-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NggCpC3qjPX6dtDi1ZHxi11ck9MAKDnxFQHSdi2DJtUTFT08D1xeTvuUAAHOV5J+ NyJl76Vvm1nis1lqSWqAtg== 0000088948-03-000013.txt : 20030811 0000088948-03-000013.hdr.sgml : 20030811 20030811151544 ACCESSION NUMBER: 0000088948-03-000013 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030811 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENECA FOODS CORP /NY/ CENTRAL INDEX KEY: 0000088948 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 160733425 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-01989 FILM NUMBER: 03834375 BUSINESS ADDRESS: STREET 1: 3736 SOUTH MAIN STREET CITY: MARION STATE: NY ZIP: 14534 BUSINESS PHONE: 315 926 8100 MAIL ADDRESS: STREET 1: 3736 SOUTH MAIN STREET CITY: MARION STATE: NY ZIP: 14505 FORMER COMPANY: FORMER CONFORMED NAME: PIERCE S S COMPANY INC DATE OF NAME CHANGE: 19861210 FORMER COMPANY: FORMER CONFORMED NAME: SENECA FOODS CORP DATE OF NAME CHANGE: 19780425 FORMER COMPANY: FORMER CONFORMED NAME: SENECA GRAPE JUICE CORP DATE OF NAME CHANGE: 19710419 8-K/A 1 a8ka81103.txt SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) August 11, 2003 (May 27, 2003) Seneca Foods Corporation ------------------------ (Exact name of registrant as specified in its charter) New York 0-1989 16-0733425 -------- ------ ---------- (State or other jurisdiction of (Commission (I. R. S. Employer incorporation or organization) File Number) Identification No.) 3736 South Main Street, Marion, New York 14505 ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 315/926-8100 ------------ Not Applicable -------------- Former name, former address and former fiscal year, if changed since last report Form 8-K/A Seneca Foods Corporation Item 2. Acquisition or Disposition of Assets This Current Report on Form 8-K/A amends the Registrant's Current Report filed on June 10, 2003 to incorporate the financial statement of Chiquita Processed Foods, L.L.C., the business we acquired and pro forma financial information. On May 27, 2003, the Registrant completed its acquisition of the membership interest in Chiquita Processed Foods, L.L.C. from Chiquita Brands International, Inc. The purchase price totaled $126.1 million plus the assumption of certain liabilities. This acquisition was financed with cash, proceeds from a new $200 million revolving credit facility, and $16.1 million of the Registrant's Participating Convertible Preferred Stock. In late June, the Registrant refinanced $20.0 million of outstanding debt under the revolving credit facility with new term debt from an insurance company. In August, the Registrant expects to refinance up to an additional $22.5 million of outstanding debt under the revolving credit facility with new term debt from an insurance company. The Registrant sold three former Chiquita Processed Foods plants and related assets to Lakeside Foods, Inc. on June 17, 2003. The Registrant sold one additional plant of Chiquita Processed Foods and related assets to Lakeside Foods, Inc. on August 6, 2003. The sales to Lakeside Foods generated $47 million in cash proceeds, which was used to pay down debt. The refinancing of the additional outstanding debt is still subject to the negotiation of definitive documentation. Therefore, there can be no assurance that this transaction will be completed. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements. The financial statements required to be included in this current report on Form 8-K are filed as Exhibit 99.2--Unaudited condensed financial statements of Chiquita Processed Foods, L.L.C. for three months ended March 31, 2003 and Exhibit 99.3-Audited financial statements of Chiquita Processed Foods, L.L.C. for year ended December 31, 2002, and nine months ended December 31, 2001, and the year ended March 31, 2001. (b) Pro Forma Financial Information. The pro forma financial information required to be included in this current report on Form 8-K required to be included in this current report on Form 8-K are filed as Exhibit 99.1 herewith. (c) Exhibits. Exhibit Number Description 23 Consent of Ernst & Young LLP independent accountants of Chiquita Processed Foods, L.L.C. 99.1 Pro Forma Financial Information. 99.2 Unaudited condensed financial statements of Chiquita Processed Foods, L.L.C. for three months ended March 31, 2003 99.3 Audited financial statements of Chiquita Processed Foods, L.L.C. for year ended December 31, 2002, nine months ended December 31, 2001 and the year ended March 31, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Seneca Foods Corporation (Registrant) /s/Kraig H. Kayser --------------------------- August 11, 2003 Kraig H. Kayser President and Chief Executive Officer EX-99 2 ex9918ka81103.txt Exhibit 99.1 SENECA FOODS CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 2003 (In Thousands of Dollars)
