FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File
March 31, 1998 Number 1-1550
CHIQUITA BRANDS INTERNATIONAL, INC.
Incorporated under the IRS Employer I.D.
Laws of New Jersey No. 04-1923360
250 East Fifth Street, Cincinnati, Ohio 45202
(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,
and (2) has been subject to such filing requirements for the past
90 days. YES X NO
As of May 1, 1998, there were 64,377,239 shares of Common
Stock outstanding.
Page 1 of 11 Pages
<PAGE>
CHIQUITA BRANDS INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
PART I - Financial Information
Consolidated Statement of Income for the quarters
ended March 31, 1998 and 1997 . . . . 3
Consolidated Balance Sheet as of March 31, 1998,
December 31, 1997 and March 31, 1997. . . . 4
Consolidated Statement of Cash Flow for the quarters
ended March 31, 1998 and 1997 . . . . . 5
Notes to Consolidated Financial Statements . . . 6
Management's Analysis of Operations and Financial
Condition . . . . . . . . . . . . . 8
PART II - Other Information
Item 1 - Legal Proceedings. . . . . . . . . 9
Item 2 - Changes in Securities and Use
of Proceeds . . . . . . . . . . . 9
Item 6 - Exhibits and Reports on Form 8-K. 10
Signature . . . . . . . . . . . . . . . . . . 11
<PAGE>
Part I - Financial Information
CHIQUITA BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Net sales $717,217 $631,410
-------- --------
Operating expenses
Cost of sales 540,587 464,071
Selling, general and administrative 83,607 74,378
Depreciation 23,253 21,575
-------- --------
647,447 560,024
-------- --------
Operating income 69,770 71,386
Interest income 3,062 4,386
Interest expense (27,999) (28,458)
Other income, net 245 280
-------- --------
Income before income taxes 45,078 47,594
Income taxes (4,000) (4,300)
-------- --------
Net income $41,078 $43,294
======== ========
Earnings per common share:
Basic $.58 $.70
Diluted .52 .60
Dividends per common share $.05 $.05
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE>
CHIQUITA BRANDS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
---------- ------------ ---------
<S> <C> <C> <C>
ASSETS
- ------
Current assets
Cash and equivalents $91,309 $125,702 $164,670
Trade receivables (less allowances
of $10,148, $10,683 and $9,373) 233,002 184,913 217,281
Other receivables, net 90,881 87,301 88,908
Inventories 379,136 349,948 267,638
Other current assets 41,884 35,602 47,643
--------- --------- ---------
Total current assets 836,212 783,466 786,140
Property, plant and equipment, net 1,172,750 1,151,396 1,132,238
Investments and other assets 306,872 301,173 323,039
Intangibles, net 201,963 165,578 158,257
--------- --------- ---------
Total assets $2,517,797 $2,401,613 $2,399,674
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------
Current liabilities
Notes and loans payable $86,545 $59,659 $37,349
Long-term debt due within one year 45,493 92,905 94,191
Accounts payable 222,759 205,323 196,697
Accrued liabilities 91,940 125,231 83,833
--------- --------- ---------
Total current liabilities 446,737 483,118 412,070
Long-term debt of parent company 689,162 689,080 702,712
Long-term debt of subsidiaries 342,289 272,892 321,805
Accrued pension and other employee
benefits 87,305 86,676 84,051
Other liabilities 90,402 89,761 112,811
--------- --------- ---------
Total liabilities 1,655,895 1,621,527 1,633,449
--------- --------- ---------
Shareholders' equity
Preferred and preference stock 253,475 253,239 249,256
Capital stock, $.33 par value
(64,368,998, 61,167,990 and
56,245,552 shares) 21,456 20,389 18,748
Capital surplus 719,860 672,944 600,458
Accumulated deficit (132,889) (166,486) (102,237)
--------- --------- ---------
<PAGE>
Total shareholders' equity 861,902 780,086 766,225
--------- --------- ---------
Total liabilities and
shareholders' equity $2,517,797 $2,401,613 $2,399,674
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-4-
CHIQUITA BRANDS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Cash provided (used) by:
Operations
Net income $ 41,078 $ 43,294
Depreciation and amortization 24,925 22,957
Changes in current assets and
liabilities (57,363) (94,783)
Other (4,134) 745
-------- ---------
Cash flow from operations 4,506 (27,787)
-------- ---------
Investing
Capital expenditures (13,573) (13,211)
