | | | | | | | | | | | | |
Unrealized foreign currency translation gains (losses) | | — |
| | — |
| | — |
| | 241 |
| | — |
| | 241 |
|
| | | | | | | | | | | | |
Change in fair value of available-for-sale investment | | (224 | ) | | — |
| | — |
| | — |
| | — |
| | (224 | ) |
| | | | | | | | | | | | |
Unrealized gains (losses) on derivatives for the period | | — |
| | — |
| | — |
| | 38,903 |
| | — |
| | 38,903 |
|
(Gains) reclassified from OCI into net income | | — |
| | — |
| | — |
| | (44,824 | ) | | — |
| | (44,824 | ) |
Unrealized gains (losses) on derivatives | | — |
| | — |
| | — |
| | (5,921 | ) | | — |
| | (5,921 | ) |
| | | | | | | | | | | | |
Actuarial gains (losses) for the period | | — |
| | (3,777 | ) | | — |
| | (69 | ) | | — |
| | (3,846 | ) |
Amortization included in pension cost, net of tax | | — |
| | 224 |
| | — |
| | 776 |
| | — |
| | 1,000 |
|
Defined benefit pension and severance plans | | — |
| | (3,553 | ) | | — |
| | 707 |
| | — |
| | (2,846 | ) |
| | | | | | | | | | | | |
Other comprehensive income (loss) of investments in subsidiaries | | (8,526 | ) | | (4,973 | ) | | — |
| | — |
| | 13,499 |
| | — |
|
| | | | | | | | | | | | |
Comprehensive income (loss) | | $ | 48,086 |
| | $ | (113,504 | ) | | $ | (28,552 | ) | | $ | 3,428 |
| | $ | 138,628 |
| | $ | 48,086 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Income |
Year Ended December 31, 2010 |
(in thousands) | | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-issuer) | | (Co-issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net sales | | $ | — |
| | $ | 661,097 |
| | $ | 1,411,589 |
| | $ | 1,962,815 |
| | $ | (808,069 | ) | | $ | 3,227,432 |
|
Cost of sales | | — |
| | 582,353 |
| | 1,148,655 |
| | 1,847,962 |
| | (808,539 | ) | | 2,770,431 |
|
Selling, general and administrative | | 53,363 |
| | 24,286 |
| | 132,840 |
| | 105,260 |
| | — |
| | 315,749 |
|
Depreciation | | — |
| | 3,858 |
| | 30,349 |
| | 16,965 |
| | — |
| | 51,172 |
|
Amortization | | — |
| | — |
| | 9,844 |
| | — |
| | — |
| | 9,844 |
|
Equity in losses (earnings) of investees and subsidiaries | | (163,413 | ) | | (80,749 | ) | | 212 |
| | 2,925 |
| | 243,950 |
| | 2,925 |
|
Reserve for (recovery of) grower receivables, net | | — |
| | — |
| | 2,148 |
| | — |
| | — |
| | 2,148 |
|
Gain on deconsolidation of European smoothie business | | — |
| | — |
| | — |
| | (32,497 | ) | | — |
| | (32,497 | ) |
Operating income (loss) | | 110,050 |
| | 131,349 |
| | 87,541 |
| | 22,200 |
| | (243,480 | ) | | 107,660 |
|
Interest income | | — |
| | 143 |
| | 1,008 |
| | 4,381 |
| | — |
| | 5,532 |
|
Interest expense | | (43,010 | ) | | (13,206 | ) | | (37 | ) | | (805 | ) | | — |
| | (57,058 | ) |
Other income (expense), net | | (11,285 | ) | | 45,127 |
| | (31,209 | ) | | 111 |
| | 145 |
| | 2,889 |
|
Income (loss) from continuing operations before income taxes | | 55,755 |
| | 163,413 |
| | 57,303 |
| | 25,887 |
| | (243,335 | ) | | 59,023 |
|
Income tax (expense) benefit | | 1,600 |