Acquirer Purchase Sale -------- ---- Consolidated Acquiree Pro Forma Pro Forma Historical Historical Adjustments Balance ------------ ---------- ----------- --------- ASSETS Current Assets: Cash and Short Term Investments $64,984 $3,592 ($51,968) (b) ($3) $16,605 Accounts Receivable, Net 31,799 32,279 (2,388) (a) 61,690 Inventories 141,649 161,851 (20,273) (a) (29,197) 254,030 Deferred Tax Asset , Net 3,300 7,488 (7,488) (a) 3,300 Other Current Assets 1,969 790 (619) (a) 2,140 -------------------------------------------- ----------------------------------- Total Current Assets 243,701 206,000 (82,736) (a) (29,200) 337,765 Prop., Plant and Equip., Net 132,969 83,191 12,510 (a) (20,963) 207,707 Other Assets 2,870 13,700 (4,838) (a) (2,904) 8,828 -------------------------------------------- ----------------------------------- $379,540 $302,891 ($75,064) ($53,067) $554,300 ======================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $50,375 $91,042 (b) ($47,445) $93,972 Accounts Payable 22,730 17,277 515 (b) (4,322) 36,200 Accrued Expenses 25,602 16,216 (1,004) (a) (856) 39,958 Current Portion of Long Term Debt and Capital Lease Obligations 22,987 7,997 (10,777) (b) 20,207 -------------------------------------------- ----------------------------------- Total Current Liabilities 71,319 91,865 79,776 (52,623) 190,337 Long Term Debt 127,107 28,533 (987) (b) 154,653 Capital Lease Obligations 6,230 1,388 (444) 7,174 Deferred Gain and Other Liabilities 6,497 14,815 (7,411) (a) 13,901 Deferred Income Taxes 9,023 13,276 (13,276) (a) 9,023 -------------------------------------------------------------------------------------- Total Liabilities 220,176 149,877 58,102 (53,067) 375,088 Stockholders' Equity: Preferred Stock 41,656 15,000 (b) 56,656 Common Stock 2,849 2,849 Additional Paid-in-Capital 14,616 198,873 (197,808) (b) 15,681 Accumulated Other Comprehensive Income 422 (9,242) 9,242 422 Retained Earnings 99,821 (36,617) 40,400 103,604 -------------------------------------------------------------------------------------- Stockholders' Equity 159,364 153,014 (133,166) 179,212 -------------------------------------------------------------------------------------- $379,540 $302,891 $(75,064) ($53,067) $554,300 ====================================================================================== The accompanying notes are an integral part of these unaudited Pro Forma Condensed Financial Statements.
SENECA FOODS CORPORATION, AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME TWELVE MONTHS ENDED MARCH 31, 2003 (Unaudited) (In thousands, except share data)
Acquirer Consolidated Acquiree Pro Forma Pro Forma Historical Historical Adjustments Balance Purchase Sale Net Sales $644,379 $395,319 ($94,481) $945,217 Costs and Expenses: Cost of Product Sold 590,079 374,137 (89,419) 874,797 Selling, General and Administrative 21,265 27,711 (15,209) (d) (6,623) 27,144 Other expense, net 4,719 (2,310) 2,409 Interest Expense 13,757 4,448 1,443 (c) (1,439) 18,209 ---------------------------------------------------------------------------------- Total Costs and Expenses 629,820 403,986 4,366 (97,481) 922,559 Income Before Income Taxes and Extraordinary Item 14,559 (8,667) 13,766 3,000 22,658 Income Taxes 5,509 (4,039) 5,209 965 7,644 ---------------------------------------------------------------------------------- Earnings (Loss) from Continued Operations $9,050 ($4,628) $8,557 $2,035 $15,014 ================================================================================== Net Earnings- Common Stock $9,047 ($4,628) $8,557 $2,035 $15,011 Diluted Earnings Per Share $0.88 $1.35 ================================================================================== Weighted Average Common Shares Outstanding Diluted 10,225,438 967,742 (b) 11,193,180 ================================================================================== The accompanying notes are an integral part of these unaudited Pro Forma Condensed Financial Statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS March 31, 2003 Statements (Last previous fiscal year): The Acquiree Historical column reflects the addition of the assets and liabilities and related income and expense accounts of the membership interest in Chiquita Processed Foods, L.L.C. ("CPF") purchased from Chiquita Brands International, Inc. on May 27, 2003 as described in Item 2 of this Form 8-K. The Pro Forma adjustments in the "Purchase" column are as a result of the purchase of Chiquita described above. The adjustments in the "Sale" column are as a result of the sale of three of the plants purchased from Chiquita to Lakeside Foods, Inc. on June 17, 2003 and the sale of a processing plant and distribution facility to Lakeside Foods on August 6, 2003. The unaudited pro forma consolidated condensed financial statements reflect adjustments, which are based on our preliminary estimates, to reflect the allocation of purchase price to the acquired assets and assumed liabilities of CPF. (a) The Pro