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Chiquita Brands International Inc – ‘10-Q’ for 9/30/14

On:  Thursday, 11/6/14, at 9:10am ET   ·   For:  9/30/14   ·   Accession #:  101063-14-97   ·   File #:  1-01550

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  As Of               Filer                 Filing    For·On·As Docs:Size

11/06/14  Chiquita Brands International Inc 10-Q        9/30/14   92:19M

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML   1.02M 
 2: EX-31.1     CEO Cert                                            HTML     31K 
 3: EX-31.2     CFO Cert                                            HTML     31K 
 4: EX-32       Section 906                                         HTML     28K 
63: R1          Document And Entity Information                     HTML     46K 
50: R2          Condensed Consolidated Statements of Income         HTML    126K 
                (Unaudited)                                                      
61: R3          Condensed Consolidated Statements of Comprehensive  HTML     83K 
                Income (Unaudited)                                               
65: R4          Condensed Consolidated Statements of Comprehensive  HTML     30K 
                Income (Unaudited) (Parentheticals)                              
84: R5          Condensed Consolidated Balance Sheets (Unaudited)   HTML    124K 
52: R6          Condensed Consolidated Balance Sheets (Unaudited)   HTML     36K 
                (Parenthetical)                                                  
60: R7          Condensed Consolidated Statements of Cash Flow      HTML     97K 
                (Unaudited)                                                      
45: R8          Basis of Presentation                               HTML     29K 
35: R9          Earnings Per Share                                  HTML     60K 
85: R10         Trade and Finance Receivables                       HTML     74K 
67: R11         Inventories                                         HTML     41K 
66: R12         Debt Including Capital Lease Obligations            HTML    128K 
72: R13         Fair Value Measurements                             HTML    220K 
73: R14         Pension and Severance Benefits                      HTML     49K 
70: R15         Reclassifications from Accumulated Other            HTML    142K 
                Comprehensive Income                                             
74: R16         Income Taxes                                        HTML     34K 
62: R17         Advertising and Promotion Expense                   HTML     29K 
64: R18         Stock-Based Compensation                            HTML     47K 
69: R19         Segment Information                                 HTML     78K 
92: R20         Commitments and Contingencies                       HTML     74K 
80: R21         New Accounting Standards                            HTML     41K 
56: R22         Cavendish Agreement Cavendish Agreement (Notes)     HTML     50K 
68: R23         Earnings Per Share (Tables)                         HTML     54K 
58: R24         Trade and Finance Receivables (Tables)              HTML     68K 
26: R25         Inventories (Tables)                                HTML     40K 
81: R26         Debt Including Capital Lease Obligations (Tables)   HTML    111K 
88: R27         Hedging (Tables)                                    HTML    180K 
40: R28         Fair Value Measurements (Tables)                    HTML    212K 
39: R29         Pension and Severance Benefits (Tables)             HTML     50K 
43: R30         Reclassifications from Accumulated Other            HTML    140K 
                Comprehensive Income (Tables)                                    
44: R31         Stock-Based Compensation (Tables)                   HTML     42K 
46: R32         Segment Information (Tables)                        HTML     72K 
19: R33         Commitments and Contingencies (Tables)              HTML     51K 
78: R34         New Accounting Standards (Tables)                   HTML     41K 
54: R35         Supplemental Consolidating Financial Information    HTML    323K 
                Condensed Statement of Income (Tables)                           
57: R36         Supplemental Consolidating Financial Information    HTML    367K 
                Condensed Statement of Comprehensive Income                      
                (Tables)                                                         
30: R37         Supplemental Consolidating Financial Information    HTML    459K 
                Condensed Balance Sheet (Tables)                                 
91: R38         Supplemental Consolidating Financial Information    HTML    209K 
                Condensed Statement of Cash Flows (Tables)                       
11: R39         Earnings Per Share (Details)                        HTML     66K 
47: R40         Restructuring Disposition of Non-Core Healthy       HTML     28K 
                Snacking Business (Details)                                      
83: R41         Restructuring Restructuring (Details)               HTML     30K 
28: R42         Trade and Finance Receivables - Trade Receivables   HTML     34K 
                (Details)                                                        
38: R43         Trade and Finance Receivables - Finance             HTML     47K 
                Receivables (Details)                                            
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                Receivables Allowance (Details)                                  
51: R45         Inventories (Details)                               HTML     39K 
18: R46         Debt Including Capital Lease Obligations -          HTML     51K 
                Carrying and Estimated Fair Value Table (Details)                
34: R47         Debt Including Capital Lease Obligations - 7.875%   HTML     52K 
                Senior Secured Notes (Details)                                   
13: R48         Debt Including Capital Lease Obligations - 4.25%    HTML     71K 
                Convertible Senior Notes (Details)                               
82: R49         Debt Including Capital Lease Obligations -          HTML     69K 
                Asset-Based Lending Facility (Details)                           
27: R50         Debt Including Capital Lease Obligations -          HTML     45K 
                Build-to-suit Lease (Details)                                    
79: R51         Debt Including Capital Lease Obligations - Other    HTML     37K 
                Debt (Details)                                                   
31: R52         Hedging - Foreign Currency and Fuel Derivatives     HTML     34K 
                Narrative (Details)                                              
48: R53         Hedging - Derivatives No Longer Qualifying as       HTML     33K 
                Hedging Instruments (Details)                                    
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                Instruments (Details)                                            
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                Accruals (Details)                                               
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                Tort Lawsuits (Details)                                          
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                Matters - Insurance Recovery (Details)                           
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‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Table of Contents
"Financial Information
"Financial Statements
"Condensed Consolidated Statements of Operations
"Condensed Consolidated Statements of Comprehensive Income
"Condensed Consolidated Balance Sheets
"Condensed Consolidated Statements of Cash Flow
"Notes to Condensed Consolidated Financial Statements
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Other Information
"Legal Proceedings
"Risk Factors
"Exhibits
"Signature

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  CQB 10-Q - Q314  
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 (Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
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
 
04-1923360
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
550 South Caldwell Street
Charlotte, North Carolina 28202
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (980) 636-5000
 
 
 
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  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
Large accelerated filer
o
Accelerated filer
ý
 
 
 
 
Non-accelerated filer
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of October 28, 2014, there were 47,112,311 shares of Common Stock outstanding.


Table of Contents

Chiquita Brands International, Inc.
TABLE OF CONTENTS

 
 
Page
 
 
 
Item 1 - Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A - Risk Factors
 
 
Item 6 - Exhibits
 
 


Table of Contents

PART I – Financial Information
Item 1 – Financial Statements
Chiquita Brands International, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands, except per share data)
2014
 
2013
 
2014
 
2013
Net sales
$
738,551

 
$
723,062

 
$
2,326,388

 
$
2,309,485

Cost of sales
663,536

 
645,170

 
2,065,095

 
2,017,667

Selling, general and administrative
53,658

 
60,966

 
162,544

 
177,227

Transaction costs
8,235

 

 
16,907

 

Depreciation
12,323

 
13,435

 
38,911

 
40,517

Amortization
2,342

 
2,342

 
7,025

 
7,025

Equity in earnings of investees
(105
)
 

 
(437
)
 
(72
)
Restructuring and relocation costs

 
(4
)
 
460

 
254

Operating income (loss)
(1,438
)
 
1,153

 
35,883

 
66,867

Interest income
600

 
690

 
1,905

 
2,197

Interest expense
(15,564
)
 
(15,356
)
 
(46,331
)
 
(44,698
)
Loss on debt extinguishment

 

 
(521
)
 
(6,275
)
Other income (expense), net
(1,036
)
 
(501
)
 
(5,172
)
 
1,622

Income (loss) before income taxes
(17,438
)
 
(14,014
)
 
(14,236
)
 
19,713

Income tax expense
(518
)
 
(3,800
)
 
(10,487
)
 
(4,050
)
Net income (loss)
$
(17,956
)
 
$
(17,814
)
 
$
(24,723
)
 
$
15,663

 
 
 
 
 
 
 
 
Earnings (loss) per common share – basic
$
(0.38
)
 
$
(0.38
)
 
$
(0.53
)
 
$
0.34

Earnings (loss) per common share – diluted
$
(0.38
)
 
$
(0.38
)
 
$
(0.53
)
 
$
0.33

See Notes to Condensed Consolidated Financial Statements.


3

Table of Contents

Chiquita Brands International, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Net income (loss)
$
(17,956
)
 
$
(17,814
)
 
$
(24,723
)
 
$
15,663

Unrealized foreign currency translation gains (losses)
1

 
(753
)
 
16

 
(381
)
Realized gains for foreign currency translation on business disposal reclassified into Other income (expense), net

 

 
252

 

Net other comprehensive income (loss) related to foreign currency translation
1

 
(753
)
 
268

 
(381
)
 
 
 
 
 
 
 
 
Change in fair value of available-for-sale investment

 

 

 
157

Realized gains of available-for-sale investment reclassified into Other income (expense), net

 

 

 
(561
)
Net other comprehensive loss related to available-for-sale investment

 

 

 
(404
)
 
 
 
 
 
 
 
 
Unrealized gains (losses) on derivatives for the period
19,072

 
(6,183
)
 
22,467

 
(8,308
)
Derivative (gains) losses reclassified into Net sales
(1,543
)
 
6,114

 
504

 
21,328

Derivative (gains) losses reclassified into Cost of sales
822

 
(2,277
)
 
586

 
(7,267
)
Net other comprehensive income (loss) related to derivatives
18,351

 
(2,346
)
 
23,557

 
5,753

 
 
 
 
 
 
 
 
Actuarial losses for the period, net of $0, $3, $259 and $133, respectively, of income tax benefit

 
(42
)
 
(905
)
 
(1,448
)
Amortization included in pension cost
297

 
342

 
893

 
1,018

Net other comprehensive gain (loss) related to defined benefit pension and severance plans
297

 
300

 
(12
)
 
(430
)
 
18,649

 
(2,799
)
 
23,813

 
4,538

Comprehensive income (loss)
$
693

 
$
(20,613
)
 
$
(910
)
 
$
20,201

See Notes to Condensed Consolidated Financial Statements.

4

Table of Contents

Chiquita Brands International, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
 
 
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and equivalents
$
45,092

 
$
54,017

 
$
71,766

Trade receivables, less allowances of $17,443, $19,602 and $19,978, respectively
248,617

 
252,068

 
269,892

Other receivables, net
68,168

 
56,273

 
66,602

Inventories
208,931

 
210,564

 
234,783

Prepaid expenses
42,393

 
49,733

 
47,170

Other current assets
25,392

 
6,540

 
17,463

Total current assets
638,593

 
629,195

 
707,676

Property, plant and equipment, net
400,360

 
390,773

 
392,884

Investments and other assets, net
106,439

 
108,077

 
88,989

Trademarks
426,085

 
426,085

 
426,085

Goodwill
18,095

 
18,095

 
18,095

Other intangible assets, net
79,887

 
86,913

 
89,254

Total assets
$
1,669,459

 
$
1,659,138

 
$
1,722,983

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of long-term debt and capital lease obligations
$
4,648

 
$
2,271

 
$
2,191

Accounts payable
248,730

 
248,273

 
283,641

Accrued liabilities
155,640

 
158,034

 
148,346

Total current liabilities
409,018

 
408,578

 
434,178

Long-term debt and capital lease obligations, net of current portion
634,882

 
629,353

 
620,012

Accrued pension and other employee benefits
81,394

 
77,066

 
82,295

Deferred gain – sale of shipping fleet

 
6,290

 
9,823

Deferred tax liabilities
107,318

 
103,679

 
111,942

Other liabilities
58,764

 
59,734

 
70,424

Total liabilities
1,291,376

 
1,284,700

 
1,328,674

Commitments and contingencies

 

 

Shareholders' equity:
 
 
 
 
 
Common stock, $.01 par value (47,048,211, 46,829,913 and 46,759,590 shares outstanding, respectively)
470

 
468

 
468

Capital surplus
844,217

 
839,664

 
838,261

Accumulated deficit
(464,634
)
 
(439,911
)
 
(408,433
)
Accumulated other comprehensive loss
(1,970
)
 
(25,783
)
 
(35,987
)
Total shareholders' equity
378,083

 
374,438

 
394,309

Total liabilities and shareholders' equity
$
1,669,459

 
$
1,659,138

 
$
1,722,983

See Notes to Condensed Consolidated Financial Statements.


5

Table of Contents

Chiquita Brands International, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
Cash provided (used) by:
 
 
 
OPERATIONS
 
 
 
Net income (loss)
$
(24,723
)
 
$
15,663

Depreciation and amortization
45,936

 
47,542

Loss on debt extinguishment
521

 
6,275

Reserve for trade receivables

5,085

 
3,141

Amortization of discount on Convertible Notes
9,144

 
8,100

Amortization of gain on sale of the shipping fleet
(6,290
)
 
(10,381
)
Stock-based compensation
5,583

 
4,523

Changes in current assets and liabilities and other
5,415

 
16,875

40,671

 
91,738

INVESTING
 
 
 
Capital expenditures
(38,836
)
 
(36,165
)
Contribution to equity-method investment

 
(13,102
)
Net proceeds from sale of long-term assets
5,256

 
11,751

Other, net
(3,736
)
 
3,559

Investing cash flow
(37,316
)
 
(33,957
)
FINANCING
 
 
 
Issuances of long-term debt

 
429,415

Repayments of long-term debt and capital lease obligations
(11,714
)
 
(412,646
)
Borrowings under the ABL Revolver
24,000

 
36,590

Repayments of the ABL Revolver
(24,000
)
 
(36,590
)
Repayments of the Credit Facility Revolver

 
(40,000
)
Payments for debt modification and issuance costs
(266
)
 
(13,810
)
Payments of debt extinguishment costs
(300
)
 

Financing cash flow
(12,280
)
 
(37,041
)
Increase (decrease) in cash and equivalents
(8,925
)
 
20,740

Cash and equivalents, beginning of period
54,017

 
51,026

Cash and equivalents, end of period
$
45,092

 
$
71,766

See Notes to Condensed Consolidated Financial Statements.

6

Table of Contents

Chiquita Brands International, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 – Basis of Presentation
The accompanying interim financial statements of Chiquita Brands International, Inc., which we refer to as Chiquita, the company, we or us, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in our Form 10-K for year ended December 31, 2013. In the opinion of management, all adjustments, which include only normal recurring adjustments unless otherwise noted, necessary for a fair statement of the results of the interim periods shown have been made. The results of operations for interim periods are subject to significant seasonal variations typical to the industry and are not indicative of the results to be expected for the full year. The Condensed Consolidated Financial Statements include the accounts of Chiquita Brands International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
    See Notes to Consolidated Financial Statements included in our 2013 Annual Report on Form 10-K for additional information relating to the Consolidated Financial Statements. The December 31, 2013 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Note 2 – Earnings Per Share
Basic and diluted earnings (loss) per common share ("EPS") are calculated as follows:
  
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands, except per share amounts)
2014
 
2013
 
2014
 
2013
Net income (loss)
$
(17,956
)
 
$
(17,814
)
 
$
(24,723
)
 
$
15,663

 
 
 
 
 
 
 
 
Weighted average common shares outstanding (used to calculate basic EPS)
46,981

 
46,633

 
46,915

 
46,495

Dilutive effect of stock options and other stock awards

 

 

 
940

Weighted average common shares outstanding (used to calculate diluted EPS)
46,981

 
46,633

 
46,915

 
47,435

 
 
 
 
 
 
 
 
Earnings (loss) per common share – basic
$
(0.38
)
 
$
(0.38
)
 
$
(0.53
)
 
$
0.34

Earnings (loss) per common share – diluted
$
(0.38
)
 
$
(0.38
)
 
$
(0.53
)
 
$
0.33

If we had generated net income for the quarters ended September 30, 2014 and 2013 and the nine months ended September 30, 2014, an additional 1.4 million, 1.3 million, and 1.2 million shares, respectively, would have been added to basic weighted average common shares outstanding to calculate diluted EPS.
The assumed conversions to common stock of stock options, other stock awards and 4.25% Convertible Senior Notes due 2016 ("Convertible Notes") are excluded from weighted average common shares outstanding used to calculate diluted EPS in periods when these items, on an individual basis, have an anti-dilutive effect on diluted EPS. For the quarters and nine months ended September 30, 2014 and 2013, 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. In addition, certain stock options and other stock awards totaling 0.1 million and 0.2 million for the quarters ended September 30, 2014 and 2013, respectively, and 0.1 million and 1.3 million for the nine months ended September 30, 2014 and 2013, respectively, were outstanding but not included in the computation of diluted EPS because they were anti-dilutive.
Note 3 - Strategic Combination with Fyffes and Cutrale-Safra Definitive Merger Agreement
On March 10, 2014, we announced our intention to combine with Fyffes plc ("Fyffes") and entered into a transaction agreement for the proposed combination, the terms of which were amended on September 25, 2014. A special meeting of our shareholders was held on October 24, 2014 in which the shareholders did not approve the amended transaction agreement with Fyffes, therefore Fyffes delivered a notice of termination of the transaction agreement. In connection with the now terminated Fyffes strategic combination, we have incurred legal, advisory and other expenses totaling $4 million and $13 million during the quarter and nine months ended September 30, 2014, respectively. In addition, under the terms of the amended transaction agreement and expenses reimbursement agreement, we will pay Fyffes a termination fee of approximately $23 million in November 2014. 