| | (56,874 | ) | | (28,765 | ) | | (2,971 | ) | | 88,610 |
| | 1,600 |
|
Income (loss) from continuing operations | | 57,355 |
| | 106,539 |
| | 28,538 |
| | 22,916 |
| | (154,725 | ) | | 60,623 |
|
Loss from discontinued operations, net of income taxes | | — |
| | — |
| | — |
| | (3,268 | ) | | — |
| | (3,268 | ) |
Net income (loss) | | $ | 57,355 |
| | $ | 106,539 |
| | $ | 28,538 |
| | $ | 19,648 |
| | $ | (154,725 | ) | | $ | 57,355 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Comprehensive Income |
Year ended December 31, 2010 |
(in thousands) | | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-issuer) | | (Co-issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net income (loss) | | $ | 57,355 |
| | $ | 106,539 |
| | $ | 28,538 |
| | $ | 19,648 |
| | $ | (154,725 | ) | | $ | 57,355 |
|
Other comprehensive income (loss), net of tax where applicable: | | | | | | | | | | | | |
Unrealized foreign currency translation gains (losses) | | — |
| | — |
| | — |
| | 87 |
| | — |
| | 87 |
|
| | | | | | | | | | | | |
Change in fair value of available-for-sale investment | | (126 | ) | | — |
| | — |
| | — |
| | — |
| | (126 | ) |
| | | | | | | | | | | | |
Unrealized gains (losses) on derivatives for the period | | — |
| | — |
| | — |
| | 28,709 |
| | — |
| | 28,709 |
|
(Gains) reclassified from OCI into net income | | — |
| | — |
| | — |
| | (5,805 | ) | | — |
| | (5,805 | ) |
Unrealized gains (losses) on derivatives | | — |
| | — |
| | — |
| | 22,904 |
| | — |
| | 22,904 |
|
| | | | | | | | | | | | |
Actuarial gains (losses) for the period | | — |
| | 164 |
| | — |
| | (6,825 | ) | | — |
| | (6,661 | ) |
Amortization included in pension cost, net of tax | | — |
| | 144 |
| | — |
| | 951 |
| | — |
| | 1,095 |
|
Defined benefit pension and severance plans | | — |
| | 308 |
| | — |
| | (5,874 | ) | | — |
| | (5,566 | ) |
| | | | | | | | | | | | |
Other comprehensive income (loss) of investments in subsidiaries | | 17,425 |
| | 17,117 |
| | — |
| | — |
| | (34,542 | ) | | — |
|
| | | | | | | | | | | | |
Comprehensive income (loss) | | $ | 74,654 |
| | $ | 123,964 |
| | $ | 28,538 |
| | $ | 36,765 |
| | $ | (189,267 | ) | | $ | 74,654 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Balance Sheet |
December 31, 2012 |
(in thousands) |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-Issuer) | | (Co-issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and equivalents | | $ | 2,601 |
| | $ | 12,704 |
| | $ | — |
| | $ | 35,721 |
| | $ | — |
| | $ | 51,026 |
|
Trade receivables, less allowances | | — |
| | 43,847 |
| | 56,551 |
| | 184,753 |
| | — |
| | 285,151 |
|
Other receivables, net | | 359 |
| | 1,275 |
| | 6,033 |
| | 57,442 |
| | — |
| | 65,109 |
|
Inventories | | — |
| | 10,033 |
| | 40,313 |
| | 169,695 |
| | — |
| | 220,041 |
|
Prepaid expenses | | 628 |
| | 3,922 |
| | 8,982 |
| | 27,282 |
| | — |
| | 40,814 |
|
Due from affiliates | | 93,502 |
| | 1,683,425 |
| | 1,011,067 |
| | 368,329 |
| | (3,156,323 | ) | | — |
