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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

  o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number 1-1550

CHIQUITA BRANDS INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

  New Jersey
(State or Other Jurisdiction of Incorporation or Organization)
   04-1923360
(I.R.S. Employer Identification No.)		  

250 East Fifth Street
Cincinnati, Ohio 45202
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (513) 784-8000

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

          Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes x No o

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of July 31, 2002, there were 39,815,793 shares of Common Stock outstanding.

 

Table of Contents

CHIQUITA BRANDS INTERNATIONAL, INC.

TABLE OF CONTENTS

      Page
PART I - FINANCIAL INFORMATION  
     
Item 1 - Financial Statements  
     
  Consolidated Statement of Income for the quarters ended
    June 30, 2002, June 30, 2001 and March 31, 2002, and
    for the six months ended June 30, 2001 		3
     
  Consolidated Balance Sheet as of June 30, 2002,
   December 31, 2001 and June 30, 2001 		4
     
  Consolidated Statement of Cash Flow for the quarters ended June 30, 2002
    and March 31, 2002, and for the six months ended June 30, 2001 		5
     
  Notes to Consolidated Financial Statements 6
     
Item 2 - Management’s Discussion and Analysis of Financial Condition
     and Results of Operations 		16
     
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 18
     
     
     
PART II - OTHER INFORMATION  
     
Item 1 - Legal Proceedings 19
     
Item 6 - Exhibits and Reports on Form 8-K 19
     
 
   
SIGNATURE 21
   
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Part I - Financial Information

Item 1 - Financial Statements

CHIQUITA BRANDS INTERNATIONAL, INC.

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

Reorganized
Company* 		Predecessor Company*
Quarter Ended
June 30,
2002 		Quarter Ended
June 30,
2001 		Quarter Ended
March 31,
2002 		Six Months Ended
June 30,
2001
Net sales   $ 631,928   $ 595,410   $ 629,505   $ 1,172,659  
Operating expenses                          
   Cost of sales     494,903     488,364     510,384     950,639  
   Selling, general and administrative     66,569     61,774     55,336     117,566  
   Depreciation     9,942     20,838     21,401     41,632  
    571,414     570,976     587,121     1,109,837  
    Operating income     60,514     24,434     42,384     62,822  
Interest income     1,016     2,104     624     5,155  
Interest expense     (12,316 )   (32,037 )   (9,486 )   (64,731 )
Financial restructuring items     —     (1,989 )   (285,822 )   (3,106 )
   Income (loss) before income taxes and
      cumulative effect of a change in
      method of accounting		     49,214     (7,488 )   (252,300 )   140  
Income taxes     (1,500 )   (3,500 )   (1,000 )   (7,000 )
   Income (loss) before cumulative effect of
      a change in method of accounting		     47,714     (10,988 )   (253,300 )   (6,860 )
Cumulative effect of a change in method of
   accounting		     —     —     (144,523 )   —  
Net income (loss)   $ 47,714   $ (10,988 ) $ (397,823 ) $ (6,860 )
                         
Basic and diluted earnings per common
   share:		                          
   - Before cumulative effect of a change in
      method of accounting		   $ 1.19   $ (0.19 ) $ (3.23 ) $ (0.19 )
   - Cumulative effect of a change in
      method of accounting		     —     —     (1.85 )   —  
   - Net income (loss)   $ 1.19   $ (0.19 ) $ (5.08 ) $ (0.19 )

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

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CHIQUITA BRANDS INTERNATIONAL, INC.

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

Reorganized
Company* 		Predecessor Company*
June 30,
2002 		December 31,
2001 		June 30,
2001
ASSETS
                   
Current assets        
   Cash and equivalents   $ 65,247   $ 70,428   $ 127,775  
   Trade receivables (less allowances of $10,061, $11,902, and
      $12,068)		     244,252     193,945     216,269  
   Other receivables, net     76,344     80,378     91,114  
   Inventories     326,742     392,190     342,234  
   Other current assets     56,072     35,414     51,641  
      Total current assets     768,657     772,355     829,033  
Property, plant and equipment, net     432,553     1,005,606     1,038,332  
Investments and other assets, net     166,357     326,116     323,009  
Intangibles, net     387,585     158,415     160,792  
      Total assets   $ 1,755,152   $ 2,262,492   $ 2,351,166  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                   
Liabilities not subject to compromise                    
Current liabilities                    
   Notes and loans payable   $ 9,979   $ 53,374   $ 46,268  
   Long-term debt due within one year                    
     Parent company     —     —     858,579  
     Subsidiaries     51,748     56,376     45,605  
   Accounts payable     189,939     175,161     175,512  
   Accrued liabilities     97,329     102,452     159,960  
      Total current liabilities     348,995     387,363     1,285,924  
Long-term debt of parent company     250,000     —     —  
Long-term debt of subsidiaries     274,774     306,017     338,512  
Accrued pension and other employee benefits     102,360     68,193     62,800  
Other liabilities     105,133     89,505     91,898  
      Total liabilities not subject to compromise     1,081,262     851,078     1,779,134  
Liabilities subject to compromise     —     962,820     —  
      Total liabilities     1,081,262     1,813,898     1,779,134  
                   