Forma adjustments referenced as (a) reflect the estimated purchase price allocation of the aforementioned purchase. (b) The Pro Forma adjustments referenced as (b) reflect the source of the funds used for the aforementioned purchase. The source of the funds used includes long-term debt of $20 million, cash of $52 million and the balance ($76 million) from short-term borrowings. In addition, preferred stock of $16 million was used to fund the purchase. (c) To reflect the increase in interest expense as a result of the acquisition using $110 million of cash plus the assumption of debt. (d) To reflect the reduction in administrative expense as a result of combining the two companies. EX-23 3 ex2381103.txt Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion of our report dated January 31, 2003, except for Note 12, as to which the date is March 6, 2003, with respect to the financial Chiquita Processed Foods, L.L.C., in this Report on Form 8-K/A of Seneca Foods Corporation, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Minneapolis, Minnesota August 8, 2003 EX-99 4 ex9928ka81103.txt Exhibit 99.2 Chiquita Processed Foods, L.L.C. Unaudited Balance Sheets (In Thousands)
March 29 March 31 2003 2002 ------------------------------- Assets Current assets: Cash and cash equivalents $ 3,592 $ 1,544 Trade accounts receivable, net of allowances of $497 and $502, respectively 31,511 33,426 Other receivables 768 2,402 Inventories 161,851 172,145 Other current assets 8,278 10,072 ----------------------------------- Total current assets 206,000 219,589 Property, plant, and equipment, net 83,191 83,113 Other assets 13,700 16,155 ----------------------------------- Total assets $302,891 $318,857 =================================== Liabilities and member's equity Current liabilities: Revolving line of credit $ 50,375 $ 48,000 Current maturities of long-term debt 7,997 9,731 Accounts payable 17,277 17,409 Accrued liabilities 16,216 20,702 Payable to Chiquita, net 10,158 11,676 ----------------------------------- Total current liabilities 102,023 107,518 Long-term debt, less current maturities 29,921 35,932 Other liabilities 14,815 7,154 Deferred Income Taxes 13,276 16,509 ----------------------------------- Total liabilities 160,035 167,113 Member's equity: Paid-in capital 188,715 188,715 Retained earnings (accumulated deficit) (36,617) (32,112) Accumulated other comprehensive loss (9,242) (4,859) ----------------------------------- Total member's equity 142,856 151,744 ----------------------------------- Total liabilities and member's equity $302,891 $318,857 ===================================
Chiquita Processed Foods, L.L.C. Unaudited Statements of Operations (In Thousands)
Three Months Three Months Ended Ended March 29, March 31, 2003 2002 ---------------------------------------- Revenues $92,225 $100,773 Operating expenses: Cost of products sold 85,958 89,314 Selling, general, and administrative 7,430 9,032 Depreciation 3,496 3,584 Gain on sale of assets, net (666) (2,660) ---------------------------------------- 96,218 99,270 ---------------------------------------- Operating income (3,993) 1,503 Interest expense, net 1,277 1,583 ---------------------------------------- Loss before income taxes (5,270) (80) Income tax benefit (2,003) (30) ---------------------------------------- Net loss (3,267) (50) ======================================== See accompanying notes.
Chiquita Processed Foods, L.L.C. Unaudited Statements of Cash Flow (In Thousands)
Three Months Ended Three Months Ended March 29, March 31, 2003 2002 ---------------------------------------- Operating activities Net loss $(3,267) $ (50) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 3,496 3,584 Deferred income taxes (2,003) (30) Gain on sale of assets, net (666) (2,660) Changes in current assets and liabilities: Trade account receivables 2,904 231 Inventories 42,374 40,827 Other current assets 177 34 Accounts payable (48,593) (18,031) Accrued liabilities 499 (1,814) Repayment of advances from Chiquita, net 78 1,921 Other (237) (66) ---------------------------------------- Net cash (used in) provided by operating activities (5,238) 23,946 Investing activities Capital expenditures (589) (2,010) Proceeds from sale of assets 1,471 4,824 Other 72 (47) ---------------------------------------- Net cash provided by investing activities 954 2,767 Financing activities Repayments of long-term debt (86) (1,895) Increase (Decrease) in revolving line of credit 7,425 (24,000) ---------------------------------------- Net cash provided (used) in financing activities 7,339 (25,895) ---------------------------------------- Increase in cash and cash equivalents 3,055 818 Cash and cash equivalents at beginning of period 537 726 ---------------------------------------- Cash and cash equivalents at end of period $ 3,592 $ 1,544 ======================================== See accompanying notes.