|
Other current assets | | — |
| | 1,636 |
| | 17,257 |
| | 9,365 |
| | (9,923 | ) | | 18,335 |
|
Total current assets | | 97,090 |
| | 1,756,842 |
| | 1,140,203 |
| | 852,587 |
| | (3,166,246 | ) | | 680,476 |
|
Property, plant and equipment, net | | — |
| | 24,885 |
| | 201,702 |
| | 168,712 |
| | — |
| | 395,299 |
|
Investments and other assets, net | | 18,919 |
| | 20,542 |
| | 4,484 |
| | 50,716 |
| | (13,133 | ) | | 81,528 |
|
Trademarks | | — |
| | 208,085 |
| | 38,500 |
| | 179,500 |
| | — |
| | 426,085 |
|
Goodwill | | — |
| | — |
| | 18,095 |
| | — |
| | — |
| | 18,095 |
|
Other intangible assets, net | | — |
| | — |
| | 96,195 |
| | 84 |
| | — |
| | 96,279 |
|
Investments in affiliates | | 1,316,926 |
| | 976,368 |
| | 3,162 |
| | — |
| | (2,296,456 | ) | | — |
|
Total assets | | $ | 1,432,935 |
| | $ | 2,986,722 |
| | $ | 1,502,341 |
| | $ | 1,251,599 |
| | $ | (5,475,835 | ) | | $ | 1,697,762 |
|
| | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Current portion of long-term debt | | $ | — |
| | $ | 64,749 |
| | $ | 206 |
| | $ | 53 |
| | $ | — |
| | $ | 65,008 |
|
Accounts payable | | 1,809 |
| | 9,620 |
| | 80,466 |
| | 182,729 |
| | — |
| | 274,624 |
|
Accrued liabilities | | 13,554 |
| | 41,114 |
| | 55,382 |
| | 40,573 |
| | (9,923 | ) | | 140,700 |
|
Due to affiliates | | 762,957 |
| | 1,178,596 |
| | 906,288 |
| | 308,482 |
| | (3,156,323 | ) | | — |
|
Total current liabilities | | 778,320 |
| | 1,294,079 |
| | 1,042,342 |
| | 531,837 |
| | (3,166,246 | ) | | 480,332 |
|
Long-term debt, net of current portion | | 259,520 |
| | 280,500 |
| | 488 |
| | 9 |
| | — |
| | 540,517 |
|
Accrued pension and other employee benefits | | 13,317 |
| | 8,149 |
| | — |
| | 53,678 |
| | — |
| | 75,144 |
|
Deferred gain - sale of shipping fleet | | — |
| | — |
| | — |
| | 20,204 |
| | — |
| | 20,204 |
|
Deferred tax liabilities | | 115 |
| | 79,488 |
| | 39,302 |
| | 5,856 |
| | (13,133 | ) | | 111,628 |
|
Other liabilities | | 11,261 |
| | 7,580 |
| | 43,680 |
| | 37,014 |
| | — |
| | 99,535 |
|
Total liabilities | | 1,062,533 |
| | 1,669,796 |
| | 1,125,812 |
| | 648,598 |
| | (3,179,379 | ) | | 1,327,360 |
|
Commitments and contingencies | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total shareholders' equity | | 370,402 |
| | 1,316,926 |
| | 376,529 |
| | 603,001 |
| | (2,296,456 | ) | | 370,402 |
|
Total liabilities and shareholders' equity | | $ | 1,432,935 |
| | $ | 2,986,722 |
| | $ | 1,502,341 |
| | $ | 1,251,599 |
| | $ | (5,475,835 | ) | | $ | 1,697,762 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Balance Sheets |
December 31, 2011 |
(in thousands) |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-Issuer) | | (Co-issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and equivalents | | $ | — |
| | $ | 8,772 |
| | $ | — |
| | $ | 36,489 |
| | $ | — |
| | $ | 45,261 |
|
Trade receivables, less allowances | | — |
| | 37,183 |
| | 64,565 |
| | 164,807 |
| | — |
| | 266,555 |
|