7


On October 26, 2014, Chiquita entered into a Definitive Merger Agreement (the "Merger Agreement") with Cavendish Global Limited ("Cavendish"), a private limited company incorporated under the laws of England and Wales. Cavendish is an affiliate of the Cutrale Group and the Safra Group. Pursuant to the Merger Agreement, among other things: Cavendish commenced a tender offer on November 4, 2014 to purchase all of the issued and outstanding shares of common stock, par value $0.01 per share, of Chiquita, subject to the conditions set forth in the Merger Agreement, at a purchase price of $14.50 per share.  Chiquita's board of directors has unanimously approved the transaction. Pending regulatory approval, the transaction is expected to be finalized by the end of 2014 or in early 2015. In connection with the Merger Agreement, we have incurred legal, advisory and other expenses totaling $4 million for both the quarter and nine months ended September 30, 2014.
In connection with the Merger Agreement with Cavendish, we made customary representations and warranties and agreed to customary covenants limiting our ability to, among other things, issue shares of capital stock; pay dividends; repurchase, redeem or acquire capital stock; redeem, repurchase, prepay or incur indebtedness; enter into, terminate or amend existing material contracts; enter into employment or severance agreements with certain employees; acquire equity interests or assets of third parties; sell or otherwise dispose of assets; and conduct restructuring or reorganization activities.
Note 4 – Trade and Finance Receivables
TRADE RECEIVABLES
Our primary markets are in North America and Europe, but we also have sales in the Middle East and other markets. The majority of our 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. Sales to Iranian customers are in U.S. dollars and represent $9 million, $17 million and $17 million of "Trade receivables, less allowances" on the Condensed Consolidated Balance Sheet as of September 30, 2014December 31, 2013 and September 30, 2013, respectively. Even though the sales in Iran are permitted, the international sanctions against Iran affected the ability of certain Iranian customers to pay invoices within terms because it became 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, our receivable balance with these customers increased, and we established payment plans with each of these customers to reduce their balances. Certain customers have so far been able to find acceptable methods of payment to comply with their payment plans. However, some customers have not, and as a result, we recorded a reserve of $9 million in 2012, with an additional $2 million in 2013 as a result of further delinquency and other repayment risk. We source bananas from the Philippines for sale in the Middle East under a committed-volume, long term purchase contract with a former joint venture partner through 2016. To mitigate risk, we have reduced the amount of volume being sent to the Middle East and have developed other Middle Eastern markets. However, Iran remains an important market for our Philippine-sourced bananas.
FINANCE RECEIVABLES
Finance receivables were as follows:
 
 
 
(In thousands)
Grower
Receivables
 
Seller
Financing
 
Grower
Receivables
 
Seller
Financing
 
Grower
Receivables
 
Seller
Financing
Gross receivable
$
39,724

 
$
24,401

 
$
35,761

 
$
27,127

 
$
36,092

 
$
28,001

Reserve
(32,653
)
 

 
(32,877
)
 

 
(32,927
)
 

Net receivable
$
7,071

 
$
24,401

 
$
2,884

 
$
27,127

 
$
3,165

 
$
28,001

 
 
 
 
 
 
 
 
 


 


Current portion, net
$
7,071

 
$
4,229

 
$
2,884

 
$
3,990

 
$
3,165

 
$
3,913

Long-term portion, net

 
20,172

 

 
23,137

 

 
24,088

Net receivable
$
7,071

 
$
24,401

 
$
2,884

 
$
27,127

 
$
3,165

 
$
28,001


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Seasonal advances may be made to certain qualified growers, which are normally collected as the produce is harvested and sold. We generally require 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, we may exercise the collateral provisions or renegotiate the terms, including terms of interest, to collect the remaining balance.
During the nine months ended September 30, 2014, there was no significant activity in the reserve for grower receivables balance. In the third quarter of 2013, we recovered $1 million of grower receivables that were previously reserved and in the second quarter of 2013, we wrote off another $3 million. Other movements in grower receivable reserves in 2013 were not significant.
The gross grower receivable balance in each period primarily relates to a former Chilean grower of grapes and other produce, that we fully reserved in 2011, when the grower was declared bankrupt. We continue to aggressively negotiate recovery.
We 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 that is receivable in equal installments through 2019. As of September 30, 2014, payments are current on this note receivable.
Note 5 – Inventories
Inventories consist of the following:
(In thousands)
 
 
Finished goods
$
69,244

 
$
69,450

 
$
79,706

Growing crops
73,068

 
74,985

 
79,899

Raw materials, supplies and other
66,619

 
66,129

 
75,178

 
$
208,931

 
$
210,564

 
$
234,783

Note 6 – Debt including Capital Lease Obligations
The carrying values of our debt represent amortized cost and are summarized below with estimated fair values:
 
 
 
 
Carrying Value
 
Estimated Fair Value1
 
Carrying Value
 
Estimated Fair Value1
 
Carrying Value
 
Estimated Fair Value1
(In thousands)
 
 
 
 
 
7.875% Senior Secured Notes due 2021
$
412,403

 
$
449,000

 
$
422,174

 
$
459,000

 
$
422,100

 
$
453,000

4.25% Convertible Senior Notes due 2016
173,194

 
200,000

 
164,050

 
194,000

 
161,182

 
196,000

ABL Term Loan
5,250

 
5,000

 
6,375

 
6,000

 
6,750

 
6,000

Capital lease obligations2
42,142

 
42,000

 
39,025

 
39,000

 
32,171

 
32,000

Other debt
6,541

 
6,000

 

 

 

 

Less current portion
(4,648
)
 
 
 
(2,271
)
 
 
 
(2,191
)
 
 
Total long-term debt and capital lease obligations
$
634,882

 
 
 
$
629,353

 
 
 
$
620,012

 
 
1 
The fair value of the senior notes is based on observable inputs, which include quoted prices for similar assets or liabilities in an active market and market-corroborated inputs (Level 2). All other debt may be traded on the secondary loan market, and the fair value is based on either the last available trading price, if recent, or trading prices of comparable debt (Level 3). See Note 8 for further discussion of fair value.
2
Capital lease obligations include the borrowings for the salad production and warehousing facility in the Midwest. See further description of the build-to-suit lease below.
7.875% SENIOR SECURED NOTES
In February 2013, Chiquita Brands International, Inc. ("CBII") and its main operating subsidiary, Chiquita Brands L.L.C. ("CBL"), completed the offering of $425 million of 7.875% senior secured notes due February 1, 2021 ("7.875% Notes"). The notes were issued at 99.274% of par, resulting in a recorded discount that will be amortized over the life of the 7.875% Notes to reflect the effective interest rate of 8.0%. The 7.875% Notes were registered with the United States Securities and Exchange Commission through an exchange offer on January 6, 2014, which was completed on February 4, 2014. 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). On January 31, 2014, we redeemed $10 million of the 7.875% Notes at 103% of the principal amount (plus interest to the redemption date), incurring less than $1 million of expense in 2014 for call premiums and deferred financing fee write-offs.

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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 than $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 (or a third party on their behalf) will be required to make an offer to purchase the notes at 101% of their principal amount, plus accrued interest.
4.25% CONVERTIBLE SENIOR NOTES
Our $200 million of 4.25% Convertible Senior Notes due 2016 ("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.
The carrying amounts of the debt and equity components of the Convertible Notes are as follows:
(In thousands)
 
 
Principal amount of debt component1
$
200,000

 
$
200,000

 
$
200,000

Unamortized discount
(26,806
)
 
(35,950
)
 
(38,818
)
Net carrying amount of debt component
$
173,194

 
$
164,050

 
$
161,182

Equity component
$
84,904

 
$
84,904

 
$
84,904

Issuance costs and income taxes
(3,210
)
 
(3,210
)
 
(3,210
)
Equity component, net of issuance costs and income taxes
$
81,694

 
$
81,694

 
$
81,694

1 
As of September 30, 2014, December 31, 2013 and September 30, 2013, the Convertible Notes' "if-converted" value did not exceed their principal amount because our common stock price was below the conversion price of the Convertible Notes.
The interest expense related to the Convertible Notes was as follows:
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
4.25% coupon interest
$
2,125

 
$
2,125

 
$
6,375

 
$
6,375

Amortization of deferred financing fees
117

 
117

 
352

 
352

Amortization of discount on the debt component
3,141

 
2,782

 
9,144

 
8,100

Total interest expense related to the Convertible Notes
$
5,383

 
$
5,024

 
$
15,871

 
$
14,827

ASSET-BASED LENDING FACILITY
CBII and CBL also entered into a 5-year secured asset-based lending facility ("ABL Facility") concurrently with the closing of the 7.875% Notes offering on February 5, 2013. The ABL Facility consists of a revolver (the "ABL Revolver") and a $7.5 million term loan (the "ABL Term Loan"). 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 Term Loan requires annual repayments of approximately $2 million.
The ABL Facility has a maximum borrowing capacity of $150 million, with the ABL Revolver subject to a borrowing base calculation based on specified percentages of domestic receivables, certain inventory and certain domestic machinery and equipment.

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At September 30, 2014, there were no borrowings under the ABL Revolver, under which $84 million was available after $25 million was used to support letters of credit.
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;
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; 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 September 30, 2014, the weighted average interest rate for the ABL Facility was LIBOR plus 2.75%, or 2.91%.
The ABL Facility contains a fixed charge coverage ratio covenant that did not apply at September 30, 2014 because it is only applicable when excess availability (as defined under such facility) is less than $20 million. The ABL Facility also contains a covenant requiring CBII and its subsidiaries to maintain substantially all of its cash in accounts that are subject to the control of the collateral agent under the ABL Facility that did not apply at September 30, 2014 because it is only 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 $25 million.
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. At September 30, 2014, we were in compliance with the ABL and its other agreements and expect to remain in compliance for at least the next twelve months.
BUILD-TO-SUIT LEASE FOR MIDWEST SALAD PLANT CONSOLIDATION
In June 2012, we entered into a 20-year lease agreement for a salad production and warehousing facility in the Midwest that replaced three existing facilities in the region. The lease agreement contains two 5-year extension periods. The plant was phased into service during 2013, and the construction costs were finalized on March 31, 2014 resulting in an interest rate of 6.3% to calculate the capital lease liability and future payments. Lease payments will increase annually based on CPI. The total liability related to this facility was $42 million, $38 million and $38 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively, of which approximately $1 million was current at each of those dates. At September 30, 2014 and December 31, 2013, this liability was included as a capital lease obligation on the Condensed Consolidated Balance Sheets. At September 30, 2013, $31 million was included as a capital lease obligation corresponding to the portion of the leased facility that was placed into service and $1 million and $6 million obligations corresponding to the construction in progress of the leased facility were included in "Accrued liabilities" and "Other liabilities", respectively. Though the construction costs were financed by the lessor, we acted as the construction agent and were responsible for all construction activity during the construction period because of the specialized nature of the facility. As a result, we were treated as the owner for accounting purposes during the construction period.
OTHER DEBT
In the first quarter of 2014, we purchased a group of banana farms in Honduras that were adjacent to farms that we already owned. The purchase included approximately 700 hectares of land, of which nearly 450 hectares are in production, as well as related buildings and equipment. The purchase price was $10 million, of which $3 million was paid at closing and is included in "Investing: Other, net" in the Condensed Consolidated Statement of Cash Flows. The remaining $7 million was financed by the sellers and is payable in annual installments over four years. The agreement did not specify an interest rate, and we calculated the debt balance using the effective rate method and an estimated interest rate of 8%.
Note 7 – Hedging
Derivative instruments are carried at fair value in the Condensed 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)" ("AOCI") 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 (loss) currently. See further information regarding fair value measurements of derivatives in Note 8.
To manage our exposure to exchange rates on the conversion of euro-based revenue into U.S. dollars, we use 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, we may enter into an average rate euro put and an average rate euro call at the same strike rate (a "synthetic average rate forward") to effectively lock in the exchange rate of the notional amount

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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 us 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 September 30, 2014, the amount of unrealized net gains on our currency hedging portfolio that would be reclassified to net income, if realized in the next twelve months, is $21 million; these net gains were deferred in "AOCI."
In connection with the February 2013 debt refinancing further discussed in Note 6, certain of our hedging counterparties that were members of the previous Credit Facility were no longer participants in the ABL Facility. Upon consummation of the ABL Facility on February 5, 2013, we transferred all outstanding hedge positions with former Credit Facility members to lenders under the ABL Facility. The transferred positions included approximately €71 million notional amount of euro call and put options that matured during the first three quarters of 2013. The change in counterparty is a change in a critical term resulting in termination of hedge accounting at the transfer date. Due to technical accounting requirements, these specific option contracts did not qualify to be re-designated as cash flow hedges at the transfer date. Therefore, the decline in fair value of these options through the transfer date was deferred in AOCI until the hedged transaction occurred because the related hedged cash flows remained probable of occurrence. However, unrealized changes in fair value after the transfer date were recognized currently in "Net sales."
Loss of hedge accounting did not affect the put and call options' purpose of reducing the volatility inherent in exchanging euro-based revenue into U.S. dollars or change the ultimate earnings or cash flow recognized upon settlement of each position. However, loss of hedge accounting resulted in unintended volatility of earnings for the first, second and third quarters of 2013 as the fair market value adjustments after the transfer date was recognized in "Net sales." Ultimately, for the year ended December 31, 2013, the effect on earnings was the same as if we had maintained hedge accounting. We recorded realized losses of $1 million and $2 million in the quarter and nine months ended September 30, 2013, respectively, in "Net sales" related to the transferred positions.
Most of our 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, we also enter 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" as follows:
  
Quarter ended September 30,
 
Nine months ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Gains (losses) on 30-day euro forward contracts
$
5,351

 
$
(3,288
)
 
$
5,610

 
$
(3,024
)
Gains (losses) from fluctuations in the value of the net monetary assets exposed to euro exchange rates
(8,095
)
 
5,384

 
(12,041
)
 
332

We also maintain a fuel surcharge program on sales in North America, and we enter into bunker fuel forward contracts (swaps) that allow us to lock in fuel prices for our European shipping rotations up to three years and thereby minimize the volatility that changes in fuel prices could have on our operating results. These bunker fuel forward contracts are designated as cash flow hedging instruments. At September 30, 2014, the amount of unrealized net losses on our bunker fuel hedging portfolio that would be reclassified to net income, if realized, in the next twelve months is $3 million; these net losses were deferred in "Accumulated other comprehensive income (loss)."