Shareholders’ equity                    
   Preferred and preference stock     —     139,729     171,885  
   Common stock, $.01 par value (39,806,698 new shares, 78,273,183
      and 73,525,270 old shares outstanding, respectively)		     398     783     735  
   Capital surplus     625,539     881,192     849,083  
   Retained earnings (deficit)     47,714     (530,068 )   (418,160 )
   Accumulated other comprehensive income (loss)     239     (43,042 )   (31,511 )
      Total shareholders’ equity     673,890     448,594     572,032  
      Total liabilities and shareholders’ equity   $ 1,755,152   $ 2,262,492   $ 2,351,166  

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

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CHIQUITA BRANDS INTERNATIONAL, INC.

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

Reorganized
Company* 		Predecessor Company*
Quarter Ended
June 30,
2002 		Quarter Ended
March 31,
2002 		Six Months Ended
June 30,
2001
Cash provided (used) by:                    
Operations                    
   Income (loss) before cumulative effect of a change in
      method of accounting		   $ 47,714   $ (253,300 ) $ (6,860 )
   Financial restructuring items     —     272,961     —  
   Depreciation and amortization     9,942     21,401     44,708  
   Parent company interest expense not paid     —     —     40,710  
   Collection of tax refund     —     —     9,456  
   Changes in current assets and liabilities and other     27,493     (33,954 )   25,277  
      Cash flow from operations     85,149     7,108     113,291  
Investing                    
   Capital expenditures     (10,522 )   (4,807 )   (15,530 )
   Hurricane Mitch insurance proceeds     —     —     6,320  
   Long-term investments     —     —     (4,296 )
   Proceeds from sales of property, plant and equipment     3,376     5,029     3,756  
   Other     (1,505 )   275     (510 )
      Cash flow from investing     (8,651 )   497     (10,260 )
Financing**                    
   Issuances of long-term debt     —     200     71,402  
   Repayments of long-term debt     (28,499 )   (9,948 )   (80,828 )
   CBI credit facility amendment and other fees     (249 )   (7,393 )   —  
   Decrease in notes and loans payable     (39,353 )   (4,042 )   (62,754 )
      Cash flow from financing     (68,101 )   (21,183 )   (72,180 )
Increase (decrease) in cash and equivalents     8,397     (13,578 )   30,851  
Balance at beginning of period     56,850     70,428     96,924  
Balance at end of period   $ 65,247   $ 56,850   $ 127,775  

______________

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


  **   On March 19, 2002, in accordance with the Company’s Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code, all previously existing parent company public debt ($861 million principal plus $102 million accrued interest) was exchanged for 95.5% of the new common stock of the Reorganized Company and $250 million of 10.56% Senior Notes due 2009.

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CHIQUITA BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Basis of Presentation

            Chiquita Brands International, Inc. (“CBII”) and its subsidiaries (collectively, “Chiquita” or the “Company”) operate as a leading international marketer, producer and distributor of quality fresh fruits and vegetables and processed foods. On March 19, 2002, CBII, a parent holding company without business operations of its own, completed its previously announced financial restructuring when its pre-arranged Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Plan” or “Plan of Reorganization”) became effective. For financial reporting purposes, the Company used an effective date of March 31, 2002. References in these financial statements to “Predecessor Company” refer to the Company prior to March 31, 2002. References to “Reorganized Company” refer to the Company on and after March 31, 2002, after giving effect to the issuance of new securities in exchange for the previously outstanding securities in accordance with the Plan, and implementation of fresh start accounting. In accordance with financial reporting requirements for companies emerging from a Chapter 11 restructuring, financial information for the six months ended June 30, 2002 is not presented in the financial statements since such information would combine the results of the Predecessor and Reorganized Company. The securities issued pursuant to the Plan and the fresh start adjustments are described in “Parent Company Debt Restructuring” and “Financial Restructuring Items” below.