Other receivables, net | | — |
| | 391 |
| | 11,464 |
| | 54,949 |
| | — |
| | 66,804 |
|
Inventories | | — |
| | 5,812 |
| | 36,637 |
| | 195,830 |
| | — |
| | 238,279 |
|
Prepaid expenses | | 266 |
| | 4,589 |
| | 11,468 |
| | 26,854 |
| | — |
| | 43,177 |
|
Due from affiliates | | 190,015 |
| | 1,391,647 |
| | 745,199 |
| | 387,019 |
| | (2,713,880 | ) | | — |
|
Other current assets | | — |
| | 35,842 |
| | 9,565 |
| | — |
| | (810 | ) | | 44,597 |
|
Total current assets | | 190,281 |
| | 1,484,236 |
| | 878,898 |
| | 865,948 |
| | (2,714,690 | ) | | 704,673 |
|
Property, plant and equipment, net | | — |
| | 17,646 |
| | 184,975 |
| | 167,066 |
| | — |
| | 369,687 |
|
Investments and other assets, net | | 23,332 |
| | 96,807 |
| | 17,057 |
| | 82,481 |
| | (87,444 | ) | | 132,233 |
|
Trademarks | | — |
| | 208,085 |
| | 61,500 |
| | 179,500 |
| | — |
| | 449,085 |
|
Goodwill | | — |
| | — |
| | 175,200 |
| | 1,384 |
| | — |
| | 176,584 |
|
Other intangible assets, net | | — |
| | — |
| | 105,589 |
| | 108 |
| | — |
| | 105,697 |
|
Investments in affiliates | | 1,571,302 |
| | 1,221,689 |
| | 2,233 |
| | — |
| | (2,795,224 | ) | | — |
|
Total assets | | $ | 1,784,915 |
| | $ | 3,028,463 |
| | $ | 1,425,452 |
| | $ | 1,296,487 |
| | $ | (5,597,358 | ) | | $ | 1,937,959 |
|
| | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Current portion of long-term debt | | $ | — |
| | $ | 16,500 |
| | $ | 145 |
| | $ | 129 |
| | $ | — |
| | $ | 16,774 |
|
Accounts payable | | 835 |
| | 7,679 |
| | 77,029 |
| | 166,029 |
| | — |
| | 251,572 |
|
Accrued liabilities | | 14,519 |
| | 4,594 |
| | 50,056 |
| | 46,620 |
| | (810 | ) | | 114,979 |
|
Due to affiliates | | 690,185 |
| | 1,045,460 |
| | 673,379 |
| | 304,856 |
| | (2,713,880 | ) | | — |
|
Total current liabilities | | 705,539 |
| | 1,074,233 |
| | 800,609 |
| | 517,634 |
| | (2,714,690 | ) | | 383,325 |
|
Long-term debt, net of current portion | | 249,805 |
| | 305,250 |
| | 586 |
| | 64 |
| | — |
| | 555,705 |
|
Accrued pension and other employee benefits | | 20,410 |
| | 8,553 |
| | — |
| | 47,940 |
| | — |
| | 76,903 |
|
Deferred gain - sale of shipping fleet | | — |
| | — |
| | — |
| | 34,553 |
| | — |
| | 34,553 |
|
Deferred tax liabilities | | 115 |
| | 66,931 |
| | 56,498 |
| | 7,148 |
| | (87,444 | ) | | 43,248 |
|
Other liabilities | | 8,976 |
| | 2,194 |
| | 24,624 |
| | 8,361 |
| | — |
| | 44,155 |
|
Total liabilities | | 984,845 |
| | 1,457,161 |
| | 882,317 |
| | 615,700 |
| | (2,802,134 | ) | | 1,137,889 |
|
Commitments and contingencies | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total shareholders' equity | | 800,070 |
| | 1,571,302 |
| | 543,135 |
| | 680,787 |
| | (2,795,224 | ) | | 800,070 |
|
Total liabilities and shareholders' equity | | $ | 1,784,915 |
| | $ | 3,028,463 |
| | $ | 1,425,452 |
| | $ | 1,296,487 |
| | $ | (5,597,358 | ) | | $ | 1,937,959 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Cash Flows |
Year Ended December 31, 2012 |
(in thousands) |
| | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-Issuer) | | (Co-Issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Cash provided (used) by: | | | | | | | | | | | | |
Operating cash flow | | $ | — |
| | $ | (12,756 | ) | | $ | 25,134 |
| | $ | 20,199 |
| | $ | — |
| | $ | 32,577 |
|
| | | | | | | | | | | | |
Capital expenditures | | — |
| | (6,888 | ) | | (19,728 | ) | | (26,824 | ) | | — |
| | (53,440 | ) |
Net proceeds from sale of: | | | | | | | | | | | | |
Equity method investments | | — |
| | — |
| | — |
| | 3,142 |
| | — |
| | 3,142 |
|
Other long-term assets | | 2,601 |
| | — |
| | 1,341 |
| | 1,051 |
| | — |
| | 4,993 |
|
Investing activity with subsidiaries | | — |
| | — |
| | (6,710 | ) | | — |
| | 6,710 |
| | — |
|
Other, net | | — |
| | — |
| | — |
| | (2,334 | ) | | — |
| | (2,334 | ) |
Investing cash flow | | 2,601 |
| | (6,888 | ) | | (25,097 | ) | | (24,965 | ) | | 6,710 |
| | (47,639 | ) |
| | | | | | | | | | | | |
Repayments of long-term debt | | — |
| | (16,500 | ) | | (37 | ) | | (231 | ) | | — |
| | (16,768 | ) |
Payments for debt modification and issuance costs | | — |
| | (2,405 | ) | | — |
| | — |
| | — |
| | (2,405 | ) |
Borrowings under the revolving credit facility | | — |
| | 70,000 |
| | — |
| | — |
| | — |
| | 70,000 |
|
Repayments of revolving credit facility | | — |
| | (30,000 | ) | | — |
| | — |
| | — |
| | (30,000 | ) |
Financing activity with subsidiaries | | — |
| | 2,481 |
| | — |
| | 4,229 |
| | (6,710 | ) | | — |
|
Financing cash flow | | — |
| | 23,576 |
| | (37 | ) | | 3,998 |
| | (6,710 | ) | | 20,827 |
|
Increase (decrease) cash and equivalents | | 2,601 |
| | 3,932 |
| | — |
| | (768 | ) | | — |
| | 5,765 |
|
Cash and equivalents, beginning of period | | — |
| | 8,772 |
| | — |
| | 36,489 |
| | — |
| | 45,261 |
|
Cash and equivalents, end of period | | $ | 2,601 |
| | $ | 12,704 |
| | $ | — |
| | $ | 35,721 |
| | $ | — |
| | $ | 51,026 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Cash Flow |
Year Ended December 31, 2011 |
(in thousands) |
| | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-Issuer) | | (Co-Issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Cash provided (used) by: | | | | | | | | | | | | |
Operating cash flow | | $ | — |
| | $ | 1,212 |
| | $ | 27,371 |
| | $ | 10,375 |
| | $ | — |
| | $ | 38,958 |
|
| | | | | | | | | | | | |
Capital expenditures | | — |
| | (5,765 | ) | | (30,332 | ) | | (39,438 | ) | | — |
| | (75,535 | ) |
Net proceeds from sale of: | | | | | | | | | | | | |
Equity method investments | | — |
| | — |
| | — |
| | 3,307 |
| | — |
| | 3,307 |
|
Other long-term assets | | — |
| | — |
| | 155 |
| | 3,357 |
| | — |
| | 3,512 |
|
Investing activity with subsidiaries | | — |
| | (3,501 | ) | | (154 | ) | | — |
| | 3,655 |
| | — |
|
Other, net | | — |
| | 16 |
| | (533 | ) | | 1,262 |
| | — |
| | 745 |
|
Investing cash flow | | — |
| | (9,250 | ) | | (30,864 | ) | | (31,512 | ) | | 3,655 |
| | (67,971 | ) |
| | | | | | | | | | | | |