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At September 30, 2014, our 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
€60 million
 
$1.34/€
 
2014
Sold euro call options
€60 million
 
$1.38/€
 
2014
Average rate forward contracts
€19 million
 
$1.36/€
 
2014
Purchased euro put options
€147 million
 
$1.35/€
 
20151
Sold euro call options
€147 million
 
$1.40/€
 
20151
Average rate forward contracts
€20 million
 
$1.38/€
 
20151
 
 
 
 
 
 
3.5% Rotterdam Barge fuel derivatives:
 
 
 
 
 
Bunker fuel forward contracts
20,640 mt
 
$588/mt
 
2014
Bunker fuel forward contracts
59,800 mt
 
$556/mt
 
20151
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
30-day euro forward contracts
€54 million
 
$1.27/€
 
October 2014
1 
Settlement periods for bunker fuel forward contracts and currency derivatives are through September 2015.
Activity related to our derivative assets and liabilities designated as hedging instruments is as follows:
 
2014
 
2013
(In thousands)
Currency
Hedge
Portfolio
 
Bunker Fuel
Forward
 
Currency
Hedge
Portfolio
 
Bunker Fuel
Forward
Balance at beginning of year
$
(5,014
)
 
$
988

 
$
(23,215
)
 
$
8,572

Realized (gains) losses included in net income
1,229

 
(175
)
 
5,601

 
(2,839
)
Transfers1

 

 
7,638

 

Purchases (sales), net2
277

 

 
541

 

Changes in fair value
(323
)
 
(1,447
)
 
6,310

 
1,888

Balance at March 31
$
(3,831
)
 
$
(634
)

$
(3,125
)

$
7,621

Realized (gains) losses included in net income
1,414

 
(61
)
 
4,766

 
(2,151
)
Purchases (sales), net 2

 

 
62

 

Changes in fair value
1,906

 
1,641

 
(5,142
)
 
(7,673
)
Balance at June 30
$
(511
)
 
$
946

 
$
(3,439
)
 
$
(2,203
)
Realized (gains) losses included in net income
(1,308
)
 
822

 
3,568

 
(1,908
)
Transfers1

 

 

 
193

Purchases (sales), net 2
149

 

 
314

 

Changes in fair value
23,513

 
(5,141
)
 
(10,180
)
 
3,888

Balance at September 30
$
21,843

 
$
(3,373
)
 
$
(9,737
)
 
$
(30
)
1 
Represents the fair value at the transfer date of positions where hedge accounting was terminated. See discussion above.
2 
Purchases (sales) represent the cash premiums paid upon the purchase of euro put options or received upon the sale of euro call options. Bunker fuel and currency 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.

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Deferred net gains (losses) in "Accumulated other comprehensive income (loss)" at September 30, 2014 are expected to be reclassified into income as follows (in thousands):
Expected Period of Recognition
 
Currency
Hedge
Portfolio
 
Bunker
Fuel
Forward
 
Total
2014
 
$
6,609

 
$
(1,294
)
 
$
5,315

2015
 
14,470

 
(1,882
)
 
12,588

 
 
$
21,079

 
$
(3,176
)
 
$
17,903

The following tables summarize the effect of our derivatives designated as cash flow hedging instruments on OCI and earnings:
 
Quarter ended September 30, 2014
 
Quarter ended September 30, 2013
(In thousands)
Currency
Hedge
Portfolio
 
Bunker Fuel
Forward
 
Total
 
Currency
Hedge
Portfolio
 
Bunker Fuel
Forward
 
Total
Gain (loss) recognized in OCI on derivative (effective portion)
$
23,983

 
$
(4,911
)
 
$
19,072

 
$
(10,201
)
 
$
4,018

 
$
(6,183
)
Gain (loss) reclassified from accumulated OCI into income (effective portion)1
1,543

 
(822
)
 
721

 
(6,114
)
 
1,908

 
(4,206
)
Loss recognized in income on derivative (ineffective portion)1

 
(230
)
 
(230
)
 

 
(130
)
 
(130
)
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
(In thousands)
Currency
Hedge
Portfolio
 
Bunker Fuel
Forward
 
Total
 
Currency
Hedge
Portfolio
 
Bunker Fuel
Forward
 
Total
Gain (loss) recognized in OCI on derivative (effective portion)
$
26,757

 
$
(4,290
)
 
$
22,467

 
$
(8,518
)
 
$
210

 
$
(8,308
)
Gain (loss) reclassified from accumulated OCI into income (effective portion)1
(504
)
 
(586
)
 
(1,090
)
 
(21,328
)
 
6,898

 
(14,430
)
Loss recognized in income on derivative (ineffective portion)1

 
(657
)
 
(657
)
 

 
(2,107
)
 
(2,107
)
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 8 – 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.

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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 Condensed Consolidated Balance Sheets as of September 30, 2014, December 31, 2013 and September 30, 2013:
 
 
 
Assets (Liabilities)
 
Fair Value Measurements Using
(In thousands)
 
 
 at Fair Value
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives recorded in "Other current assets":
 
 
 
 
 
 
 
 
Currency hedge portfolio
Gross amounts of recognized assets
 
$
22,593

 
$

 
$
22,593

 
$

Currency hedge portfolio
Gross amounts offset in the balance sheets
 
(750
)
 

 
(750
)
 

Bunker fuel forward contracts1
Gross amounts offset in the balance sheets
 
(3,373
)
 

 
(3,373
)
 

30-day euro forward contracts
Gross amounts of recognized assets
 
502

 

 
502

 

Net amount recorded in other current assets
18,972

 

 
18,972

 

 
 
$
18,972

 
$

 
$
18,972

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives recorded in "Investments & other assets, net":
 
 
 
 
 
 
 
 
Currency hedge portfolio
Gross amounts offset in the balance sheets
 
$
(220
)
 

 
$
(220
)
 

Bunker fuel forward contracts1
Gross amounts of recognized assets
 
953

 

 
953

 

Bunker fuel forward contracts1
Gross amounts offset in the balance sheets
 
(100
)
 

 
(100
)
 

Net amount recorded in investments & other assets, net
633

 

 
633

 

Derivatives recorded in "Accrued liabilities":
 
 
 
 
 
 
 
 
Currency hedge portfolio
Gross amounts offset in the balance sheets
 
1,250

 

 
1,250

 

Currency hedge portfolio
Gross amounts of recognized liabilities
 
(5,947
)
 

 
(5,947
)
 

Bunker fuel forward contracts1
Gross amounts offset in the balance sheets
 
778

 

 
778

 

Bunker fuel forward contracts1
Gross amounts of recognized liabilities
 
(643
)
 

 
(643
)
 

30-day euro forward contracts
Gross amounts offset in the balance sheets
 
245

 

 
245

 

Net amount recorded in accrued liabilities
(4,317
)
 

 
(4,317
)
 

Derivatives recorded in "Other liabilities":
 
 
 
 
 
 
 
 
Currency hedge portfolio
Gross amounts offset in the balance sheets
 
833

 

 
833

 

Currency hedge portfolio
Gross amounts of recognized liabilities
 
(930
)
 

 
(930
)
 

Net amount recorded in other liabilities
(97
)
 

 
(97
)
 

 
 
$
(3,781
)
 
$

 
$
(3,781
)
 
$


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Table of Contents

 
 
 
Assets (Liabilities)
 
Fair Value Measurements Using
(In thousands)
 
 
 at Fair Value
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives recorded in "Investments & other assets, net":
 
 
 
 
 
 
 
 
Currency hedge portfolio
Gross amounts of recognized assets
 
515

 

 
515

 

Currency hedge portfolio
Gross amounts offset in the balance sheets
 
(465
)
 

 
(465
)
 

Bunker fuel forward contracts1
Gross amounts of recognized assets
 
196

 
 
 
196

 
 
Bunker fuel forward contracts1
Gross amounts offset in the balance sheets
 
(137
)
 
 
 
(137
)
 
 
Bunker fuel forward contracts2
Gross amounts of recognized assets
 
22

 

 
22

 

Bunker fuel forward contracts2
Gross amounts offset in the balance sheets
 
(70
)
 

 
(70
)
 

Net amount recorded in investments & other assets, net
 
61

 

 
61

 

Derivatives recorded in "Accrued liabilities":
 
 
 
 
 
 
 
 
Currency hedge portfolio
Gross amounts offset in the balance sheets
 
1,163

 

 
1,163

 

Currency hedge portfolio
Gross amounts of recognized liabilities
 
(10,913
)
 

 
(10,913
)
 

Bunker fuel forward contracts1
Gross amounts offset in the balance sheets
 
1,212

 

 
1,212

 

Bunker fuel forward contracts1
Gross amounts of recognized liabilities
 
(611
)
 

 
(611
)
 

Bunker fuel forward contracts2
Gross amounts offset in the balance sheets
 
282

 

 
282

 

Bunker fuel forward contracts2
Gross amounts of recognized liabilities
 
(203
)
 

 
(203
)
 

30-day euro forward contracts
Gross amounts offset in the balance sheets
 
17

 

 
17

 

30-day euro forward contracts
Gross amounts of recognized liabilities
 
(108
)
 

 
(108
)
 

 
Net amount recorded in accrued liabilities
(9,161
)
 

 
(9,161
)
 

Derivatives recorded in "Other liabilities":
 
 
 
 
 
 
 
 
Currency hedge portfolio
Gross amounts offset in the balance sheets
 
196

 

 
196

 

Currency hedge portfolio
Gross amounts of recognized liabilities
 
(233
)
 

 
(233
)
 

Bunker fuel forward contracts1
Gross amounts offset in the balance sheets
 
145

 
 
 
145

 
 
Bunker fuel forward contracts1
Gross amounts of recognized liabilities
 
(835
)
 
 
 
(835
)
 
 
Bunker fuel forward contracts2
Gross amounts offset in the balance sheets
 
12

 

 
12

 

Bunker fuel forward contracts2
Gross amounts of recognized liabilities
 
(236
)
 

 
(236
)
 

Net amount recorded in other liabilities
(951
)
 

 
(951
)
 

 
 
$
(10,051
)
 
$

 
$
(10,051
)
 
$

1 Bunker fuel forward contracts designated as cash flow hedges.
2 Bunker fuel forward contracts not designated as hedging instruments.
Except as described in Note 7, 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 Condensed Consolidated Balance Sheets because we enter into master netting arrangements with each of our hedging partners.
We value fuel hedging positions by applying an observable discount rate to the current forward prices of identical hedge positions. We value currency hedging positions by utilizing observable or market-corroborated inputs such as exchange rates, volatility and forward yield curves. We trade only with counterparties that meet certain liquidity and creditworthiness standards and do not anticipate non-performance by any of these counterparties. We do not require collateral from our counterparties, nor are we obligated to provide collateral when contracts are in a liability position. However, consideration of non-performance risk is required when valuing derivative instruments, and we include 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 for each counterparty. When there is a net asset position, we use the counterparty's CDS; when there is a net liability position, we use our own estimated CDS. CDS is generally not a significant input in measuring fair value and was not significant for any of our derivative instruments in any period presented. See further discussion and tabular disclosure of hedging activity in Note 7.
Financial instruments not carried at fair value consist of our debt. See further fair value discussion and tabular disclosure related to debt in Note 6.
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). The carrying amounts of cash and equivalents, accounts

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receivable, other receivables including current and non-current finance receivables and accounts payable approximate fair value. Level 3 fair value measurements are used in certain non-recurring items, including 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 non-recurring items, including impairments related to long-lived assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Note 9 – Pension and Severance Benefits
Net pension expense from our defined benefit and severance plans are primarily comprised of severance plans covering Central American employees and consists of the following: 
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Service cost
$
1,855

 
$
1,864

 
$
5,565

 
$
5,592

Interest on projected benefit obligation
1,411

 
1,300

 
4,241

 
3,894

Expected return on plan assets
(334
)
 
(333
)
 
(1,005
)
 
(996
)
Recognized actuarial loss
265

 
310

 
797

 
922

Amortization of prior service cost
32

 
32

 
96

 
96

Defined benefit and severance plan expense
$
3,229

 
$
3,173

 
$
9,694

 
$
9,508

Note 10 – Reclassifications from Accumulated Other Comprehensive Income
Gains and losses deferred in "Accumulated other comprehensive income (loss)" ("AOCI") are reclassified and recognized in the Condensed Consolidated Statements of Operations when they are realized. The items in the table below do not have an income tax effect because they are either permanent differences in the income tax calculation or they relate to jurisdictions where we have established full valuation allowances against our deferred tax assets. Amounts of (income) expense reclassified from AOCI are as follows (in thousands):
AOCI Component
 
Line Items Affected by Reclassifications from AOCI in the Condensed Consolidated Statements of Operations
 
(Income) / expense reclassified from AOCI for the quarter ended September 30,
 
(Income) / expense reclassified from AOCI for the nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Currency translation
 
Other income (expense), net
 
$

 
$

 
$
252

 
$

Available-for-sale investment
 
Other income (expense), net
 

 

 

 
(561
)
Currency hedge portfolio derivatives
 
Net sales
 
(1,543
)
 
6,114

 
504

 
21,328

Bunker fuel forward contracts
 
Cost of sales
 
822

 
(2,277
)
 
586

 
(7,267
)
Prior service cost and recognized actuarial loss amortization related to pensions*
 
 
 
297

 
342

 
893

 
1,018

* These accumulated other comprehensive income components are included in the computation of net periodic pension cost. See Note 9 for further details.


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The changes in the components of accumulated other comprehensive income, net of tax, for the quarter and nine months ended September 30, 2014 were as follows:
(In thousands)
Net cumulative currency translation gains (losses)
 
Net unrealized losses on qualifying cash flow hedges
 
Net unrecognized losses related to pension and severance plans (1)
 
Total
Balance at June 30, 2014
$
(202
)
 
$
(448
)
 
$
(19,969
)
 
$
(20,619
)
Other comprehensive income (loss) before reclassifications
1

 
19,072

 

 
19,073

Amounts reclassified from accumulated other comprehensive income

 
(721
)
 
297

 
(424
)
Net current-period other comprehensive income (loss)
1

 
18,351

 
297

 
18,649

$
(201
)
 
$
17,903

 
$
(19,672
)
 
$
(1,970
)
(In thousands)
Net cumulative currency translation gains (losses)
 
Net unrealized losses on qualifying cash flow hedges
 
Net unrecognized losses related to pension and severance plans (1)
 
Total
$
(469
)
 
$
(5,654
)
 
$
(19,660
)
 
$
(25,783
)
Other comprehensive income (loss) before reclassifications
16

 
22,467

 
(905
)
 
21,578

Amounts reclassified from accumulated other comprehensive income
252

 
1,090

 
893

 
2,235

Net current-period other comprehensive income (loss)
268

 
23,557

 
(12
)
 
23,813

$
(201
)
 
$
17,903

 
$
(19,672
)
 
$
(1,970
)
(1) Net of deferred tax liability of $271, $271, and $530 as of September 30, 2014, June 30, 2014, and December 31, 2013, respectively.