EX-99 5 ex9938ka81103.txt CPF FINANCIAL STATEMENTS EXHIBIT 99.3 FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION Chiquita Processed Foods, L.L.C. Year Ended December 31, 2002, Nine Months Ended December 31, 2001 and Year Ended March 31, 2001 0301-0383509 Chiquita Processed Foods, L.L.C. Financial Statements and Other Financial Information Year Ended December 31, 2002 and Nine Months Ended December 31, 2001 Contents Report of Independent Auditors.................................................1 Financial Statements Balance Sheets.................................................................2 Statements of Operations.......................................................3 Statements of Member's Equity..................................................4 Statements of Cash Flow........................................................5 Notes to Financial Statements..................................................6 1 0301-0383509 Report of Independent Auditors The Board of Directors and Shareholder Chiquita Processed Foods, L.L.C. We have audited the accompanying balance sheets of Chiquita Processed Foods, L.L.C. (the Company) as of December 31, 2002 and 2001, and the related statements of operations, member's equity, and cash flow for the year ended December 31, 2002, the nine months ended December 31, 2001 and the year ended March 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2002 and 2001, and the results of its operations and its cash flow for the year ended December 31, 2002 and the nine months ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As discussed in Note 2, the Company adopted Statement of Financial Accounting Standards No. 142 effective January 1, 2002. /s/Ernst & Young, LLP Minneapolis, Minnesota January 31, 2003, except for Note 12, as to which the date is March 6, 2003 Chiquita Processed Foods, L.L.C. Balance Sheets (In Thousands)
December 31 2002 2001 ---------------------------------------- Assets Current assets: Cash and cash equivalents $ 537 $ 726 Trade accounts receivable, net of allowances of $250 and $502, respectively 33,095 32,917 Other receivables 2,690 3,142 Inventories 204,220 213,872 Other current assets 8,455 10,106 ---------------------------------------- Total current assets 248,997 260,763 Property, plant, and equipment, net 86,105 89,988 Goodwill - 48,332 Other assets 13,745 13,213 ---------------------------------------- Total assets $348,847 $412,296 ======================================== Liabilities and member's equity Current liabilities: Revolving line of credit $ 42,950 $ 72,000 Current maturities of long-term debt 7,997 9,753 Accounts payable 65,872 35,440 Accrued liabilities 15,716 22,516 Payable to Chiquita, net 10,080 9,698 ---------------------------------------- Total current liabilities 142,615 149,407 Long-term debt, less current maturities 30,007 37,805 Other liabilities 28,099 23,509 ---------------------------------------- Total liabilities 200,721 210,721 Member's equity: Paid-in capital 188,715 188,715 Retained earnings (accumulated deficit) (31,347) 17,719 Accumulated other comprehensive loss (9,242) (4,859) ---------------------------------------- Total member's equity 148,126 201,575 ---------------------------------------- Total liabilities and member's equity $348,847 $412,296 ======================================== See accompanying notes.
Chiquita Processed Foods, L.L.C. Statements of Operations (In Thousands)
Year Ended Ended Nine Months Year Ended December 31, December 31, March 31, 2002 2001 2001 ------------------------------------------------------ Revenues $403,867 $316,993 $404,848 Operating expenses: Cost of products sold 362,579 275,155 340,520 Selling, general, and administrative 29,313 24,470 35,560 Depreciation 15,002 11,244 13,789 Gain on sale of assets, net (4,304) (1,346) (8,032) ------------------------------------------------------ 402,590 309,523 381,837 ------------------------------------------------------ Operating income 1,277 7,470 23,011 Interest expense, net 4,754 5,949 11,438 ------------------------------------------------------ (Loss) income before income taxes and (3,477) 1,521 11,573 cumulative effect of a change in method of accounting Income tax (benefit) expense (1,621) 1,033 4,000 ------------------------------------------------------ (Loss) income before cumulative effect (1,856) 488 7,573 of a change in method of accounting Cumulative effect of a change in method of accounting (47,210) - - ------------------------------------------------------ Net (loss) income $ (49,066) $ 488 $ 7,573 ====================================================== See accompanying notes.