            Interim results for the Company are subject to significant seasonal variations and are not necessarily indicative of the results of operations for a full fiscal year. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair statement of the results of the interim periods shown have been made. See Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 for additional information relating to the Company’s financial statements.

Parent Company Debt Restructuring

            The Plan was confirmed by the bankruptcy court on March 8, 2002 and became effective March 19, 2002, resulting in the exchange of $861 million of CBII’s outstanding senior notes and subordinated debentures (“Old Notes”) and $102 million of accrued and unpaid interest thereon for $250 million of 10.56% Senior Notes due 2009 (“New Notes”) and 95.5% of the common stock of the reorganized entity (“New Common Stock”). Previously outstanding preferred, preference and common stock of the Predecessor Company was exchanged for 2% of the New Common Stock as well as 7-year warrants (“Warrants”) to purchase up to 25% of the New Common Stock of the Reorganized Company on a fully diluted basis (prior to any dilution by exercise of stock options). In addition, as part of a management incentive program, certain executives were granted rights to receive 1 million shares (2.5%) of the New Common Stock. At June 30, 2002, 865,950 of these shares had been issued, 34,050 shares had been surrendered in satisfaction of tax withholding obligations, and 100,000 shares had been issued to a “rabbi trust”.

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            In accordance with the Plan, the Reorganized Company has:

•     issued 39,965,950 shares of New Common Stock as of June 30, 2002;
•   issued the New Notes and the Warrants;
•   adopted a new stock option plan;
•   reserved (a) 13,333,333 shares of New Common Stock for issuance upon exercise of the Warrants and (b) 5,925,926 shares of New Common Stock for issuance upon exercise of employee stock options authorized for grant under the new stock option plan; and
•   cancelled the Old Notes, previously outstanding preferred, preference and common stock, and previously outstanding stock options.

            The New Notes mature on March 15, 2009. These Notes were issued by CBII and are not secured by any of the assets of CBII and its subsidiaries. The indenture for the New Notes contains dividend payment restrictions that, at June 30, 2002, limited the aggregate amount of dividends that could be paid by CBII to $35 million. The indenture has additional restrictions related to asset sales, incurrence of additional indebtedness, sale-leaseback transactions, and related-party transactions. The New Notes are callable on or after March 15, 2005 at a price of 105.28% of face value, declining to face value in 2008. In addition, the Company may redeem some or all of the New Notes prior to March 15, 2005 at a redemption price equal to the greater of (a) 100% of the face value of the New Notes to be redeemed, or (b) the sum of the present values of (i) 105.28% of face value of the New Notes, and (ii) interest payments due from the date of redemption through March 15, 2005, in each case discounted to the redemption date on a semiannual basis at the applicable U.S. Treasury rates plus 0.25%; plus, in the case of either clause (a) or (b) above, any accrued and unpaid interest as of the redemption date.

            In accordance with the Plan, 150 million shares of New Common Stock are authorized.

            The Warrants entitle the holders to purchase up to 13.3 million shares of New Common Stock at a price of $19.23 per share through March 19, 2009. The Warrants, valued at $41 million for purposes of the Plan of Reorganization, are included in capital surplus on the Consolidated Balance Sheet of the Reorganized Company at June 30, 2002.

            Of the 5.9 million shares authorized for issuance upon exercise of stock options and awards granted under the new stock option plan, options for approximately 4.5 million shares were granted during the second quarter of 2002. These options are exercisable for a period of 10 years. The weighted average exercise price of the options granted in the second quarter was $16.95 per option share. The estimated weighted average fair value per option share granted was $7.14 using a Black-Scholes option pricing model based on the market price of the Company’s stock and the following assumptions at the date of option grant: weighted average risk-free interest rate of 4.7%; dividend yield of 0%; volatility factor for the Company’s common stock price of 40%; and a weighted average expected life of 5 years for options not forfeited. If the Company were recognizing expense for these options in accordance with Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” the estimated pro forma compensation expense based on the option fair values would be approximately $6.5 million for 2002, of which $1.2 million ($0.03 per share) would have been recognized in the second quarter of 2002.

            No interest payments on the Old Notes were made in 2002 and 2001. The Company recorded interest expense on the Old Notes until November 28, 2001, the date the Company filed its Chapter 11 petition, but not thereafter. As a result, interest expense for the first quarter of 2002 does not include $20 million which would have been payable under the terms of the Old Notes. The Company is accruing interest on the New Notes at the stated 10.56% rate. The first interest payment date under the New Notes is September 15, 2002. Subsidiary interest payments for the first quarter were $10 million in 2002 and $12 million in 2001. Subsidiary interest payments for the second quarter were $6 million in 2002 and $12 million in 2001.