The changes in the components of accumulated other comprehensive income, net of tax, for the quarter and nine months ended September 30, 2013 were as follows:
(In thousands)
Net cumulative currency translation gains (losses)
 
Net unrealized losses on qualifying cash flow hedges
 
Unrealized gains on available-for-sale investment
 
Net unrecognized losses related to pension and severance plans (1)
 
Total
Balance at June 30, 2013
$
252

 
$
(8,463
)
 
$

 
$
(24,977
)
 
$
(33,188
)
Other comprehensive income (loss) before reclassifications
(753
)
 
(6,183
)
 

 
(42
)
 
(6,978
)
Amounts reclassified from accumulated other comprehensive income

 
3,837

 

 
342

 
4,179

Net current-period other comprehensive income
(753
)
 
(2,346
)
 

 
300

 
(2,799
)
$
(501
)
 
$
(10,809
)
 
$

 
$
(24,677
)
 
$
(35,987
)

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(In thousands)
Net cumulative currency translation gains (losses)
 
Net unrealized losses on qualifying cash flow hedges
 
Unrealized gains on available-for-sale investment
 
Net unrecognized losses related to pension and severance plans (1)
 
Total
$
(120
)
 
$
(16,562
)
 
$
404

 
$
(24,247
)
 
$
(40,525
)
Other comprehensive income (loss) before reclassifications
(381
)
 
(8,308
)
 
157

 
(1,448
)
 
(9,980
)
Amounts reclassified from accumulated other comprehensive income

 
14,061

 
(561
)
 
1,018

 
14,518

Net current-period other comprehensive income
(381
)
 
5,753

 
(404
)
 
(430
)
 
4,538

$
(501
)
 
$
(10,809
)
 
$

 
$
(24,677
)
 
$
(35,987
)
(1) Net of deferred tax liability of $150, $153 and $283 as of September 30, 2013, June 30, 2013 and December 31, 2012, respectively.
Note 11 – Income Taxes
The effective tax rates were (3.0)% and (27.1)% for the quarters ended September 30, 2014 and 2013, respectively, and (73.7)% and 20.5% for the nine months ended September 30, 2014 and 2013, respectively. We record income taxes using an estimated annual effective tax rate for interim reporting. Under the annual effective tax rate method, jurisdictions with a projected loss where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate.
The effective tax rates for the quarters and nine months ended September 30, 2014 and 2013 were impacted by the mix in earnings among domestic and foreign jurisdictions, losses in various jurisdictions and certain discrete items. Many of these foreign jurisdictions have tax rates that are lower than the U.S. statutory rate, and we continue to maintain full valuation allowances on net deferred tax assets in certain of these foreign jurisdictions. The effective tax rates for the quarters and nine months ended September 30, 2014 and 2013 were also impacted by our continuing to maintain a full valuation allowance on U.S. net deferred tax assets. The company recorded out of period adjustments in the second quarter of 2013 that resulted in $3 million of income tax benefit related to 2012 and 2011.
As previously disclosed, the tax authority in Ecuador is challenging the transfer pricing practices of major banana exporters and has assessed $23 million of income taxes, penalties and interest related to transfer pricing from 2008 through 2010 and $5 million of statutorily required profit sharing related to transfer pricing from 2010. Other tax years remain open and under audit and may result in additional assessments before the matter is resolved. We believe appropriate transfer pricing was used and that more likely than not, we will succeed upon appeal. Therefore, we do not have unrecognized tax benefits related to this matter included in our September 30, 2014, December 31, 2013 or September 30, 2013 balance sheets.
Note 12 – Advertising and Promotion Expense
Advertising and certain promotion expenses are included in "Selling, general and administrative" in the Condensed Consolidated Statements of Operations and were $5 million and $7 million for the quarters ended September 30, 2014 and 2013, respectively, and $19 million for each of the nine months ended September 30, 2014 and 2013.
Note 13 – Stock-Based Compensation
Stock-based compensation expense totaled $4 million and $2 million for the quarters ended September 30, 2014 and 2013 and $8 million and $7 million for the nine months ended September 30, 2014 and 2013 . Stock-based compensation expense relates primarily to our performance-based long-term incentive program ("LTIP"), stock options and restricted stock unit ("RSU") awards. LTIP awards cover three-year performance cycles and are measured partly on performance criteria (cumulative earnings per share and/or cumulative free cash flow generation) and partly on market criteria (total shareholder return relative to a peer group of companies). The fair value of LTIP awards containing performance criteria are based on our expectations of performance achievement and the closing stock price on the measurement date. The fair value of LTIP awards based on market criteria are measured using a Monte-Carlo simulation using publicly available data.

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Our LTIP awards are liability-classified awards, which do not affect "Capital surplus" until and if these awards are paid in shares. All other stock-based compensation is equity-classified, and therefore affects "Capital surplus." Changes in "Capital surplus" are primarily a result of stock compensation:
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Stock-based compensation
$
1,818

 
$
1,713

 
$
5,493

 
$
5,541

Shares withheld for taxes
(683
)
 
(1,508
)
 
(940
)
 
(1,840
)
Capital surplus increase
$
1,135

 
$
205

 
$
4,553

 
$
3,701

Note 14 – Segment Information
We report 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; and processed fruit ingredients.
Other Produce: Includes the sourcing, marketing and distribution of whole fresh produce other than bananas. 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.
Financial information for each segment follows:
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Net sales:
 
 
 
 
 
 
 
Bananas
$
477,472

 
$
455,981

 
$
1,516,343

 
$
1,481,625

Salads and Healthy Snacks1
234,235

 
239,102

 
713,163

 
739,392

Other Produce
26,844

 
27,979

 
96,882

 
88,468

 
$
738,551

 
$
723,062

 
$
2,326,388

 
$
2,309,485

Operating income (loss):
 
 
 
 
 
 
 
Bananas2
$
18,138

 
$
18,039

 
$
82,159

 
$
101,438

Salads and Healthy Snacks3
6,236

 
(5,155
)
 
9,978

 
4,595

Other Produce4
(4,788
)
 
2,325

 
(4,663
)
 
1,904

Corporate costs5
(21,024
)
 
(14,056
)
 
(51,591
)
 
(41,070
)
 
$
(1,438
)
 
$
1,153

 
$
35,883

 
$
66,867

1 
In the second quarter of 2013, we sold one of our European healthy snacking businesses which represented approximately $12 million in annual net sales and had an insignificant effect on operating income. In the first quarter of 2014, we disposed of another non-core healthy snacking business in Europe which represented approximately $2 million in annual net sales. Both disposals had insignificant effects on operating income (loss).
2 
Includes $5 million of cost related to the changeover of vessels at the end of the respective leases and a $1 million gain on the sale of a ripening facility in Europe in the nine months ended September 30, 2014.
3 
Includes $2 million and $5 million of cost in the quarter and nine months ended September 30, 2014 related to severance, product resizing, product discontinuation, equipment write-downs and a legal settlement. Includes $1 million of "Cost of sales" in 2013 for severance costs related to a fruit ingredient business.
4 
Includes $3 million in the third quarter of 2014 related to a claim settlement with a former supplier of other produce products that were discontinued in previous periods.
5 
Includes $4 million and $13 million of costs for the quarter and nine months ended September 30, 2014, respectively, for the proposed combination with Fyffes. Includes $4 million of costs in the third quarter of 2014 for the due diligence related to the unsolicited offer from the Cutrale Group and the Safra Group.

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Note 15 – Commitments and Contingencies
We had an accrual of $4 million, related to contingencies and legal proceedings in Europe at each of September 30, 2014December 31, 2013, and September 30, 2013. While other contingent liabilities described below may be material to the financial statements, we have determined that losses in these matters are not probable and have not accrued any other amounts. Regardless of their outcomes, we have paid, and will likely continue to incur, significant legal and other fees to defend ourselves in these proceedings, which may significantly affect our financial statements.
COLOMBIA-RELATED MATTERS
Tort Lawsuits. Between June 2007 and March 2011, nine civil tort lawsuits were filed against us 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. We 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 our 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, we 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. We also have 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"). We believe the plaintiffs' claims are without merit and are defending ourselves 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. We believe we have strong defenses to the remaining claims. In March 2012, the court granted our 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 July 2014, the Eleventh Circuit reversed the district court's denial of the company's motion to dismiss and remanded the case for entry of an order dismissing the ATS claims.
In addition to the ATS lawsuits, between March 2008 and March 2011, four tort lawsuits were filed against us 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 we are liable because our 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. We believe the plaintiffs' claims are without merit and are defending ourselves vigorously.
In February 2010, our motion to dismiss one of the ATA lawsuits was granted in part and denied in part and in March 2012, our 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. In July 2013, we filed a motion for reconsideration of the court's order denying our motions to dismiss the ATA lawsuits and that motion is pending. We believe we have strong defenses to the remaining claims in the ATA lawsuits.
Insurance Recovery. We have provided notice of the ATS and ATA lawsuits to the insurers that issued primary and excess general liability insurance policies during the relevant years. The insurers have either reserved the right to deny coverage or denied coverage for these lawsuits. In 2008, we commenced litigation in state court in Ohio against three of our primary insurers seeking coverage for defense costs incurred in connection with the ATA and ATS lawsuits; a fourth primary insurer was later joined to that lawsuit. We entered into settlement agreements under which three of our primary insurers agreed to pay, in total, approximately 40 percent of our 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 June 2013, we received notice that the two other settling insurers, which had been paying approximately 1 percent of our defense costs, had been placed in liquidation. The fourth primary insurer, National Union, did not settle. In March 2013, the Ohio Court of Appeals held that National Union is not obligated to provide coverage for defense costs in the ATS and ATA lawsuits. The Ohio Supreme Court declined to accept the case for review.
As of September 30, 2014, National Union had paid us $12 million as reimbursement for defense costs. This sum, and an additional $1 million of interest, is being deferred in "Accrued Liabilities" on the Condensed Consolidated Balance Sheet because National Union asserts that it is entitled to obtain reimbursement of this amount from us based on the outcome of its

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appeal in the coverage case. In June 2014, after remand from the Ohio Court of Appeals, the trial court ruled that National Union is entitled to reimbursement of the defense costs that it has already paid. The company has appealed that ruling and secured a stay of the judgment ordering us to reimburse National Union pending the appeal.
    In August 2013, one of the settling primary insurers, Federal, filed a lawsuit in state court in Ohio seeking a declaratory judgment that, based on the Ohio Court of Appeals’ March 2013 decision regarding National Union’s defense obligations, Federal has no obligation to provide coverage for any settlements or judgments that may be incurred by us in the ATS and ATA lawsuits. In February 2014, a group of insurers that are affiliated with Travelers and that issued umbrella and excess policies to us filed a lawsuit in state court in Ohio seeking a declaratory judgment that they have no obligation to provide coverage for defense costs or settlements or judgments that may be incurred by us in the ATS and ATA lawsuits. In May 2014, the trial court ruled that Federal's lawsuit is premature and granted the company's motion to stay until the underlying tort lawsuits are resolved. Federal has not appealed that ruling. In June 2014, we filed a motion to dismiss or stay the Travelers' insurers complaint, and in August the parties filed a joint motion for a stay of proceedings. We believe that Travelers' lawsuit is also premature and will defend ourselves vigorously.
Neither the Ohio Court of Appeals' ruling nor Federal's lawsuit impacts Federal's obligation to reimburse 40 percent of defense costs pursuant to the terms of its settlement agreement with Chiquita. There can be no assurance that the insurers will provide any additional coverage for these claims.
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 2007 plea in the United States. In March 2012, the prosecutor in charge of the investigation issued a decision which concluded that our 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 our former Colombian subsidiary committed wrongdoing of any kind, only that the matter warrants further investigation. We believe that we have at all times complied with Colombian law.
ITALIAN CUSTOMS AND TAX CASES
1998-2000 Cases. In October 2004, our 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 ours 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.
Separate civil customs proceedings were ultimately brought against Chiquita Italia in four Italian jurisdictions, Genoa, Trento, Aosta and Alessandria. In Genoa the Court of Cassation, the highest level of appeal in Italy, issued a decision in favor of Chiquita Italia in September 2013. In Trento the Court of Cassation issued a decision during the fourth quarter of 2013 in favor of Chiquita Italia as to approximately €5.5 million of the €6.6 million total claim including interest, with the remaining amount ruled payable by Chiquita Italia from the deposits already made in these matters. In April 2014, the Italian customs authority filed a request for revocation of this Court of Cassation decision, a request which we do not believe is permitted under Italian law. In Alessandria, Chiquita Italia lost at the trial level, appealed and a favorable decision was published in April 2014. The authorities have the right to appeal this decision. In Aosta, Chiquita Italia lost at the trial level, appealed and the decision is pending. Socoba brought a claim in Rome trial court (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 advised the customs authorities the same types of licenses challenged in Italy appeared valid on their face and should be treated as genuine.
Under Italian law, the amounts claimed in the Trento, Alessandria, Aosta and Genoa cases became due and payable notwithstanding the pending appeals. Deposits made in these cases are deferred in "Investments and other assets, net" on the

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Table of Contents

Condensed Consolidated Balance Sheets pending resolution of the appeals process. A summary of claims and deposits paid as of September 30, 2014 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
€3.3
€6.6
€6.6
Following the decisions in Trento, Chiquita Italia is entitled to claim reimbursement of approximately €5.5 million of the deposited amounts plus interest (or to apply to deposit requirements in other matters).
Alessandria
€0.3
€0.2
€0.5
€0.5
Deposits paid in 36 equal installments ended March 2012.
Aosta
€1.2
€1.2
€2.4
€2.3
Monthly deposit payments of €34 thousand began in November 2012. In December 2013 €589 thousand was applied from the Tax assessment of 2004 payments.
Genoa (Resolved favorably)
€7.4
€1.0
€8.4
€0.0
Following the decision in Genoa in favor of Chiquita Italia, Chiquita Italia was entitled to claim reimbursement of deposited amounts plus interest. The deposited amounts (€1.6 million) have been used to offset deposit requirements in the Customs Tax Assessment for 2004/2005.
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 we sold some of our bananas to holders of import licenses who imported the bananas and resold them to Chiquita Italia (indirect import challenge), a practice we believe was legitimate under both Italian and EU law and which was widely accepted by authorities across the EU and by the EC. In June 2012, the Italian courts acquitted Chiquita Italia parties of all charges relating to 2004, and in December 2013 relating to 2005. There are no further criminal charges pending.

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Table of Contents

Tax authorities issued assessment notices for 2004 and 2005, which we appealed to the first level Rome tax court. In June 2011, the court rejected our appeal for the 2004 assessment. Chiquita Italia again 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 portion is pending. Separately, customs authorities have also issued assessments for these cases. 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 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 "Investments and other assets, net" on the Condensed 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
€0.9
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
€19.4
€10.2
€29.6
€16.7
Monthly deposit payments of €350 thousand began in September 2011 and will continue through September 2017, unless a successful appeals process is completed sooner. In June 2014 we received an additional assessment for a total value of €1.2M, for which a full deposit was made.

The fiscal police investigation also challenged the involvement of an entity of ours 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 ($24 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 which is expected in due course. As part of the settlement, Chiquita Italia also agreed to an adjustment to its intercompany purchases of bananas for 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
We have and have 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, we received €20 million ($26 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 Condensed Consolidated Balance Sheets. Decisions

24

Table of Contents

in one jurisdiction have no binding effect on pending claims in other jurisdictions and all unresolved claims may take years to resolve. If we were to lose on appeal, we may be required to repay the consumption tax refunds received with interest.
Note 16 – New Accounting Standards
New accounting standards that could significantly affect our Condensed Consolidated Financial Statements are summarized as follows:
Standard Name
Issued
Description
Effective Date
for Chiquita
Effect on Chiquita's Condensed Consolidated
Financial Statements
Revenue from Contracts with Customers

May 2014 ASU 2014-09
Requires additional considerations for timing and amount of revenue recognition for contract sales with customers.
Retrospective, beginning December 2016. Early adoption is not permitted.
The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and will evaluate the effect of the standard on our sales contracts with customers, evaluate methods of adoption and monitor other future potential effects.
Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

April 2014 ASU 2014-08
Requires additional disclosures about changing the criteria for reporting discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity's operations

Prospectively, beginning January 1, 2015; early adoption permitted.
We have opted for early adoption, which did not have a significant impact on our financial results. We will continue to monitor the potential impact of this early adoption on future filings.
Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
July 2013 ASU 2013-11
Requires unrecognized tax benefits to be presented as a decrease in net operating loss, similar tax loss or tax credit carryforward if certain criteria are met.
Prospectively, beginning January 1, 2014; early adoption permitted.
Adoption did not have a significant effect on the disclosure of our deferred taxes.