Acquisition of vegetable
canning business (17,424) --
Refundable deposits for
container equipment (8,268) (15,849)
Other (2,771) (991)
-------- ---------
Cash flow from investing (42,036) (30,051)
-------- ---------
Financing
Debt transactions
Issuances of long-term debt 54,397 --
Repayments of long-term debt (62,686) (18,070)
Increase (decrease) in notes
and loans payable 18,637 (40,064)
Stock transactions
Issuances of capital stock 270 2,113
Dividends (7,481) (7,029)
-------- ---------
<PAGE>
Cash flow from financing 3,137 (63,050)
-------- ---------
Decrease in cash and equivalents (34,393) (120,888)
Balance at beginning of period 125,702 285,558
-------- ---------
Balance at end of period $ 91,309 $ 164,670
======== =========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
CHIQUITA BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Interim results 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, 1997 for additional
information relating to the Company's financial statements.
Earnings Per Share
- -------------------
Basic and diluted earnings per common share are calculated as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Net income $41,078 $ 43,294
Dividends on preferred and
preference stock (4,276) (4,223)
-------- --------
<PAGE>
Net income attributable to
common shares for basic EPS 36,802 39,071
Add back dividends on preferred
and preference stock 4,276 4,223
-------- --------
Net income for diluted EPS $ 41,078 $ 43,294
======== ========
Weighted average common shares
outstanding 63,682 56,059
Nonvested restricted shares (72) (160)
-------- --------
Shares used to calculate basic
earnings per common share 63,610 55,899
Assumed conversion of preferred
and preference stock 15,479 15,232
Assumed exercise of stock options 635 1,093
-------- --------
Shares used to calculate diluted
earnings per common share 79,724 72,224
======== ========
Basic earnings per common share $.58 $.70
Diluted earnings per common share .52 .60
</TABLE>
The assumed conversion to common stock of the Company's 7%
convertible subordinated debentures would have an anti-dilutive
effect on diluted earnings per share and, therefore, has not been
included in the computation.
-6-
Acquisitions
- ----------------
In January 1998, Chiquita acquired Stokely USA, Inc.,
previously a publicly-owned vegetable canning business. In
connection with the acquisition, Chiquita issued $11 million of
capital stock (.8 million shares) in exchange for all outstanding
Stokely shares and issued $33 million of capital stock (2.2
million shares) and paid $18 million of cash to retire
corresponding amounts of Stokely debt. After giving effect to
the debt retirements, $36 million of Stokely debt remained
outstanding and was assumed by Chiquita as part of the
acquisition. The assets acquired consisted primarily of trade
receivables of $11 million, inventories of $64 million, property,
plant and equipment of $28 million and intangibles of $35
million. Accounts payable and other accrued liabilities of $36
million were also assumed. The transaction was accounted for as
a purchase.
<PAGE>
Inventories (in thousands)
- ------------------------------
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
<S> <C> <C> <C>
Bananas and other fresh produce $41,285 $36,035 $41,060
Canned vegetables 141,194 128,824 44,674
Other food products 8,918 8,661 10,082
Growing crops 116,348 115,007 113,650
Materials and supplies 63,694 53,909 48,527
Other 7,697 7,512 9,645
-------- -------- --------
$379,136 $349,948 $267,638
======== ======== ========
</TABLE>
Other
- ---------
Chiquita has a long-standing policy of periodically hedging
transactions denominated in foreign currencies. At March 31,
1998, the Company had option contracts which ensure conversion of
approximately $290 million of foreign sales through the end of
1998 at rates not higher than 1.75 Deutsche marks per dollar or
lower than 1.58 Deutsche marks per dollar and approximately $60
million of foreign sales in 1999 at rates not higher than 1.80
Deutsche marks per dollar or lower than 1.58 Deutsche marks per
dollar. The carrying value of these option contracts at March
31, 1998 was approximately $6 million and their fair value based
on quoted market prices was approximately $20 million.