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Financial Restructuring Items

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

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

                  •    Exchange of Old Notes and accrued interest for 95.5% of the New Common Stock and $250 million of New Notes, resulting in a gain of $154 million;
     
•    Reduction of property, plant and equipment carrying values by $550 million, including reduction of the Company’s tropical farm assets by $320 million, shipping vessels by $158 million, and vegetable canning assets by $55 million;
     
•    Reduction of long-term operating investments and other asset carrying values by $186 million;
     
•    Increase in the carrying value of the Chiquita trademark of $375 million;
     
•    Increase of $33 million in accrued pension and other employee benefits primarily associated with tropical pension/severance obligations;
     
•    $16 million increase in other liabilities for unfavorable lease obligations; and
     
•    $30 million of reorganization costs during the first quarter of 2002 primarily associated with grants of New Common Stock to certain executives as part of the Chapter 11 restructuring agreement and professional fees. Cash payments in the first quarter of 2002 associated with reorganization costs were $13 million.

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

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            The following table reflects the reorganization adjustments to the Company’s Consolidated Balance Sheet as of March 31, 2002:

Balance Sheet at March 31, 2002 (Unaudited)
Reorganization Adjustments
Before
After
(In thousands)  Reorganization
Adjustments 		Debt
Discharge 		Fresh Start
Adjustments 		Reorganization
Adjustments
 
Current assets   $ 788,731   $ —   $ —   $ 788,731  
Property, plant and equipment, net     979,219     —     (550,143 )   429,076  
Investments and other assets, net     341,183     —     (185,586 )   155,597  
Intangibles, net     12,757     —     374,828     387,585  
   Total assets   $ 2,121,890   $ —   $ (360,901 ) $ 1,760,989  
Notes and loans payable   $ 49,332   $ —   $ —   $ 49,332  
Long-term debt due within one year     49,873     —     —     49,873  
Accounts payable and accrued liabilities     269,178     —     13,685     282,863  
Long-term debt of parent company     —     250,000     —     250,000  
Long-term debt of subsidiaries     304,358     —     —     304,358  
Accrued pension and other employee
   benefits		     71,266     —     33,020     104,286  
Other liabilities     91,174     —     16,350     107,524  
Liabilities subject to compromise     962,820     (962,820 )   —     —  
   Total liabilities     1,798,001     (712,820 )   63,055     1,148,236  
Accumulated deficit     (657,016 )   154,046     502,970     —  
Other shareholders’ equity     980,905     558,774     (926,926 )   612,753 *
   Total liabilities and
      shareholders’equity		   $ 2,121,890   $ —   $ (360,901 ) $ 1,760,989  

______________

  *   After deducting $654 million of indebtedness from the Company’s $1,280 million estimated reorganization value, the total equity value of the Company is approximately $626 million. The total shareholders’ equity in the March 31, 2002 Reorganized Company balance sheet excludes $13 million related to restricted management shares subject to delayed delivery, which are reflected in accounts payable and accrued liabilities above. These shares were issued in the second quarter of 2002 and are included in equity as of June 30, 2002.

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Earnings Per Share

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

Reorganized
Company 		Predecessor Company
Quarter Ended
June 30,
2002 		Quarter Ended
June 30,
2001 		Quarter Ended
March 31,
2002 		Six Months Ended
June 30,
2001
Income (loss) before
   cumulative effect of a
   change in method of
   accounting		   $ 47,714   $ (10,988 ) $ (253,300 ) $ (6,860 )
Cumulative effect of a
   change in method of
   accounting		     —     —     (144,523 )   —  
Net income (loss)     47,714     (10,988 )   (397,823 )   (6,860 )
Dividends payable on
   preferred and preference
   stock		     —     (2,885 )   —     (6,565 )
   Net income (loss)
      attributed to common
      shares		   $ 47,714   $ (13,873 ) $ (397,823 ) $ (13,425 )
                         
Weighted average common
   shares outstanding (shares
   used to calculate basic
   EPS)		     39,966     73,301     78,273     71,070  
Stock awards     7     —     —     —  
   Shares used to calculate
      diluted EPS		     39,973     73,301     78,273     71,070  
                         
Basic and diluted earnings
   per common share:		                          
   - Before cumulative effect
      of a change in method of
      accounting		   $ 1.19   $ (0.19 ) $ (3.23 ) $ (0.19 )
   - Cumulative effect of a
      change in method of
      accounting		     —     —     (1.85 )   —  
   - Net income (loss)   $ 1.19   $ (0.19 ) $ (5.08 )