25


Note 17 — Supplemental Consolidating Financial Information
In connection with the 7.875% Notes, certain of our domestic subsidiaries (the "Guarantor Subsidiaries"), fully, unconditionally, jointly, and severally guaranteed the payment obligations under the notes. The Guarantor Subsidiaries are 100% owned direct and indirect subsidiaries of Chiquita Brands L.L.C. ("CBLLC" or the "Co-Issuer"), who is 100% owned by CBII ("CBII" or the "Parent Company"). The following supplemental financial information sets forth, on a consolidating basis, the balance sheets, statements of operations, statements of comprehensive income and statements of cash flows for CBII, for CBLLC, for the Guarantor Subsidiaries and for our 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 Operations (Unaudited)
Quarter Ended September 30, 2014
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
Net sales
 
$

 
$
217,299

 
$
299,667

 
$
463,861

 
$
(242,276
)
 
$
738,551

Cost of sales
 

 
205,854

 
265,903

 
434,059

 
(242,280
)
 
663,536

Selling, general and administrative
 
9,788

 
4,193

 
20,378

 
19,299

 

 
53,658

Transaction costs
 
8,235

 

 

 

 

 
8,235

Depreciation
 

 
1,219

 
6,212

 
4,892

 

 
12,323

Amortization
 

 

 
2,335

 
7

 

 
2,342

Equity in losses (earnings) of investees and subsidiaries
 
(6,134
)
 
(9,576
)
 
289

 
(105
)
 
15,421

 
(105
)
Operating income (loss)
 
(11,889
)
 
15,609

 
4,550

 
5,709

 
(15,417
)
 
(1,438
)
Interest income
 

 

 
(1
)
 
601

 

 
600

Interest expense
 
(5,549
)
 
(9,162
)
 
(724
)
 
(129
)
 

 
(15,564
)
Other income (expense), net
 

 
(313
)
 
602

 
(1,321
)
 
(4
)
 
(1,036
)
Income (loss) before income taxes
 
(17,438
)
 
6,134

 
4,427

 
4,860

 
(15,421
)
 
(17,438
)
Income tax expense
 
(518
)
 
792

 
(1,752
)
 
(634
)
 
1,594

 
(518
)
Net income (loss)
 
$
(17,956
)
 
$
6,926

 
$
2,675

 
$
4,226

 
$
(13,827
)
 
$
(17,956
)

26


Chiquita Brands International, Inc.
Condensed Consolidating Statement of Comprehensive Income (Unaudited)
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
Net income (loss)
 
$
(17,956
)
 
$
6,926

 
$
2,675

 
$
4,226

 
$
(13,827
)
 
$
(17,956
)
Unrealized foreign currency translation gains
 

 

 

 
1

 

 
1

Realized gains for foreign currency translation on business disposal reclassified into Other income (expense), net
 

 

 

 

 

 

Net other comprehensive income (loss) related to foreign currency translation
 

 

 

 
1

 

 
1

 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on derivatives for the period
 

 

 

 
19,072

 

 
19,072

Derivative (gains) losses reclassified into Net sales
 

 

 

 
(1,543
)
 

 
(1,543
)
Derivative gains reclassified into Cost of sales
 

 

 

 
822

 

 
822

Net other comprehensive income (loss) related to derivatives
 

 

 

 
18,351

 

 
18,351

 
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial gains (losses) for the period, net of tax
 

 
1

 

 
(1
)
 

 

Amortization included in pension cost
 

 
102

 

 
195

 

 
297

Net other comprehensive income (loss) related to defined benefit pension and severance plans
 

 
103

 

 
194

 

 
297

 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) of investments in subsidiaries
 
18,649

 
18,546

 

 

 
(37,195
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
$
693

 
$
25,575

 
$
2,675

 
$
22,772

 
$
(51,022
)
 
$
693


27


Chiquita Brands International, Inc.
Condensed Consolidating Statement of (Operations) (Unaudited)
Quarter Ended September 30, 2013
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
Net sales
 
$

 
$
200,307

 
$
302,625

 
$
447,080

 
$
(226,950
)
 
$
723,062

Cost of sales
 

 
190,790

 
271,950

 
409,395

 
(226,965
)
 
645,170

Selling, general and administrative
 
12,446

 
1,955

 
23,775

 
22,790

 

 
60,966

Depreciation
 

 
1,140

 
6,741

 
5,554

 

 
13,435

Amortization
 

 

 
2,336

 
6

 

 
2,342

Equity in losses (earnings) of investees and subsidiaries
 
(3,448
)
 
(6,878
)
 
(16
)
 

 
10,342

 

Restructuring and relocation costs
 
(15
)
 
111

 
(100
)
 

 

 
(4
)
Operating income (loss)
 
(8,983
)
 
13,189

 
(2,061
)
 
9,335

 
(10,327
)
 
1,153

Interest income
 

 
1

 
26

 
663

 

 
690

Interest expense
 
(5,031
)
 
(9,743
)
 
(576
)
 
(6
)
 

 
(15,356
)
Other income (expense), net
 

 
1

 
85

 
(572
)
 
(15
)
 
(501
)
Income (loss) before income taxes
 
(14,014
)
 
3,448

 
(2,526
)
 
9,420

 
(10,342
)
 
(14,014
)
Income tax expense
 
(3,800
)
 
(3,249
)
 
1,289

 
(391
)
 
2,351

 
(3,800
)
Net income (loss)
 
$
(17,814
)
 
$
199

 
$
(1,237
)
 
$
9,029

 
$
(7,991
)
 
$
(17,814
)

28


Chiquita Brands International, Inc.
Condensed Consolidating Statement of Comprehensive Income (Unaudited)
Quarter Ended September 30, 2013
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
Net income (loss)
 
$
(17,814
)
 
$
199

 
$
(1,237
)
 
$
9,029

 
$
(7,991
)
 
$
(17,814
)
Unrealized foreign currency translation gains
 

 

 

 
(753
)
 

 
(753
)
Realized gains for foreign currency translation on business disposal reclassified into Other income (expense), net
 

 

 

 

 

 

Net other comprehensive income (loss) related to foreign currency translation
 

 

 

 
(753
)
 

 
(753
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on derivatives for the period
 

 

 

 
(6,183
)
 

 
(6,183
)
Derivative (gains) losses reclassified into Net sales
 

 

 

 
6,114

 

 
6,114

Derivative gains reclassified into Cost of sales
 

 

 

 
(2,277
)
 

 
(2,277
)
Net other comprehensive income (loss) related to derivatives
 

 

 

 
(2,346
)
 

 
(2,346
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial gains (losses) for the period, net of tax
 

 

 

 
(42
)
 

 
(42
)
Amortization included in pension cost
 

 
124

 

 
218

 

 
342

Net other comprehensive income (loss) related to defined benefit pension and severance plans
 

 
124

 

 
176

 

 
300

 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) of investments in subsidiaries
 
(2,799
)
 
(2,923
)
 

 

 
5,722

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
$
(20,613
)
 
$
(2,600
)
 
$
(1,237
)
 
$
6,106

 
$
(2,269
)
 
$
(20,613
)


29


Chiquita Brands International, Inc.
Condensed Consolidating Statement of Operations (Unaudited)
Nine Months Ended September 30, 2014
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
Net sales
 
$

 
$
651,515

 
$
911,465

 
$
1,504,218

 
$
(740,810
)
 
$
2,326,388

Cost of sales
 

 
625,157

 
805,599

 
1,374,743

 
(740,404
)
 
2,065,095

Selling, general and administrative
 
24,816

 
12,704

 
64,194

 
60,830

 

 
162,544

Transaction costs
 
16,907

 

 

 

 

 
16,907

Depreciation
 

 
3,589

 
19,230

 
16,092

 

 
38,911

Amortization
 

 

 
7,006

 
19

 

 
7,025

Equity in losses (earnings) of investees and subsidiaries
 
(43,502
)
 
(61,741
)
 
4,540

 
(437
)
 
100,703

 
(437
)
Restructuring and relocation costs
 
460

 

 

 

 

 
460

Operating income (loss)
 
1,319

 
71,806

 
10,896

 
52,971

 
(101,109
)
 
35,883

Interest income
 

 
2

 
33

 
1,870

 

 
1,905

Interest expense
 
(16,136
)
 
(27,568
)
 
(2,291
)
 
(336
)
 

 
(46,331
)
Loss on debt extinguishment
 

 
(521
)
 

 

 

 
(521
)
Other income (expense), net
 
581

 
(217
)
 
235

 
(6,177
)
 
406

 
(5,172
)
Income (loss) before income taxes
 
(14,236
)
 
43,502

 
8,873

 
48,328

 
(100,703
)
 
(14,236
)
Income tax expense
 
(10,487
)
 
(5,620
)
 
(3,512
)
 
(4,039
)
 
13,171

 
(10,487
)
Net income (loss)
 
$
(24,723
)
 
$
37,882

 
$
5,361

 
$
44,289

 
$
(87,532
)
 
$
(24,723
)

30


Chiquita Brands International, Inc.
Condensed Consolidating Statement of Comprehensive Income (Unaudited)
Nine Months Ended September 30, 2014
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
Net income (loss)
 
$
(24,723
)
 
$
37,882

 
$
5,361

 
$
44,289

 
$
(87,532
)
 
$
(24,723
)
Unrealized foreign currency translation gains
 

 

 

 
16

 

 
16

Realized gains for foreign currency translation on business disposal reclassified into Other income (expense), net
 

 

 

 
252

 

 
252

Net other comprehensive income (loss) related to foreign currency translation
 

 

 

 
268

 

 
268

 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on derivatives for the period
 

 

 

 
22,467

 

 
22,467

Derivative (gains) losses reclassified into Net sales
 

 

 

 
504

 

 
504

Derivative gains reclassified into Cost of sales
 

 

 

 
586

 

 
586

Net other comprehensive income (loss) related to derivatives
 

 

 

 
23,557

 

 
23,557

 
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial gains (losses) for the period, net of tax
 

 
(564
)
 

 
(341
)
 

 
(905
)
Amortization included in pension cost
 

 
308

 

 
585

 

 
893

Net other comprehensive income (loss) related to defined benefit pension and severance plans
 

 
(256
)
 

 
244

 

 
(12
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) of investments in subsidiaries
 
23,813

 
24,069

 

 

 
(47,882
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
$
(910
)
 
$
61,695

 
$
5,361

 
$
68,358

 
$
(135,414
)
 
$
(910
)

31


Chiquita Brands International, Inc.
Condensed Consolidating Statement of Operations (Unaudited)
Nine Months Ended September 30, 2013
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
Net sales
 
$

 
$
587,278

 
$
939,662

 
$
1,470,619

 
$
(688,074
)
 
$
2,309,485

Cost of sales
 

 
557,444

 
835,099

 
1,313,194

 
(688,070
)
 
2,017,667

Selling, general and administrative
 
31,851

 
10,696

 
67,203

 
67,477

 

 
177,227

Depreciation
 

 
3,599

 
20,397

 
16,521

 

 
40,517

Amortization
 

 

 
7,007

 
18

 

 
7,025

Equity in losses (earnings) of investees and subsidiaries
 
(67,760
)
 
(85,792
)
 
(43
)
 
(72
)
 
153,595

 
(72
)
Restructuring and relocation costs
 
(15
)
 
264

 
8

 
(3
)
 

 
254

Operating income (loss)
 
35,924

 
101,067

 
9,991

 
73,484

 
(153,599
)
 
66,867

Interest income
 

 
12

 
128

 
2,057

 

 
2,197

Interest expense
 
(16,405
)
 
(27,563
)
 
(701
)
 
(29
)
 

 
(44,698
)
Loss on debt extinguishment
 
(843
)
 
(5,432
)
 

 

 

 
(6,275
)
Other income (expense), net
 
1,037

 
(324
)
 
250

 
655

 
4

 
1,622

Income (loss) before income taxes
 
19,713

 
67,760

 
9,668

 
76,167

 
(153,595
)
 
19,713

Income tax expense
 
(4,050
)
 
(2,643
)
 
(3,547
)
 
267

 
5,923

 
(4,050
)
Net income (loss)
 
$
15,663

 
$
65,117

 
$
6,121

 
$
76,434

 
$
(147,672
)
 
$
15,663


32


Chiquita Brands International, Inc.
Condensed Consolidating Statement of Comprehensive Income (Unaudited)
Nine Months Ended September 30, 2013
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
Net income (loss)
 
$
15,663

 
$
65,117

 
$
6,121

 
$
76,434

 
$
(147,672
)
 
$
15,663

Unrealized foreign currency translation gains
 

 

 

 
(381
)
 

 
(381
)
Realized gains for foreign currency translation on business disposal reclassified into Other income (expense), net
 

 

 

 

 

 

Net other comprehensive income (loss) related to foreign currency translation
 

 

 

 
(381
)
 

 
(381
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of available-for-sale investment
 
157

 

 

 

 

 
157

Realized gains of available-for-sale investment reclassified into Other income (expense), net
 
(561
)
 

 

 

 

 
(561
)
Net other comprehensive income (loss) related to available-for-sale investment
 
(404
)
 

 

 

 

 
(404
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on derivatives for the period
 

 

 

 
(8,308
)
 

 
(8,308
)
Derivative (gains) losses reclassified into Net sales
 

 

 

 
21,328

 

 
21,328

Derivative gains reclassified into Cost of sales
 

 

 

 
(7,267
)
 

 
(7,267
)
Net other comprehensive income (loss) related to derivatives
 

 

 

 
5,753

 

 
5,753

 
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial gains (losses) for the period, net of tax
 

 
841

 

 
(2,289
)
 

 
(1,448
)
Amortization included in pension cost
 

 
372

 

 
646

 

 
1,018

Net other comprehensive income (loss) related to defined benefit pension and severance plans
 

 
1,213

 

 
(1,643
)
 

 
(430
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) of investments in subsidiaries
 
4,942

 
3,729

 

 

 
(8,671
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
$
20,201

 
$
70,059

 
$
6,121

 
$
80,163

 
$
(156,343
)
 
$
20,201



33


Chiquita Brands International, Inc.
Condensed Consolidating Balance Sheet (Unaudited)
(in thousands)
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-Issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and equivalents
 
$

 
$
10,682

 
$

 
$
34,410

 
$

 
$
45,092

Trade receivables, less allowances
 

 
54,729

 
54,525

 
139,363

 

 
248,617

Other receivables, net
 

 
2,066

 
5,412

 
61,267

 
(577
)
 
68,168

Inventories
 

 
10,702

 
30,246

 
167,983

 

 
208,931

Prepaid expenses
 
438

 
5,095

 
8,144

 
28,716

 

 
42,393

Due from affiliates
 
58,317

 
2,244,947

 
1,481,248

 
577,543

 
(4,362,055
)
 

Other current assets
 

 
21,672

 
12,520

 

 
(8,800
)
 
25,392

          Total current assets
 
58,755

 
2,349,893

 
1,592,095

 
1,009,282

 
(4,371,432
)
 
638,593

Property, plant and equipment, net
 

 
16,808

 
195,940

 
187,612

 

 
400,360

Investments and other assets, net
 
21,795

 
11,769

 
4,196

 
75,116

 
(6,437
)
 
106,439

Trademarks
 

 
208,085

 
38,500

 
179,500

 

 
426,085

Goodwill
 

 

 
18,095

 

 

 
18,095

Other intangible assets, net
 

 

 
79,846

 
41

 

 
79,887

Investments in and accounts with subsidiaries
 
1,465,047

 
1,155,566

 
1,246

 

 
(2,621,859
)
 

          Total assets
 
$
1,545,597

 
$
3,742,121

 
$
1,929,918

 
$
1,451,551

 
$
(6,999,728
)
 
$
1,669,459

 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt and capital lease obligations
 
$

 
$
1,500

 
$
1,662

 
$
1,486

 
$

 
$
4,648

Accounts payable
 
8,533

 
5,558

 
92,875

 
141,764

 

 
248,730

Accrued liabilities
 
30,386

 
14,319

 
66,468

 
53,844

 
(9,377
)
 
155,640

Due to affiliates
 
936,986

 
1,761,741

 
1,286,745

 
376,583

 
(4,362,055
)
 

Total current liabilities
 
975,905

 
1,783,118

 
1,447,750

 
573,677

 
(4,371,432
)
 
409,018

Long-term debt and capital lease obligations, net of current portion
 
173,194

 
416,153

 
40,373

 
5,162

 

 
634,882

Accrued pension and other employee benefits
 
14,665

 
2,760

 
4

 
63,965

 

 
81,394

Deferred tax liabilities
 
244

 
66,987

 
46,524

 

 
(6,437
)
 
107,318

Other liabilities
 
3,506

 
8,056

 
9,619

 
37,583

 

 
58,764

Total liabilities
 
1,167,514

 
2,277,074

 
1,544,270

 
680,387

 
(4,377,869
)
 
1,291,376

Commitments and contingencies
 

 

 

 

 

 

Total shareholders' equity
 
378,083

 
1,465,047

 
385,648

 
771,164

 
(2,621,859
)
 
378,083

Total liabilities and shareholders' equity
 
$
1,545,597

 
$
3,742,121

 
$
1,929,918

 
$
1,451,551

 
$
(6,999,728
)
 
$
1,669,459


34


Chiquita Brands International, Inc.
Condensed Consolidating Balance Sheet
(in thousands)
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-Issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and equivalents
 
$

 
$
15,851

 
$

 
$
38,166

 
$

 
$
54,017

Trade receivables, less allowances
 

 
49,325

 
51,189

 
151,554

 

 
252,068

Other receivables, net
 
1,061

 
402

 
5,140

 
49,670

 

 
56,273

Inventories
 

 
15,567

 
34,831

 
160,166

 

 
210,564

Prepaid expenses
 
1,024

 
3,661

 
11,040

 
34,008

 