In 1998, Chiquita adopted Statement of Financial Accounting
Standards No. 130 "Comprehensive Income" and applied this
standard to all periods presented in these financial statements.
The adoption of this Statement had no impact on the Company's net
income or shareholders' equity. Comprehensive income was
approximately $40 million for the first quarters of 1998 and
1997.
-7-
CHIQUITA BRANDS INTERNATIONAL, INC.
MANAGEMENT'S ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
Operations
- -----------
Net sales for the quarter ended March 31, 1998 increased by $86
million to $717 million primarily from the expansion of
Chiquita's vegetable canning operations through acquisitions
completed in late 1997 and early 1998. Operating expenses also
increased over the prior year level primarily as a result of
these acquisitions.
<PAGE>
First quarter North American banana prices were lower than in
1997 on higher industry volume. Subsequent pricing has been
higher than last year. The growth in industry volume slowed
during the quarter as exports from Ecuador and Colombia began to
decline due to ongoing El Nino climatic conditions. In Europe,
despite the continued adverse effect of a stronger dollar, the
Company achieved dollar price realizations comparable to the
prior year on higher European currency banana pricing.
As a result of a strike which began in mid-February 1998 at the
Company's western Panama division during the term of a valid
labor contract, production from the division was interrupted and
the first quarter 1998 results include unrecovered fixed costs
from this division. In mid-April, the workers unilaterally
returned to work without having settled remaining issues. The
Company is evaluating the extent to which the division will be
able to return to production before the end of the year.
Otherwise, the Company achieved improved utilization of
production and transportation capacity on increased worldwide
banana volume during the quarter.
Operating income for the 1998 first quarter was $70 million
compared to 1997 first quarter operating income of $71 million,
as the reduction in banana operating results was substantially
offset by a modest improvement in earnings for the Company's
Diversified Foods Group.
The Company's effective tax rate is affected by the level and
mix of income among various domestic and foreign jurisdictions in
which the Company operates.
Financial Condition
- ------------------------
Cash decreased by $34 million during the first quarter of 1998
due primarily to seasonal working capital requirements. During
the quarter, the Company borrowed against its $125 million
revolving credit facility to fund this increased level of working
capital and to reduce the amount of revolving credit borrowings
assumed at the time of the acquisition of Stokely. At March 31,
1998, $50 million of borrowings were drawn against Chiquita's
revolving credit facility.
-8-
Part II - Other Information
- ------------------------------
Item 1 - Legal Proceedings
---------------------------
On May 3, 1998, a Cincinnati, Ohio newspaper published
accounts describing alleged improper environmental and business
<PAGE>
practices by the Company in certain of its operations in
Central and South America. The Company denies the implications
of wrongdoing by Chiquita contained in the newspaper accounts
and has publicly stated that these accounts portray a false and
highly inaccurate image of Chiquita. The newspaper reported
that one of its sources had previously provided to the
Securities and Exchange Commission ("SEC") information
furnished to the newspaper.
In April 1998, the Company was notified that it is the
subject of a confidential investigation by the SEC seeking to
determine whether the Company has complied with certain
provisions of the Securities Exchange Act of 1934 (the
"Exchange Act"), including provisions of the Foreign Corrupt
Practices Act (the "FCPA"). The investigation seeks to
determine whether the Company, with respect to certain
operations in Central and South America, has complied with FCPA
provisions relating to the making or offering of illegal
payments to foreign officials and the maintenance of fair and
accurate books, records and accounts and an appropriate system
of internal accounting controls or has complied with Exchange
Act provisions relating to the making, or filing with the SEC
of reports containing, untrue statements of material fact or
omissions of material fact. The SEC has advised the Company
that the investigation is confidential and should not be
construed as an indication by the SEC that any violation of law
has occurred, nor as an adverse reflection upon any person,
entity or security. The Company is cooperating with the
investigation.