Chiquita Processed Foods, L.L.C. Statements of Member's Equity (In Thousands)
Paid-In Capital Retained Accumulated Other Total Member's Earnings Comprehensive Loss Equity ---------------------------------------------------------------------- Balance at March 31, 2000 $188,715 $ 9,658 $ - $198,373 ----------------- Net income - 7,573 - 7,573 ---------------------------------------------------------------------- Balance at March 31, 2001 188,715 17,231 $ - $205,946 Net income - 488 - 488 Change in minimum pension liability - - (4,859) (4,859) ----------------- Comprehensive loss (4,371) ---------------------------------------------------------------------- Balance at December 31, 2001 188,715 17,719 (4,859) 201,575 Net loss - (49,066) - (49,066) Change in minimum pension liability - - (4,383) (4,383) ----------------- Comprehensive loss (53,449) ---------------------------------------------------------------------- Balance at December 31, 2002 $188,715 $(31,347) $(9,242) $148,126 ====================================================================== See accompanying notes.
Chiquita Processed Foods, L.L.C. Statements of Cash Flow (In Thousands)
Year Ended Nine Months Ended Year Ended December 31, December 31, March 31, 2002 2001 2001 ----------------------------------------------------------- Operating activities Net (loss) income $(49,066) $ 488 $ 7,573 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Cumulative effect of a change in method of accounting 47,210 - - Depreciation and amortization 15,002 12,259 15,136 Deferred income taxes (1,336) 773 2,618 Gain on sale of assets, net (4,304) (1,346) (8,032) Changes in current assets and liabilities: Trade account receivables (178) 4,181 5,665 Other receivables (38) (2,113) (827) Inventories 9,652 (16,660) (30,967) Other current assets 257 1,684 348 Accounts payable 30,432 20,244 (79) Accrued liabilities (5,074) 245 (3,099) Repayment of advances from Chiquita, net 382 (116) (580) Other 1,559 484 606 ----------------------------------------------------------- Net cash provided by operating activities 44,498 20,123 (11,638) Investing activities Capital expenditures (14,046) (11,383) (9,225) Proceeds from sale of assets 7,963 5,228 9,962 Other - 18 (1,565) ----------------------------------------------------------- Net cash used in investing activities (6,083) (6,137) (828) Financing activities Issuance of long-term debt - - 2,707 Repayments of long-term debt (9,554) (6,071) (7,288) Decrease in revolving line of credit (29,050) (8,000) 17,000) ----------------------------------------------------------- Net cash used in financing activities (38,604) (14,071) 12,419 ----------------------------------------------------------- Decrease in cash and cash equivalents (189) (85) (47) Cash and cash equivalents at beginning of period 726 811 858 ----------------------------------------------------------- Cash and cash equivalents at end of period $ 537 $726 $811 =========================================================== See accompanying notes.
Chiquita Processed Foods, L.L.C. Notes to Financial Statements December 31, 2002 1. Business and Basis of Presentation Description of Business Chiquita Processed Foods, L.L.C. (the Company) is a limited liability company engaged primarily in the processing, marketing, and distribution of branded and private label canned vegetables. The Company sells its products to grocery wholesalers and retailers throughout the United States. The Company is also an exporter of canned vegetables to Europe and Asia. Sales of corn, green beans, and peas make up a significant portion of the Company's revenues. The Company is a 100%-owned subsidiary of Friday Holdings, L.L.C., which is an indirectly wholly owned subsidiary of Chiquita Brands International, Inc. (Chiquita). Effective December 31, 2001, the Company's year-end has changed to December 31. Previously, the Company's year-end was March 31. 2. Summary of Significant Accounting Policies Cash Equivalents The Company considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market. Cost has been determined using the average cost method. The Company farms approximately 4,100 acres of leased land. Direct costs of the farm program are deferred until the related crops are harvested and processed. The off-season reserve that is a component of inventory is the excess of absorbed expenses over incurred expenses to date. The seasonal nature of the Company's processing business results in a timing difference between expenses (primarily overhead expenses) incurred and absorbed into inventory cost. The Company's production costs are inventoried on a 12-month basis ending each March 31 and the off-season reserve is zero each March 31. 30 2. Summary of Significant Accounting Policies (continued) Property, Plant, and Equipment Property, plant, and equipment are stated at cost or, in the case of capital leases, the present value of future lease payments. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows: Building and improvements 5-40 years Machinery and equipment 5-15 years Cultivations 18-20 years For assets used in operations, impairment losses are recognized when the undiscounted cash flows of the asset are not sufficient to recover the carrying value of the asset. For assets held for sale, impairment losses are recognized when the carrying value of an asset exceeds its fair value. The Company regularly assesses all of its long-lived assets for impairment. An impairment loss of $1.5 million, included in cost of product sold, was recognized in 2002 primarily on equipment at a plant that was closed in 2002. Goodwill In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company on January 1, 2002. Under this statement, goodwill will no longer be amortized but will be reviewed at least annually for impairment. On January 1, 2002, to give effect to the new standard, the Company recorded a goodwill write-down of $47.2 million as a cumulative effect of a change in method of accounting. The write-down results from applying the SFAS No. 142 requirement to evaluate goodwill using discounted cash flows rather than the undiscounted cash flow methodology prescribed by the previous standard. If the write-down of goodwill and application of the non-amortization provisions of SFAS No. 142 had been adopted as of April 1, 2000, net income before cumulative effect of a change in method of accounting for the nine months ended December 31, 2001 and the year ended March 31, 2001 would have been $1.1 million and $1.3 million higher, respectively. 