 
49,733

Due from affiliates1
 
71,604

 
2,060,284

 
1,270,479

 
490,208

 
(3,892,575
)
 

Other current assets
 

 
2,751

 
12,753

 

 
(8,964
)
 
6,540

          Total current assets
 
73,689

 
2,147,841

 
1,385,432

 
923,772

 
(3,901,539
)
 
629,195

Property, plant and equipment, net
 

 
20,258

 
201,346

 
169,169

 

 
390,773

Investments and other assets, net1
 
20,999

 
13,994

 
3,644

 
75,218

 
(5,778
)
 
108,077

Trademarks
 

 
208,085

 
38,500

 
179,500

 

 
426,085

Goodwill
 

 

 
18,095

 

 

 
18,095

Other intangible assets, net
 

 

 
86,853

 
60

 

 
86,913

Investments in and accounts with subsidiaries
 
1,402,089

 
1,073,711

 
3,186

 

 
(2,478,986
)
 

          Total assets
 
$
1,496,777

 
$
3,463,889

 
$
1,737,056

 
$
1,347,719

 
$
(6,386,303
)
 
$
1,659,138

 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt and capital lease obligations
 
$

 
$
1,500

 
$
726

 
$
45

 
$

 
$
2,271

Accounts payable
 
1,126

 
8,150

 
89,352

 
149,645

 

 
248,273

Accrued liabilities1
 
36,511

 
27,420

 
57,984

 
45,083

 
(8,964
)
 
158,034

Due to affiliates1
 
903,865

 
1,520,539

 
1,122,258

 
345,913

 
(3,892,575
)
 

Total current liabilities
 
941,502

 
1,557,609

 
1,270,320

 
540,686

 
(3,901,539
)
 
408,578

Long-term debt and capital lease obligations, net of current portion
 
164,050

 
427,049

 
38,147

 
107

 

 
629,353

Accrued pension and other employee benefits
 
15,223

 
2,818

 

 
59,025

 

 
77,066

Deferred gain - sale of shipping fleet
 

 

 

 
6,290

 

 
6,290

Deferred tax liabilities
 
115

 
66,142

 
42,539

 
661

 
(5,778
)
 
103,679

Other liabilities
 
1,449

 
8,182

 
8,885

 
41,218

 

 
59,734

Total liabilities
 
1,122,339

 
2,061,800

 
1,359,891

 
647,987

 
(3,907,317
)
 
1,284,700

Commitments and contingencies
 

 

 

 

 

 

Total shareholders' equity
 
374,438

 
1,402,089

 
377,165

 
699,732

 
(2,478,986
)
 
374,438

Total liabilities and shareholders' equity
 
$
1,496,777

 
$
3,463,889

 
$
1,737,056

 
$
1,347,719

 
$
(6,386,303
)
 
$
1,659,138

1. 
We revised the December 31, 2013 condensed consolidating balance sheet presented above to correct for items of classification between CBII and CBLLC, the Co-Issuers. These classification items affected the line items indicated in amounts representing less than 1% of both total assets and total liabilities of CBII and CBLLC.


35


Chiquita Brands International, Inc.
Condensed Consolidating Balance Sheet (Unaudited)
(in thousands)
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-Issuer)
 
(Co-issuer)
 
 
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and equivalents
 
$

 
$
8,121

 
$

 
$
63,645

 
$

 
$
71,766

Trade receivables, less allowances
 

 
50,964

 
59,197

 
159,731

 

 
269,892

Other receivables, net
 

 
808

 
5,161

 
60,633

 

 
66,602

Inventories
 

 
9,814

 
40,373

 
184,596

 

 
234,783

Prepaid expenses
 
664

 
2,591

 
8,637

 
35,278

 

 
47,170

Due from affiliates
 
90,543

 
2,022,139

 
1,216,321

 
473,315

 
(3,802,318
)
 

Other current assets
 

 

 
17,096

 
10,197

 
(9,830
)
 
17,463

          Total current assets
 
91,207

 
2,094,437

 
1,346,785

 
987,395

 
(3,812,148
)
 
707,676

Property, plant and equipment, net
 

 
21,211

 
205,755

 
165,918

 

 
392,884

Investments and other assets, net
 
15,245

 
27,077

 
2,393

 
57,445

 
(13,171
)
 
88,989

Trademarks
 

 
208,085

 
38,500

 
179,500

 

 
426,085

Goodwill
 

 

 
18,095

 

 

 
18,095

Other intangible assets, net
 

 

 
89,189

 
65

 

 
89,254

Investments in and accounts with subsidiaries
 
1,388,598

 
1,063,602

 
3,205

 

 
(2,455,405
)
 

          Total assets
 
$
1,495,050

 
$
3,414,412

 
$
1,703,922

 
$
1,390,323

 
$
(6,280,724
)
 
$
1,722,983

 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt and capital lease obligations
 
$

 
$
1,500

 
$
639

 
$
52

 
$

 
$
2,191

Accounts payable
 
1,536

 
6,011

 
101,442

 
174,652

 

 
283,641

Accrued liabilities
 
25,657

 
34,674

 
53,633

 
44,212

 
(9,830
)
 
148,346

Due to affiliates
 
895,730

 
1,460,459

 
1,075,060

 
371,069

 
(3,802,318
)
 

Total current liabilities
 
922,923

 
1,502,644

 
1,230,774

 
589,985

 
(3,812,148
)
 
434,178

Long-term debt and capital lease obligations, net of current portion
 
161,182

 
427,453

 
31,264

 
113

 

 
620,012

Accrued pension and other employee benefits
 
15,016

 
7,363

 

 
59,916

 

 
82,295

Deferred gain - sale of shipping fleet
 

 

 

 
9,823

 

 
9,823

Deferred tax liabilities
 
115

 
79,701

 
39,415

 
5,882

 
(13,171
)
 
111,942

Other liabilities
 
1,505

 
8,653

 
19,168

 
41,098

 

 
70,424

Total liabilities
 
1,100,741

 
2,025,814

 
1,320,621

 
706,817

 
(3,825,319
)
 
1,328,674

Commitments and contingencies
 

 

 

 

 

 

Total shareholders' equity
 
394,309

 
1,388,598

 
383,301

 
683,506

 
(2,455,405
)
 
394,309

Total liabilities and shareholders' equity
 
$
1,495,050

 
$
3,414,412

 
$
1,703,922

 
$
1,390,323

 
$
(6,280,724
)
 
$
1,722,983





36


Chiquita Brands International, Inc.
Condensed Consolidating Statement of Cash Flows (Unaudited)
Nine Months Ended September 30, 2014
(in thousands)
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-Issuer)
 
(Co-Issuer)
 
 
 
Eliminations
 
Consolidated
Cash provided (used) by:
 
 
 
 
 
 
 
 
 
 
 
 
 
$

 
$
14,674

 
$
3,243

 
$
22,754

 
$

 
$
40,671

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 

 
(2,689
)
 
(8,748
)
 
(27,399
)
 

 
(38,836
)
Net proceeds from sale of long-term assets
 

 

 
1,167

 
4,089

 

 
5,256

Investing activity with subsidiaries
 

 
(5,463
)
 
(570
)
 

 
6,033

 

Other, net
 

 

 

 
(3,736
)
 

 
(3,736
)
Investing cash flow
 

 
(8,152
)
 
(8,151
)
 
(27,046
)
 
6,033

 
(37,316
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Repayments of long-term debt and capital lease obligations
 

 
(11,125
)
 
(555
)
 
(34
)
 

 
(11,714
)
Borrowings under the ABL Revolver
 

 
24,000

 

 

 

 
24,000

Repayments of the ABL Revolver
 

 
(24,000
)
 

 

 

 
(24,000
)
Payments for debt modification and issuance costs
 

 
(266
)
 

 

 

 
(266
)
Payments of debt extinguishment costs
 

 
(300
)
 

 

 

 
(300
)
Financing activity with subsidiaries
 

 

 
5,463

 
570

 
(6,033
)
 

Financing cash flow
 

 
(11,691
)
 
4,908

 
536

 
(6,033
)
 
(12,280
)
Increase (decrease) in cash and equivalents
 

 
(5,169
)
 

 
(3,756
)
 

 
(8,925
)
Cash and equivalents, beginning of period
 

 
15,851

 

 
38,166

 

 
54,017

Cash and equivalents, end of period
 
$

 
$
10,682

 
$

 
$
34,410

 
$

 
$
45,092



37


Chiquita Brands International, Inc.
Condensed Consolidating Statement of Cash Flows (Unaudited)
Nine Months Ended September 30, 2013
(in thousands)
 
 
CBII
 
CBLLC
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Company
 
 
(Co-Issuer)
 
(Co-Issuer)
 
 
 
Eliminations
 
Consolidated
Cash provided (used) by:
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(4,420
)
 
$
30,523

 
$
11,469

 
$
54,166

 
$

 
$
91,738

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 

 
(1,984
)
 
(14,751
)
 
(19,430
)
 

 
(36,165
)
Contribution to equity method investment
 

 

 

 
(13,102
)
 

 
(13,102
)
Net proceeds from sale of long-term assets
 
1,819

 

 
7,222

 
2,710

 

 
11,751

Investing activity with subsidiaries
 

 

 
(3,786
)
 

 
3,786

 

Other, net
 

 

 

 
3,559

 

 
3,559

Investing cash flow
 
1,819

 
(1,984
)
 
(11,315
)
 
(26,263
)
 
3,786

 
(33,957
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuances of long-term debt
 

 
429,415

 

 

 

 
429,415

Repayments of long-term debt and capital lease obligations
 

 
(412,425
)
 
(154
)
 
(67
)
 

 
(412,646
)
Borrowings under the ABL Revolver
 

 
36,590

 

 

 

 
36,590

Repayments of the ABL Revolver
 

 
(36,590
)
 

 

 

 
(36,590
)
Repayments of the Credit Facility Revolver
 

 
(40,000
)
 

 

 

 
(40,000
)
Payments for debt modification and issuance costs
 

 
(13,810
)
 

 

 

 
(13,810
)
Financing activity with subsidiaries
 

 
3,698

 

 
88

 
(3,786
)
 

Financing cash flow
 

 
(33,122
)
 
(154
)
 
21

 
(3,786
)
 
(37,041
)
Increase (decrease) in cash and equivalents
 
(2,601
)
 
(4,583
)
 

 
27,924

 

 
20,740

Cash and equivalents, beginning of period
 
2,601

 
12,704

 

 
35,721

 

 
51,026

Cash and equivalents, end of period
 
$

 
$
8,121

 
$

 
$
63,645

 
$

 
$
71,766




38

Table of Contents

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
In the third quarter of 2014, after adjusting for the significant transaction costs (see below), our overall results improved compared to same period of 2013. This improvement was led by our Salads and Healthy Snacks segment that showed an $11 million improvement in operating income compared to the same quarter of 2013. Our new Midwest salad plant has continued to meet its performance targets through the first nine months of 2014, more than recovering the $7 million of startup costs that were incurred in the third quarter of 2013. Our results also reflected packaging efficiency and pricing actions that took effect in July 2014 resulting in increased retail value-added salad pricing, inclusive of product mix. However, the overall segment revenue and results were also adversely affected by reduced raw material supply for our processed fruit ingredient business that mainly sells banana puree and other value-added banana products and lower sales of sliced apple healthy snacks due to changes in customer menus. We also incurred $2 million of costs in the segment in the third quarter of 2014 related to severance, exit of a non-core healthy snacking business and other costs related to product resizing, product discontinuation and overhead savings initiatives.
Our third quarter Banana segment results matched the strong third quarter results we achieved in 2013, though there were differences in the operating conditions and drivers. In the third quarter of 2014, we achieved higher volume in North America and Core Europe (defined below) and higher banana pricing in North America driven by contract pricing gains. Overall pricing in Europe, the Mediterranean and the Middle East improved as volume was shifted to Core Europe. These benefits were offset by higher costs in the quarter. In addition to expected industry cost increases in labor, shipping and paper, our costs also increased due to lower productivity on both our owned and associate producer farms as a result of weather and other factors affecting growing conditions, which in turn forced us to procure more fruit in the Ecuador spot markets, resulting in incremental purchase and transport costs.
In both segments, the weather-impacted results of the first quarter weighed on the results for the nine months. A harsh winter in much of North America impacted first quarter sales volumes for all of our products in this market, increased our logistics costs, reduced raw yields in our salads operations, and challenged our salad manufacturing as raw products were, at times, unable to reach the plants and storms reduced our production schedules. Additionally, unfavorable weather and other conditions across Central America negatively impacted yields on both owned and associate producer banana farms, resulting in larger purchases in the weekly spot market and supply shortages to our North American and European end markets. Finally, stormy conditions in the Atlantic delayed our vessels earlier in 2014, increased our fuel usage, and required incremental vessel charters to fill vacated slots in our fleet rotations. While the winter weather conditions are now behind us, we continued to experience weather-driven volume reductions in Central America through the third quarter, which affected both productivity and banana availability, resulting in higher costs in first nine months of 2014.
We have taken a number of steps to reduce risk and improve operating efficiencies in our core business as we execute our "return to the core" strategy, and are only just beginning to realize the results of these efforts. We have exited several non-core healthy snacking businesses that generated operating losses and distracted management from its core businesses of bananas and salads, and we have redirected that investment back to the core. In our banana business, we have increased the pace of investment in our owned banana farms, which includes replanting and the addition of irrigation, to both increase productivity and reduce the effect of unusual weather patterns. We have sought opportunities to expand controlled banana production, which included the purchase of approximately 450 hectares of production in Honduras in the first quarter of 2014. We have improved infrastructure in certain Latin American port operations to accommodate new shipping rotations and partnerships that we expect to create efficiencies in our value chain beginning in the fourth quarter of 2014. We expanded the surcharge program in our North American banana business in the first quarter of 2014 to include a paper-related surcharge tied to a third party index, mitigating future impacts from another substantial cost input. In our salads business, we implemented price increases and product resizing, both of which took effect in July 2014, to offset industry costs and to return the business to reasonable profit margins. We have also taken a number of steps to reduce overhead expenses, which has resulted in meaningful reductions in our Corporate expenses, excluding the costs related to transactions described below.
Our results are subject to significant seasonal variations and interim results are not indicative of the results of operations for the full fiscal year. Historically, our results during the second half of the year have been 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. We have made strategic changes to our business that we expect to reduce this trend, however, the effect of these seasonal variations can vary significantly from year to year. For a further description of our challenges and risks, see the Overview section of Management's Discussion and Analysis of Financial Condition and Results of Operations and Part I - Item 1A - Risk Factors in our 2013 Annual Report on Form 10-K and discussion below.
Strategic Combination with Fyffes and Cutrale-Safra Definitive Merger Agreement
On March 10, 2014, we announced our intention to combine with Fyffes plc ("Fyffes") and entered into a transaction agreement for the proposed combination, the terms of which were amended on September 25, 2014. A special meeting of our

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shareholders was held on October 24, 2014 in which the shareholders did not approve the amended transaction agreement with Fyffes, therefore Fyffes delivered a notice of termination of the transaction agreement. In connection with the now terminated Fyffes strategic combination, we have incurred significant legal, advisory and other expenses totaling $4 million and $13 million during the quarter and nine months ended September 30, 2014, respectively. In addition, under the terms of the amended transaction agreement and expenses reimbursement agreement, we will pay Fyffes a termination fee of approximately $23 million in November 2014. 
On October 26, 2014, Chiquita entered into a Definitive Merger Agreement ("Merger Agreement") with Cavendish Global Limited ("Cavendish"), a private limited company incorporated under the laws of England and Wales. Cavendish is an affiliate of the Cutrale Group and the Safra Group. Pursuant to the merger agreement, among other things, Cavendish commenced a tender offer on November 4, 2014 to purchase all of the issued and outstanding shares of common stock, par value $0.01 per share, of Chiquita, subject to the conditions set forth in the Merger Agreement, at a purchase price of $14.50 per share. Chiquita's board of directors has unanimously approved the transaction. Pending regulatory approval, the transaction is expected to be finalized by the end of 2014 or in early 2015. In connection with the Merger Agreement, we have incurred legal, advisory and other expenses totaling $4 million for both the quarter and nine months ended September 30, 2014. In connection with the Merger Agreement, we expect to incur approximately $15 million to $25 million of advisory fees and other expenses upon finalization of the transaction. See Note 3 for further information on the strategic combination with Fyffes and Cutrale-Safra Merger Agreement.
Operations
We report three business segments: Bananas; Salads and Healthy Snacks; and Other Produce. Segment descriptions and results can be found in Note 14 to the Condensed Consolidated Financial Statements. Certain corporate expenses are not allocated to the reportable segments and are included in "Corporate costs," including costs related to the proposed combination with Fyffes and the unsolicited offer from the Cutrale Group and the Safra Group. Inter-segment transactions are eliminated. Total amounts may not recalculate due to rounding.
 