On May 7 and 8, 1998, three separate lawsuits were filed
by three purported shareholders of the Company in the Common
Pleas Court in Hamilton County, Ohio, naming the Company and
its directors as defendants in purported shareholder derivative
actions alleging the breach by the directors of their fiduciary
duties to the Company, gross negligence and failure to perform
review and oversight responsibilities with respect to certain
Company business practices alleged in the newspaper accounts
referred to above. The suits allege improprieties purported to
have been committed by the Company with respect to certain
operations in Central and South America, including violation of
the FCPA, improper environmental, worker safety and labor
practices, and circumvention of certain foreign laws and labor
agreements. The complaints claim that these alleged
improprieties have exposed the Company to the prospect of
material financial losses and injury to the Company's business
reputation and goodwill. The cases seek to recover unspecified
damages on behalf of the Company. Chiquita and the other
defendants deny the allegations and intend to defend these
lawsuits vigorously.
Item 2 - Changes in Securities and Use of Proceeds
--------------------------------------------------
On March 5, 1998, the Company issued 182,735 shares of its
<PAGE>
capital stock and 4,712 shares of its $2.50 Convertible
Preference Stock, Series C to the former shareholders of the
Owatonna Companies. The transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act of
1933 and Rule 506 of Regulation D thereunder. These shares
represent the remaining adjusted purchase price
-9-
for the common stock of the Owatonna Companies, which were
acquired in September 1997. (See Part II, Item 5 - "Market for
Registrant's Common Equity and Related Stockholder Matters" in
the Company's 1997 Form 10-K).
Item 6 - Exhibits and Reports on Form 8-K
------------------------------------------
Page
Number(s)
-----------
(a) Exhibit 27 - Financial Data Schedule **
** Omitted from this copy of Quarterly Report
on Form 10-Q. Copy included in report filed
electronically with the Securities and Exchange
Commission.
(b) The following reports on Form 8-K were filed during the
quarter ended March 31, 1998:
January 7, 1998 - to report the Company's expected 1997
results of operations.
January 16, 1998 - to report the acquisition of
Stokely.
February 11, 1998 - to report the Company's 1997
results of operations.
February 19, 1998 - to report a strike by banana
workers at the Company's Armuelles division in western
Panama.
-10-
SIGNATURE
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.
<PAGE>
CHIQUITA BRANDS INTERNATIONAL, INC.
By: /s/ William A. Tsacalis
----------------------------------
William A. Tsacalis
Vice President and Controller
(Chief Accounting Officer)
May 15, 1998
-11-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Chiquita
Brands International, Inc. Form 10-Q for the three months ended March 31, 1998
and is qualified in its entirety by reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 91,309
<SECURITIES> 0
<RECEIVABLES> 243,150
<ALLOWANCES> 10,148
<INVENTORY> 379,136
<CURRENT-ASSETS> 836,212
<PP&E> 1,843,693
<DEPRECIATION> 670,943
<TOTAL-ASSETS> 2,517,797
<CURRENT-LIABILITIES> 446,737
<BONDS> 1,031,451
0
253,475
<COMMON> 21,456
<OTHER-SE> 586,971
<TOTAL-LIABILITY-AND-EQUITY> 2,517,797
<SALES> 717,217
<TOTAL-REVENUES> 717,217
<CGS> 540,587
<TOTAL-COSTS> 540,587
<OTHER-EXPENSES> 23,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,999
<INCOME-PRETAX> 45,078
<INCOME-TAX> 4,000
<INCOME-CONTINUING> 41,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,078
<EPS-PRIMARY> .58
<EPS-DILUTED> .52
</TABLE>