2. Summary of Significant Accounting Policies (continued) New Accounting Standards The FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in August 2001. The statement was effective beginning January 1, 2002 and requires that long-lived assets classified as held for sale meet certain requirements, one of which is that the sale of the asset within one year of classification as held for sale is probable. The Company had classified a number of long-lived assets as held for sale as of December 31, 2001 which were still owned by the Company as of December 31, 2002. The Company reclassified these properties to assets to be held and used as of December 31, 2002 and recognized depreciation expense of $450,000, which is the amount of depreciation expense that would have been recognized had these assets been continuously classified as held and used. In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit and Disposal Activities. This statement revises the accounting for exit and disposal activities under EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, by spreading out the reporting of expenses related to restructuring activities. Commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most anticipated costs. Instead, companies will record exit or disposal costs when they are "incurred" and can be measured at fair value, and they will subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not restate previously issued financial statements for the effect of the provisions of SFAS No. 146 and liabilities that a company previously recorded under EITF Issue 94-3 are grandfathered. The Company does not expect the adoption of SFAS No. 146 to have a material impact on its consolidated financial statements. Revenue Recognition Revenues are recognized when products are shipped to customers. The Company performs ongoing credit evaluations of its customers and does not require collateral. 2. Summary of Significant Accounting Policies (continued) Income Taxes Under the limited liability company structure, the Company is not subject to federal or state income taxes. The results of the operations of the Company are included in Chiquita's federal and state income tax returns. For purposes of these financial statements, income tax expense represents the amount of tax that would be due if the Company had filed separate income tax returns. Deferred income taxes are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities. Comprehensive Income (Loss) Comprehensive income (loss) reflects the change in member's equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. For the Company, comprehensive loss represents net income adjusted for the change in the minimum pension liability. Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist of trade receivables. Wholesale and retail food distributors comprise a significant portion of the trade receivables and collateral is not required. The risk associated with the concentration is limited due to the large number of wholesalers and retailers and their geographic dispersion. Use of Estimates The financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Actual amounts could differ from those estimates. 2. Summary of Significant Accounting Policies (continued) Fair Value of Financial Instruments Except as noted, the carrying value of all financial instruments approximates fair value. Shipping and Handling Costs The Company includes in revenues all shipping and handling costs billed to customers and the corresponding costs associated with these costs in the costs of products sold. Reclassifications Certain prior year amounts have been reclassified to conform to current year presentation. 3. Inventories Inventories consist of the following (in thousands): December 31 2002 2001 ---------------------------------------- Finished goods $207,707 $222,666 Manufacturing and farm supplies 11,793 10,452 Deferred farm crop costs 651 561 Off-season reserve (15,931) (19,807) ---------------------------------------- $204,220 $213,872 ======================================== 4. Property, Plant, and Equipment Property, plant, and equipment consist of the following (in thousands): December 31 2002 2001 ---------------------------------------- Land $ 2,712 $ 2,397 Buildings and improvements 42,745 39,833 Machinery and equipment 133,276 119,370 Cultivations 515 515 Construction in progress 621 1,877 ---------------------------------------- 179,869 163,992 Accumulated depreciation (93,764) (74,004) ---------------------------------------- $ 86,105 $ 89,988 ======================================== 5. Debt Debt consists of the following (in thousands): December 31 2002 2001 ---------------------------------------- Term loan, due in installments to 2004 - Variable interest rate of 3.65% $28,571 $ 35,714 Revolving credit loans, due through 2004 - Variable interest rate of 4.22% 42,950 72,000 Industrial Development Revenue Bonds, maturing through 2011: Fixed rates ranging from 7.75% to 8.50% 5,500 7,000 Variable rate of 1.90% 1,350 1,500 Other loans