Quarter Ended September 30,
 
Better (Worse) Percent Change
 
Nine Months Ended September 30,
 
Better (Worse) Percent Change
(In millions)
2014
 
2013
 
 
2014
 
2013
 
Net sales:
 
 
 
 
 
 
 
 
 
 
 
Bananas
$
477

 
$
456

 
4.7
 %
 
$
1,516

 
$
1,482

 
2.3
 %
Salads and Healthy Snacks
234

 
239

 
(2.0
)%
 
713

 
739

 
(3.5
)%
Other Produce
27

 
28

 
(4.1
)%
 
97

 
88

 
9.5
 %
 
$
739

 
$
723

 
2.1
 %
 
$
2,326

 
$
2,309

 
0.7
 %
Cost of sales1:
 
 
 
 
 
 
 
 
 
 
 
Bananas
$
426

 
$
399

 
(6.6
)%
 
$
1,333

 
$
1,272

 
(4.8
)%
Salads and Healthy Snacks
202

 
215

 
6.0
 %
 
622

 
650

 
4.3
 %
Other Produce
32

 
28

 
(16.5
)%
 
102

 
88

 
(15.6
)%
Corporate costs
3

 
3

 
(9.1
)%
 
8

 
8

 
(0.6
)%
 
$
661

 
$
645

 
(2.8
)%
 
$
2,065

 
$
2,018

 
(2.4
)%
Operating income (loss):
 
 
 
 
 
 
 
 
 
 
 
Bananas
$
18

 
$
18

 
0.5
 %
 
$
82

 
$
101

 
(19.0
)%
Salads and Healthy Snacks
6

 
(5
)
 
221.0
 %
 
10

 
5

 
117.1
 %
Other Produce
(5
)
 
2

 
(305.9
)%
 
(5
)
 
2

 
(344.9
)%
Corporate Costs
(21
)
 
(14
)
 
(49.6
)%
 
(52
)
 
(41
)
 
(25.6
)%
 
$
(1
)
 
$
1

 
(224.7
)%
 
$
36

 
$
67

 
(46.3
)%
1Cost of sales by segment in 2013 has been revised. Operating income by segment has not changed for these periods.
QUARTER ENDED SEPTEMBER 30, 2014 vs. QUARTER ENDED SEPTEMBER 30, 2013
Net Sales. Net sales increased on a consolidated basis by 2.1%.
In our Bananas segment, the increase in net sales was driven by higher volume in North America and Core Europe (defined below) and higher banana pricing in North America. Overall pricing in Europe, the Mediterranean and the Middle East improved as volume was shifted to Core Europe.

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Salads and Healthy Snacks segment sales decreased primarily as a result of lower volume of sliced apple healthy snack sales driven by changes in customer menus, lower processed fruit ingredient sales driven by reduced raw material supply and slightly lower volume of retail value-added salad. These were partially offset by higher retail value-added salad pricing driven by the permanent pricing actions that took effect in July 2014.
Other produce sales decreased primarily as a result of decreased volume and pricing.
Cost of Sales. Cost of sales increased 2.8% on a consolidated basis.
In our bananas business, cost of sales increased primarily due to weather impacts in our growing regions in Central America that reduced productivity on both our owned and associate producer farms and increased the volume purchased in weekly markets, primarily Ecuador. This was in addition to expected increases in industry costs, such as shipping and paper. Related to the 2007 gain on the sale-leaseback of eleven cargo ships, the gain on the sale-leaseback was being amortized to reduce "Cost of sales" over the base term of the leases, each of which expired in mid-2014. The annual amortization of the gain on shipping fleet was $14 million through 2013, with the final $3 million of amortization reducing costs in the second quarter of 2014.
In our Salads and Healthy Snacks segment, cost of sales decreased due to lower volumes as described above, lower cost of sales in our processed fruit ingredient products and the exit of a European healthy snacking business in June 2013. Additionally, our new Midwest salad plant continued to meet its performance targets in the third quarter of 2014 after incurring approximately $18 million in startup costs in 2013, of which $7 million were in third quarter of 2013. The new facility was placed into service in 2013 and replaced three facilities in the same region.
Other produce cost of sales increased due to higher costs of purchased fruit for Europe. The third quarter of 2014 also includes $3 million related to a claim settlement with a former supplier of other produce products that were discontinued in previous periods.
Operating Income. As a result of the items discussed above, improvements in the Salads and Healthy Snacks segment more than offset reductions in the Other Produce segment. Corporate costs in the third quarter of 2014 also included $8 million of combination-related transaction costs for our proposed combination with Fyffes and the unsolicited offer from the Cutrale Group and the Safra Group. Excluding transaction costs, Corporate costs improved due to lower legal fees, medical cost reductions and staffing and operating efficiencies. Corporate costs represent expenses not allocated to the reportable segments, including certain selling, general and administrative costs. Additional detail of the variances are included in the segment discussion below.
NINE MONTHS ENDED SEPTEMBER 30, 2014 vs. NINE MONTHS ENDED SEPTEMBER 30, 2013
Net Sales. Net sales increased on a consolidated basis by 0.7%.
In our Bananas segment, the increase in net sales was driven by higher average pricing in Core Europe (defined below), on a U.S. dollar basis, Mediterranean and Middle Eastern markets and higher banana volume in North America, partly offset by lower volume in Core Europe, Mediterranean and Middle East markets, as we continued to prioritize profitability over volume and reflecting supply shortages in the period.
Salads and Healthy Snacks segment sales decreased primarily as a result of lower processed fruit ingredient sales driven by reduced raw material supply, lower sliced apple healthy snack sales driven by changes in customer menus, lower foodservice volume and the June 2013 exit of a non-core European healthy snacking business that previously represented approximately $12 million of net sales on an annual basis. These declines were partially offset by higher retail value-added salad sales as a result of both volume and pricing, including mix.
Other produce sales increased primarily as a result of higher pineapple volume, primarily in North America.
Cost of Sales. Cost of sales increased 2.4% on a consolidated basis, primarily due to expected industry cost increases, including labor, shipping and paper and due to the effects of weather on both our bananas and salads value chains.
In our bananas business, cost of sales increased primarily due to weather impacts in our growing regions in Central America that reduced productivity on both our owned and associate producer farms and increased the volume purchased in weekly markets, primarily Ecuador. This resulted in incremental fruit and transportation costs, impacted further in the first quarter of 2014 by poor weather in the Atlantic that deferred vessel arrivals, resulting in increased fuel consumption and vessel charters. Related to the 2007 gain on the sale-leaseback of eleven cargo ships, the gain on the sale-leaseback was being amortized to reduce "Cost of sales" over the base term of the leases, each of which expired in mid-2014. The annual amortization of the gain on shipping fleet was $14 million through 2013, with the final $6 million of amortization reducing costs in the first half of 2014. To maintain our shipping rotations, we entered into new time charter arrangements and incurred $5 million of costs in the second quarter of 2014 in connection with the changeover of these vessels, which is expected to be completed in 2014.

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In our Salads and Healthy Snacks segment, our new Midwest salad plant continued to fully meet its performance targets in 2014 after incurring approximately $18 million in startup costs in 2013, of which $15 million were incurred in the first nine months of 2013. The new facility was placed into service in 2013 and replaced three facilities in the same region. Additionally, cost of sales decreased due to lower volumes in our healthy snacks and food service, reduced raw material supply for our processed fruit ingredient products and the exit of a European healthy snacking business in June 2013 partly offset by additional volume of retail value-added salads, discussed above, and harsh winter weather in much of North America during the first quarter of 2014 that adversely affected logistics costs and demand imbalance impacted raw product sourcing in that period.
Other produce cost of sales increased due to higher pineapple volume, primarily in North America and higher costs of purchased fruit for Europe. The third quarter of 2014 also includes $3 million related to a claim settlement with a former supplier of other produce products that were discontinued in previous periods.
Operating Income. As a result of the items discussed above, operating income was lower than 2013, primarily from the challenging first quarter of 2014. Corporate costs in the first nine months of 2014 also included $17 million of combination-related transaction costs for our proposed combination with Fyffes and the unsolicited offer from the Cutrale Group and the Safra Group. Excluding transaction costs, Corporate costs improved due to lower legal fees, medical cost reductions and staffing and operating efficiencies. Corporate costs represent expenses not allocated to the reportable segments, including certain selling, general and administrative costs. Additional detail of the variances are included in the segment discussion below.
BANANA SEGMENT - NET SALES, COST OF SALES AND OPERATING INCOME ANALYSIS
 
Better (Worse)
(In millions)
Q3
 
YTD
2013 Banana segment net sales
$
456

 
$
1,482

Global pricing and geographic product mix
10

 
(3
)
Volume
1

 
3

Average European exchange rates including the effect of hedging
10

 
36

Other

 
(2
)
2014 Banana segment net sales
$
477

 
$
1,516

 
(Better) Worse
(In millions)
Q3
 
YTD
2013 Banana segment cost of sales
$
399

 
$
1,272

Volume
1

 
2

Sourcing and logistics costs1
21

 
59

Average European exchange rates
5

 
8

Tariffs
(2
)
 
(7
)
Other
2

 
(1
)
2014 Banana segment cost of sales
$
426

 
$
1,333

1 
Sourcing costs include the costs of producing fruit in our owned operations and purchasing fruit from third party growers. Logistics costs are significantly affected by source locations of fruit, fuel prices and scale efficiencies and include the effect of bunker fuel hedges, which was a loss of $1 million and a gain of $2 million for the third quarter of 2014 and 2013, respectively, and a loss of $1 million and a gain of $5 million for the nine months ended September 30, 2014 and 2013, respectively.
 
Better (Worse)
(In millions)
Q3
 
YTD
2013 Banana segment operating income
$
18

 
$
101

Change in Banana segment net sales from above
21

 
34

Change in Banana segment cost of sales from above
(27
)
 
(61
)
Selling, general and administrative expenses
4

 
7

Other
1

 
1

2014 Banana segment operating income
$
18

 
$
82


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BANANA SEGMENT METRICS
Volume. Our banana sales volumes1 in 40-pound box equivalents were as follows:
(In millions, except percentages)
Q3 2014
 
Q3 2013
 
% Change
 
YTD 2014
 
YTD 2013
 
% Change
North America
18.8

 
18.1

 
3.8
 %
 
56.8

 
54.1

 
4.9
 %
Europe and the Middle East:
 
 
 
 
 
 
 
 
 
 
 
Core Europe2
7.6

 
7.3

 
4.4
 %
 
25.2

 
25.6

 
(1.7
)%
Mediterranean3
1.8

 
2.6

 
(29.0
)%
 
7.0

 
8.7

 
(18.6
)%
Middle East
1.0

 
1.1

 
(15.1
)%
 
2.8

 
3.2

 
(13.0
)%
Europe and the Middle East
10.4

 
11.0

 
(5.5
)%
 
35.0

 
37.4

 
(6.6
)%
Total volume
29.2

 
29.2

 
0.3
 %
 
91.8

 
91.6

 
0.2
 %
1 
Volume sold represents all banana varieties, including Chiquita to Go, Chiquita minis, organic bananas and plantains.
2  
Core Europe includes the 28 member states of the European Union, Switzerland, Norway and Iceland. Banana sales in Core Europe are primarily in euros but also include other European currencies.
3  
Mediterranean markets are mainly European and Mediterranean countries that do not belong to the European Union.
Pricing. Year-over-year percentage changes in our banana prices for 2014 compared to 2013 were as follows:
 
Q3
 
YTD
North America1
2.2
 %
 
0.3
 %
 
 
 
 
Core Europe:
 
 
 
Local currency
(3.6
)%
 
(1.8
)%
Currency exchange impact
0.4
 %
 
3.3
 %
Core Europe U.S. Dollar Basis2
(3.2
)%
 
1.5
 %
Mediterranean
2.3
 %
 
9.3
 %
Middle East
2.6
 %
 
9.7
 %
Europe and the Middle East
1.1
 %
 
4.5
 %
1  
North America pricing includes surcharges to recover fuel-related and other costs. In 2014, our surcharge was expanded to also recover increases in paper costs.
2 
Prices on a U.S. dollar basis exclude the effect of hedging.
European Exchange Rates. We use hedging instruments (derivatives) to reduce the negative cash flow and earnings effect that any significant decline in the value of the euro would have on the conversion of euro-based revenue into U.S. dollars for up to 18 months in the future. To minimize the volatility that changes in fuel prices could have on the operating results of our core shipping operations, we also use hedging instruments to lock in prices of future bunker fuel purchases for up to three years in the future. Further discussion of hedging risks and instruments can be found under the caption Item 3 – Quantitative and Qualitative Disclosures About Market Risk below and Note 7 to the Condensed Consolidated Financial Statements. The average spot and hedged euro exchange rates were as follows:
(Dollars per euro)
Q3 2014
 
Q3 2013
 
% Change
 
YTD 2014
 
YTD 2013
 
% Change
Euro average exchange rate, spot
$
1.33

 
$
1.32

 
0.9
%
 
$
1.36

 
$
1.32

 
2.8
%
Euro average exchange rate, hedged1
1.35

 
1.28

 
5.5
%
 
1.36

 
1.27

 
6.7
%
1  
Only includes realized hedging gains and losses.

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Year over year increases (decreases) in our results related to the effect of European currency was as follows:
(In millions)
Q3
 
YTD
Net sales:
 
 
 
Change in euro exchange rate
$
2

 
$
21

Change in realized hedging gain (loss)1
6

 
15

Change in unrealized hedging gain2
2

 

Effect on net sales
10

 
36

Local costs increase

 
(4
)
Change in balance sheet translation loss3
(5
)
 
(4
)
Net effect on operating income (loss)
$
4

 
$
28

Table may not total or recalculate due to rounding.
1
Third quarter hedging gain was $1 million in 2014 versus a loss of $5 million in the same period of 2013. For the nine months ended September 30, 2014 the hedging loss was $1 million versus a loss of $16 million recognized in the nine months ended September 30, 2013.
2  
Hedge accounting was terminated prospectively the first quarter of 2013 for certain currency hedges that were transferred to banks participating in our ABL Credit Facility. These unrealized gains and losses were recognized in "Net sales" for positions originally intended to hedge sales in the second and third quarters of 2013. Termination of hedge accounting did not change the economic purpose or effect to reduce uncertainty in the U.S. dollar realization of euro-denominated sales, but did result in unrealized changes in fair value of these hedge positions to be recognized currently in "Net sales" until the hedge positions settled. The third quarter of 2013 included $2 million of unrealized losses in "Net sales" associated with these option contracts. These unrealized changes net to zero in the first nine months of 2013 because all of the affected hedge positions had settled by September 30, 2013.
3
Third quarter balance sheet translation was a net loss of $3 million in 2014 versus a net gain of $2 million in the same period of 2013. For the nine months ended September 30, 2014 the balance sheet translation was a net loss of $6 million versus a net loss of $3 million in the nine months ended September 30, 2013.
BANANA SEGMENT - OTHER INFORMATION
Concentration of Risk. Our primary markets are in North America and Europe, but we also have sales in the Middle East and other markets. The majority of our 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 to Iranian customers are in U.S. dollars and represent $9 million, $17 million and $17 million of "Trade receivables, less allowances" on the Condensed Consolidated Balance Sheet as of September 30, 2014December 31, 2013 and September 30, 2013, respectively. Even though the sales in Iran are permitted, the international sanctions against Iran affected the ability of Iranian customers to pay invoices within terms because it became 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, our receivable balance with these customers increased, and we have established payment plans with each of these customers to reduce their balances. Certain customers have so far been able to find acceptable methods of payment to comply with their payment plans. However, some customers have not, and as a result, we recorded a reserve of $9 million in 2012, with an additional $2 million in 2013 as a result of further delinquency and other repayment risk. We source bananas from the Philippines for sale in the Middle East under a committed-volume, long term purchase contract with a former joint venture partner through 2016. To mitigate risk, we have reduced the amount of volume being sent to the Middle East and have developed customers in other Middle Eastern markets. However, Iran remains an important market for our Philippine-sourced bananas.
Import Regulations. Bananas imported into the European Union ("EU") from Latin America, our primary source of fruit, are subject to a tariff, while bananas imported from African, Caribbean and Pacific sources continue to enter the EU tariff-free. In 2009, the EU and 11 Latin American countries reached the World Trade Organization ("WTO") Geneva Agreement on Trade in Bananas ("GATB"), under which the EU agreed to reduce tariffs on Latin American bananas annually, from €176 per metric ton ending with a rate of €114 per metric ton by 2019. The GATB resulted in tariff rates per metric ton of €143 in 2011, €136 in 2012 and €132 in both 2013 and 2014, respectively. The EU also signed a WTO agreement with the United States, under which it agreed not to reinstate WTO-illegal tariff quotas or licenses on banana imports.
In another regulatory development, in June 2012, the EU signed free trade area ("FTA") agreements with (i) Colombia and Peru and (ii) the Central American countries. Under both FTA agreements, the EU committed to reduce its banana tariff to €75 per metric ton over ten years for specified volumes of banana exports from each of the countries covered by these FTAs, and further required that the banana volumes assigned to each country under the Central American FTA be administered through export licenses. Implementation of an export license system in the 1990's (subsequently ruled illegal) significantly increased our logistics and other export costs. The EU implemented its FTA with Peru on March 1, 2013; its FTAs with