Issuances of long-term debt | | — |
| | 330,000 |
| | — |
| | 67 |
| | — |
| | 330,067 |
|
Repayments of long-term debt | | — |
| | (400,265 | ) | | (8 | ) | | (60 | ) | | — |
| | (400,333 | ) |
Payments for debt modification and issuance costs | | — |
| | (5,026 | ) | | — |
| | — |
| | — |
| | (5,026 | ) |
Payments of debt extinguishment costs | | — |
| | (6,915 | ) | | — |
| | — |
| | — |
| | (6,915 | ) |
Financing activity with subsidiaries | | — |
| | — |
| | 3,501 |
| | 154 |
| | (3,655 | ) | | — |
|
Financing cash flow | | — |
| | (82,206 | ) | | 3,493 |
| | 161 |
| | (3,655 | ) | | (82,207 | ) |
Increase (decrease) cash and equivalents | | — |
| | (90,244 | ) | | — |
| | (20,976 | ) | | — |
| | (111,220 | ) |
Cash and equivalents, beginning of period | | — |
| | 99,016 |
| | — |
| | 57,465 |
| | — |
| | 156,481 |
|
Cash and equivalents, end of period | | $ | — |
| | $ | 8,772 |
| | $ | — |
| | $ | 36,489 |
| | $ | — |
| | $ | 45,261 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Chiquita Brands International, Inc. |
Condensed Consolidating Statement of Cash Flow |
Year Ended December 31, 2010 |
(in thousands) |
| | | | | | | | | | | | |
| | CBII | | CBLLC | | Guarantor | | Non-Guarantor | | Consolidating | | Company |
| | (Co-Issuer) | | (Co-Issuer) | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Cash provided (used) by: | | | | | | | | | | | | |
Operating cash flow | | $ | — |
| | $ | 70,565 |
| | $ | 34,422 |
| | $ | (7,126 | ) | | $ | — |
| | $ | 97,861 |
|
| | | | | | | | | | | | |
Capital expenditures | | — |
| | (7,248 | ) | | (26,504 | ) | | (31,790 | ) | | — |
| | (65,542 | ) |
Net proceeds from sale of: | | | | | | | | | | | | |
51% of European smoothie business | | — |
| | — |
| | — |
| | 16,882 |
| | — |
| | 16,882 |
|
Equity method investments | | — |
| | 17,500 |
| | — |
| | 3,845 |
| | — |
| | 21,345 |
|
Other long-term assets | | — |
| | — |
| | 23 |
| | 1,066 |
| | — |
| | 1,089 |
|
Investing activity with subsidiaries | | — |
| | — |
| | (8,606 | ) | | — |
| | 8,606 |
| | — |
|
Other, net | | — |
| | 40 |
| | (54 | ) | | (6,080 | ) | | — |
| | (6,094 | ) |
Investing cash flow | | — |
| | 10,292 |
| | (35,141 | ) | | (16,077 | ) | | 8,606 |
| | (32,320 | ) |
| | | | | | | | | | | | |
Issuances of long-term debt | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Repayments of long-term debt | | — |
| | (30,307 | ) | | (82 | ) | | (40 | ) | | — |
| | (30,429 | ) |
Financing activity with subsidiaries | | — |
| | 7,793 |
| | — |
| | 813 |
| | (8,606 | ) | | — |
|
Financing cash flow | | — |
| | (22,514 | ) | | (82 | ) | | 773 |
| | (8,606 | ) | | (30,429 | ) |
Increase (decrease) cash and equivalents | | — |
| | 58,343 |
| | (801 | ) | | (22,430 | ) | | — |
| | 35,112 |
|
Cash and equivalents, beginning of period | | — |
| | 40,673 |
| | 801 |
| | 79,895 |
| | — |
| | 121,369 |
|
Cash and equivalents, end of period | | $ | — |
| | $ | 99,016 |
| | $ | — |
| | $ | 57,465 |
| | $ | — |
| | $ | 156,481 |
|