maturing through 2007 2,583 3,344 ---------------------------------------- 80,954 119,558 Less current maturities (50,947) (81,753) ---------------------------------------- $30,007 $ 37,805 ======================================== 5. Debt (continued) In September 1999, the Company entered into a five-year $200 million senior secured credit facility. The facility includes a $135 million revolving credit line and a $65 million term loan agreement. At December 31, 2002, $43.0 million of borrowings were outstanding under the revolving credit line and $28.6 million was outstanding under the term loan agreement, of which $43.0 million and $7.1 million, respectively, were classified as current maturities. The Company's receivables, finished goods inventory, and certain machinery and equipment secure borrowings under this facility. Borrowings are generally restricted to an amount equal to 85% of eligible accounts receivable plus 70% of eligible inventory, as defined in the agreement. Interest under the facility is based on, at the Company's option, either the bank corporate base rate or prevailing LIBOR rates. An annual fee of up to 0.5% is payable on the unused portion of the facility. This facility contains covenants that limit capital expenditures and the payment of dividends by the Company and require the Company to maintain a minimum tangible net worth of $97.6 million and certain financial ratios related to debt coverage. Under the terms of certain of its Industrial Development Revenue Bonds (IDRBs), the Company is required to maintain a minimum current ratio of 1.25 to 1 and a minimum tangible net worth of $4.8 million. Borrowings under these IDRBs are primarily unsecured. Maturities on debt during the next five years are as follows (in thousands): 2003 $50,947 2004 22,186 2005 6,153 2006 581 2007 and thereafter 1,087 Cash payments relating to interest expense were $4.8 million for the year ended December 31, 2002, $5.9 million for the nine months ended December 31, 2001 and $10.6 million for the year ended March 31, 2001. 6. Income Taxes Income taxes consist of the following (in thousands):
Nine Months Ended Year Ended December 31, Year Ended March 31, December 31, 2002 2001 2001 --------------------------------------------------------------- Current tax (benefit) expense $ (285) $ 260 $ 1,382 Deferred tax (benefit) expense (1,336) 773 2,618 --------------------------------------------------------------- $(1,621) $1,033 $4,000 ===============================================================
Income tax expense differs from income taxes computed at the U.S. federal statutory rate primarily as a result of the change in valuation allowance and permanent differences such as goodwill amortization. The components of deferred income taxes included on the balance sheet are as follows (in thousands):
December 31 2002 2001 ---------------------------------------- Current deferred tax assets: Accrued liabilities not currently deductible $ 6,036 $ 6,975 Inventory uniform capitalization 1,452 1,906 ---------------------------------------- Total current deferred tax assets $ 7,488 $ 8,881 ======================================== Non-current deferred tax assets (liabilities): Accrued liabilities not currently deductible $ 3,283 $ 1,776 Depreciation (25,258) (23,752) Tax credit carryforwards 2,343 2,479 Net operating loss carryforwards 27,338 24,611 Valuation allowance (20,982) (21,119) ---------------------------------------- Total non-current deferred tax liabilities, net $(13,276) $(16,005) ========================================
The total current deferred tax assets are included in other current assets and the non-current deferred tax liabilities are included in other liabilities. 6. Income Taxes (continued) The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets which may not be realized due to the uncertainty in its ability to fully utilize operating losses and tax credit carryforwards. At December 31, 2002, the Company had an alternative minimum tax credit carryforward of $1.9 million that may be carried forward indefinitely, and a general business credit carryforward of $0.5 million that expires in various years from 2002 to 2007. At December 31, 2002, the Company had net operating loss carryforwards of approximately $77.4 million that expire in the years 2007 through 2018. Internal Revenue Code Sections 382 and 383 limit the utilization of net operating loss carryforwards and tax credits, respectively, due to a prior ownership change. 7. Related-Party Transactions Corporate office rental, legal expenses, internal audit and tax services, and Processed Foods group personnel costs are incurred by Chiquita and allocated to the Company. Amounts allocated during the year ended December 31, 2002, the nine months ended December 31, 2001 and the year ended March 31, 2001 totaled $1.6 million, $1.3 million, and $2.3 million, respectively, and are included in selling, general, and administrative expense in the statements of income. The Company is also charged for its share of insurance premiums managed by Chiquita. These charges totaled $3.0 million for the year ended December 31, 2002 and $1.6 million for the nine months ended December 31, 2001, and $2.1 million for the year ended March 31, 2001, and are included in cost of products sold in the statements of income. 8. Leases The Company leases its corporate headquarters facility, as well as land and certain data processing and vegetable canning equipment utilizing both capital and operating leases. Leased assets under capital leases consist of machinery and equipment with a cost of $2.7 million and accumulated amortization of $1.0 million as of December 31, 2002. 8. Leases (continued) Future minimum rental payments required under leases having initial or remaining non-cancelable lease terms in excess of one year for years ending December 31, are as follows (in thousands): Operating Capital ------------------------------------ 2003 $ 3,583 $ 405 2004 2,716 405 2005 2,148 405 2006 1,916 405 2007 1,023 394 Later years 843 - ------------------------------------ Total minimum payment required $12,229 2,014 ================== Less interest 72 ------------------- Present value of minimum lease payments 1,942 Amount due within one year 379 ------------------- Long-term capital lease obligation $1,563 =================== Total rent expense was $7.8 million for the year ended December 31, 2002 and $6.8 million for the nine months ended December 31, 2001, and $8.8 million for the year ended March 31, 2001. 9. Employee Retirement Plans The Company maintains several defined contribution and non-contributory defined benefit pension plans covering certain salaried and hourly employees. The funding policy of these plans is to contribute annually an amount sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The assets of the plans consist principally of debt and equity securities and fixed income instruments. 9. Employee Retirement Plans (continued) Pension expense consists of the following (in thousands):
Year Ended Nine Months Ended Year Ended December 31, December 31, March 31, 2002 2001 2001 ----------------------------------------------------------- Defined benefit plans: Service cost $ 92 $ 71 $ 92 Interest on projected benefit obligation 1,506 1,105 1,389 Expected return on plan assets (1,864) (1,476) (2,089) Recognized actuarial loss 276 123 (75) Amortization of prior service cost 71 60 70 ----------------------------------------------------------- 81 (117) (613) Curtailment loss - 227 - ----------------------------------------------------------- 81 110 (613) Defined contribution plans 1,628 1,234 1,210 ----------------------------------------------------------- Total pension expense $1,709 $1,344 $597 ===========================================================
9. Employee Retirement Plans (continued) Financial information with respect to the defined benefit plans is as follows (in thousands):
December 31 2002 2001 ---------------------------------------- Fair value of plan assets at beginning of year $24,035 $25,245 Actual return on plan assets (1,689) (232) Employer contributions - - Benefits paid (1,149) (978) ---------------------------------------- Fair value of plan assets at end of year $21,197 $24,035 ======================================== Projected benefit obligation at beginning of year $21,647 $20,471 Service cost 92 71 Interest cost 1,506 1,105 Actuarial loss 1,753 978 Benefits paid (1,149) (978) ---------------------------------------- Projected benefit obligation at end of year $23,849 $21,647 ======================================== Excess of plan assets over projected benefit obligation $ (2,652) $ 2,388 Unrecognized actuarial loss 9,592 4,561 Unrecognized prior service cost 688 759 ---------------------------------------- Prepaid pension assets 7,628 7,708 Adjustment required to recognize minimum pension liability (9,242) (4,859) ---------------------------------------- Net pension amounts $ (1,614) $ 2,849 ========================================
The prepaid pension asset is included in other assets. The minimum pension liability is included in other liabilities. The projected benefit obligations of these plans were determined using a discount rate of approximately 6.5% in 2002. The assumed long-term rate of return on plan assets was approximately 8.0% in 2002. 9. Employee Retirement Plans (continued) The accumulated benefit obligation exceeded plan assets at December 31, 2002. The provisions of SFAS No. 87, Employers' Accounting for Pensions, requires the recognition of an additional minimum pension liability adjustment if the unfunded accumulated benefit obligation is greater than the amount recognized as an accrued benefit cost. An additional minimum pension liability amount of $9.9 million has been recorded as a reduction of prepaid pension assets with an offsetting intangible asset of $0.7 million at December 31, 2002, and a charge to shareholders' equity of $9.2 million at December 31, 2002. 10. Severance Charges During 2002, the Company recorded pretax severance charges of $1.5 million attributable to the consolidation of certain of the Company's manufacturing, marketing, and administrative operations to reduce costs, to better utilize available manufacturing and operating capacity, and to enhance competitiveness. The consolidation has resulted in a reduction of 125 employees with $0.7 million of the severance costs yet to be paid as of December 31, 2002. 11. Parent Company Debt Restructuring On March 19, 2002, the Company's ultimate parent, Chiquita Brands International, Inc. (CBII), which is a holding company without business operations of its own, completed its previously announced financial restructuring when its prearranged Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code became effective. CBII's operating subsidiaries, which have continued to meet their obligations with their own cash flow and credit facilities, were not involved in the restructuring or the Chapter 11 bankruptcy proceedings. 12. Subsequent Event On March 6, 2003, CBII announced a definitive agreement to sell the Company to Seneca Foods. This transaction, which is expected to be completed by June 30, 2003, is subject to certain conditions, including regulatory approval by the U.S. Federal Trade Commission. Seneca announced a separate agreement to sell the Company's plants in Owatonna, Minnesota, New Richmond and Eden, Wisconsin, and the Company's distribution center in Poynette, Wisconsin, to Lakeside Foods. -----END PRIVACY-ENHANCED MESSAGE-----