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Panama, Honduras, Nicaragua, and Colombia on August 1, 2013; its FTAs with Costa Rica and El Salvador on October 1, 2013; and its FTA with Guatemala on December 1, 2013. Because questions remain over how the banana volume and export licensing rules will be applied over time, it is still unclear what, if any, effect the newly implemented FTAs will have on our operations.
On July 17, 2014, the EU also closed a trade agreement with Ecuador, which still needs to be signed and ratified by the governments before it takes effect. According to unofficial reports, the agreement grants bananas from Ecuador roughly the same reduced EU tariffs and country-specific volumes entitled to those rates that the EU-Colombia FTA grants to bananas from Colombia. It is still not clear if or when the EU-Ecuador agreement will be ratified, but the governments are projecting that implementation will occur in mid-2016. Until the governments fully disclose and implement the agreement's banana provisions the agreement's effect on our operations, if any, will remain unclear.
SALADS AND HEALTHY SNACKS SEGMENT - NET SALES, COST OF SALES & OPERATING INCOME ANALYSIS
 
Better (Worse)
(In millions)
Q3
 
YTD
2013 Salads and Healthy Snacks segment net sales
$
239

 
$
739

Pricing including mix:
 
 
 
Retail value-added salads
4

 
6

Healthy snacks, foodservice and other
1

 
(2
)
Volume:
 
 
 
Retail value-added salads
(1
)
 
4

Healthy snacks, foodservice and other
(8
)
 
(18
)
Processed fruit ingredient products, primarily volume
(2
)
 
(14
)
Exit of European healthy snacking businesses

 
(7
)
Other
1

 
5

2014 Salads and Healthy Snacks segment net sales
$
234

 
$
713

 
(Better) Worse
(In millions)
Q3
 
YTD
2013 Salads and Healthy Snacks cost of sales
$
215

 
$
650

Volume:
 
 
 
Retail value-added salads
(1
)
 
3

Healthy snacks, foodservice and other
(6
)
 
(14
)
Mix:
 
 
 
Retail value-added salads
3

 
7

Healthy snacks, foodservice and other
1

 
2

Industry input and manufacturing costs:
 
 
 
Retail value-added salads
(6
)
 
(6
)
Healthy snacks, foodservice and other
(3
)
 
(11
)
Processed fruit ingredient products, primarily volume
(2
)
 
(8
)
Exit of European healthy snacking businesses

 
(6
)
Other
1

 
5

2014 Salads and Healthy Snacks cost of sales
$
202

 
$
622


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Table of Contents

 
Better (Worse)
(In millions)
Q3
 
YTD
2013 Salads and Healthy Snacks segment operating income
$
(5
)
 
$
5

Change in Salads and Healthy Snacks segment net sales from above
(5
)
 
(26
)
Change in Salads and Healthy Snacks segment cost of sales from above
13

 
28

Selling, general and administrative, including marketing
3

 
2

Other

 
1

2014 Salads and Healthy Snacks segment operating income
$
6

 
$
10

SALADS AND HEALTHY SNACKS SEGMENT METRICS
Volume and average price per case for our retail value-added salads was as follows:
(In millions, except percentages)
Q3 2014
 
Q3 2013
 
% Change
 
YTD 2014
 
YTD 2013
 
% Change
Volume of 12-count cases
12.1

 
12.2

 
(0.6
)%
 
37.3

 
36.9

 
0.9
%
Average price per case including mix1
 
 
 
 
3.3
 %
 
 
 
 
 
2.0
%
1  
Average price per case includes fuel-related and other surcharges. Fuel surcharges generally reset quarterly based on the previous quarter's average fuel index prices.
SALADS AND HEALTHY SNACKS SEGMENT - OTHER INFORMATION
In June 2012, we entered into a 20-year lease agreement for a salad production and warehousing facility in the Midwest that replaced three existing facilities in the region. The lease agreement contains two 5-year extension periods. The plant was phased into service during 2013, and the construction costs were finalized on March 31, 2014 resulting in an interest rate of 6.3% to calculate the capital lease liability and future payments. Lease payments will increase annually based on CPI. The total liability related to this facility was $42 million, $38 million and $38 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively, of which approximately $1 million was current at each of those dates. At September 30, 2014 and December 31, 2013, this liability was included as a capital lease obligation on the Condensed Consolidated Balance Sheets. At September 30, 2013, $31 million was included as a capital lease obligation corresponding to the portion of the leased facility that was placed into service and $1 million and $6 million obligations corresponding to the construction in progress of the leased facility were included in "Accrued liabilities" and "Other liabilities", respectively. Though the construction costs were financed by the lessor, we acted as the construction agent and were responsible for all construction activity during the construction period because of the specialized nature of the facility. As a result, we were treated as the owner for accounting purposes during the construction period. Our new Midwest salad plant fully met its performance targets in the first nine months of 2014 after incurring approximately $18 million in startup costs in 2013, of which $7 million were incurred in the third quarter of 2013 and $15 million were incurred in the first nine months of 2013.
INTEREST AND LOSS ON DEBT EXTINGUISHMENT
Interest expense was $16 million and $15 million for the quarters ended September 30, 2014 and 2013, respectively, and $46 million and $45 million for the nine months ended September 30, 2014 and 2013, respectively. Loss on debt extinguishment in the first nine months of 2014 relates to the redemption of $10 million of the 7.875% Senior Secured Notes due 2021 ("7.875% Notes") on January 31, 2014. On February 5, 2013, we issued $425 million of 7.875% Notes, entered into a new asset-based lending facility and used the entire proceeds to retire the 7.5% senior notes due 2014 and a credit facility. Loss on debt extinguishment in the first nine months of 2013 resulted from the write-off of deferred financing fees related to the debt that was extinguished.
OTHER INCOME (EXPENSE), NET
In the first quarter of 2014, we disposed of a non-core healthy snacking business in Europe, resulting in a loss of $3 million, which was recorded in "Other income (expense), net," which was not allocated to the segment results. Of this loss, $1 million related to cash payments upon disposal. This business represented approximately $2 million in annual net sales and had an insignificant effect on operating income.
In the second quarter of 2013, we sold another non-core healthy snacking business in Europe for €3 million ($4 million) resulting in a gain of $1 million recognized in "Other income (expense), net," which was not allocated to the segment results. This business represented approximately $12 million per year in annual sales and had an insignificant effect on operating income.

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In October 2014 we disposed of the non-core healthy snacking operations in China that represented approximately $4 million in annual sales and had an insignificant effect on operating income.
INCOME TAXES
Income taxes were a net expense of $1 million and $4 million for the quarters ended September 30, 2014 and 2013, respectively, and $10 million and $4 million for the nine months ended September 30, 2014 and 2013, respectively. For the quarters and nine months ended September 30, 2014 and 2013 the difference in the overall effective tax rate from the U.S. statutory rate is due to the existence of valuation allowances in the U.S. and other jurisdictions, as well as the mix of earnings across various jurisdictions and discrete tax items. See further details in Note 11 to the Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
We believe our cash position, cash flow generated by operating subsidiaries and borrowing capacity under our ABL Facility (defined below) will provide sufficient cash reserves and liquidity to fund our working capital needs, capital expenditures and debt service requirements for at least twelve months. At September 30, 2014, we had a cash balance of $45 million and no borrowings under the ABL Revolver (defined below), under which $84 million was available after $25 million was used to support letters of credit. In connection with both the termination of the transaction agreement with Fyffes and finalization of the Merger Agreement with Cavendish, we expect to incur a termination fee and legal, advisory and other costs aggregating to between $40 and $50 million, which we will fund from available cash and availability under our ABL Revolver. These costs are in addition to those that were incurred during the quarter and nine months ended September 30, 2014.
A subsidiary has a committed credit line of approximately €6 million ($7 million) for bank guarantees used primarily for payments due under import licenses and duties in European countries, and we have €6 million ($7 million) of cash equivalents in compensating balance arrangements related to this committed credit line.
In February 2013, we issued $425 million of 7.875% senior secured notes due February 1, 2021 ("7.875% Notes") at 99.274% of par and entered into a 5-year secured asset-based lending facility ("ABL Facility"). The $457 million of net proceeds from issuance of the 7.875% Notes and the initial borrowings of the ABL Facility were used to retire the then-outstanding Credit Facility and the 7½% Senior Notes at par plus accrued interest. This refinancing significantly extended our debt maturities and reduced the cash required for debt service over the next several years, while still providing the ability to reduce debt with excess cash flow. In January 2014 we redeemed $10 million of the 7.875% Notes at 103% of the principal amount, plus interest to the redemption date.
The ABL Facility consists of a revolver (the "ABL Revolver") and a $7.5 million term loan (the "ABL Term Loan") and matures at the earlier of February 5, 2018 or 60 days prior to the maturity of our existing 4.25% Convertible Senior Notes due August 15, 2016, unless such notes have been satisfactorily refinanced. The ABL Facility has a maximum borrowing capacity of $150 million, with the ABL Revolver subject to a borrowing base calculation based on specified percentages of our domestic accounts receivable, certain inventory and certain domestic machinery and equipment with the potential for additional advances against foreign accounts receivable. To fund seasonal working capital needs, we borrowed and repaid $24 million under the ABL Revolver in the first nine months of 2014. There are no borrowings under the ABL Revolver as of the date of this filing. The ABL Term Loan requires annual repayments of approximately $2 million.
In the first quarter of 2014, we purchased a group of banana farms in Honduras that were adjacent to farms that we already owned. The purchase included approximately 700 hectares of land, of which nearly 450 hectare are in production, as well as related buildings and equipment. The purchase price was $10 million, of which $3 million was paid at closing and the remaining $7 million was financed by the sellers. Our debt to the sellers is payable in annual installments over four years. The agreement did not specify an interest rate, and we calculated the debt balance using the effective rate method and an estimated interest rate of 8%.
See further information regarding the terms, description of the security and restrictions of our debt arrangements in Note 6 to the Condensed Consolidated Financial Statements.
Cash provided (used) by operations was $41 million and $92 million for the nine months ended September 30, 2014 and 2013, respectively. Changes in cash flow from operations were primarily driven by changes in operating income.
Cash flow used in investing activities includes capital expenditures of $39 million and $36 million for the nine months ended September 30, 2014 and 2013, respectively. We made a contribution of €10 million ($13 million) in the third quarter of 2013 that fully discharged our financial obligations to the Danone JV, which we exited upon making these contributions. We had fully accrued these obligations in 2012.
Depending on fuel prices, we can have significant obligations or amounts receivable under our bunker fuel forward arrangements, although we would expect any liability or asset from these arrangements to be offset by the purchase price of fuel. At September 30, 2014, December 31, 2013 and September 30, 2013, our bunker fuel forward contracts were a net asset

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(liability) of $(3) million, $1 million and less than $(1) million, respectively. Depending on euro exchange rates, we can have significant obligations or amounts receivable under our euro-based currency hedging contracts, although we would expect any liability or asset from these contracts to be more than offset by an increase in the dollar realization of the underlying euro-denominated sales. At September 30, 2014, December 31, 2013 and September 30, 2013, our euro-based currency hedging contracts were a net asset (liability) of $22 million, $(5) million and $(10) million, respectively. The amount ultimately due or receivable will depend upon fuel prices for our bunker fuel forward arrangements or the exchange rate for our euro-based hedging contracts at the dates of settlement. See Quantitative and Qualitative Disclosures About Market Risk below and Note 7 and Note 8 to the Condensed Consolidated Financial Statements for further information about our hedging activities. We expect operating cash flows will be sufficient to cover hedging obligations, if any.
We face certain contingent liabilities which are described in Note 15 to the Condensed Consolidated Financial Statements; in accordance with generally accepted accounting practices, reserves have not been established for most of the ongoing matters, even when we have been required to deposit payments to preserve our right to appeal some of the Italian customs and tax cases. In connection with these contingent liabilities, we have been required to deposit payments in installments totaling €40 million ($50 million) through 2019 to preserve our right to appeal the customs and tax assessments. Of these assessments, we have deposited €27 million ($34 million) through September 30, 2014, which is included in "Investments and other assets, net" on the Condensed Consolidated Balance Sheet pending resolution of the appeals process. Based on rulings described in Note 15 to the Condensed Consolidated Financial Statements, approximately €2 million ($2 million) deposited for customs and tax assessments in Genoa was applied to deposit requirements in other jurisdictions. The remaining installment plans call for annual deposit payments of approximately €4 million ($6 million) 2014 through 2016, €4 million ($5 million) in 2017 and less than €1 million ($1 million) in 2018 and 2019; however, if we ultimately prevail in these cases, any deposits we have made are also expected to be refunded with interest. Because court rulings have varied, we have not been assessed in similar matters in other jurisdictions, but may be required to make additional payments based on future appeals or court rulings. We presently expect that we would use existing cash and borrowing resources together with operating cash flow to satisfy any such liabilities. It is possible that in future periods we could have to pay damages or other amounts in excess of the installment plans, the exact amount of which would be at the discretion of the applicable court or regulatory body.
In 2012, as a result of a favorable decision from a court in Salerno, Italy, we received €20 million ($26 million) related to a refund claim we had made with respect to certain consumption taxes paid between 1980 and 1990, and the cash received has been deferred to "Other liabilities" pending final result of the appeal process. If we were to lose on appeal, we may be required to repay the consumption tax refunds received with interest.
Also as described in Note 15 to the Condensed Consolidated Financial Statements, in connection with a court judgment against one of our insurance carriers, National Union, we have received $12 million through September 30, 2014 from National Union for defense costs in certain matters. In March 2013, the Ohio Court of Appeals ruled that National Union is not obligated to provide coverage for these defense costs and 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. In June 2014, after remand from the Ohio Court of Appeals the trial court ruled that National Union is entitled to reimbursement of the defense costs that it has already paid. The company expects to appeal that ruling. We have deferred these cash receipts, and an additional $1 million of interest, in "Accrued liabilities" pending resolution of the appeals process.
We have not made dividend payments since 2006. Many of our debt instruments, including the 7.875% Notes and the ABL Facility, which are described in Note 6 to the Condensed Consolidated Financial Statements, impose limitations on CBII's ability to pay dividends on its common stock. At September 30, 2014, we were in compliance with each of our debt instruments and expect to remain in compliance for at least twelve months. In connection with the Merger Agreement with Cavendish, we made customary representations and warranties, and agreed to customary covenants limiting our ability to, among other things: 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 proposed Merger Agreement is expected to be completed before the end of 2014 or early 2015.
Risks of International Operations
We operate in many foreign countries, including China and Russia and countries in Central America, Europe, the Middle East and Africa. Our activities are subject to risks inherent in operating in these countries, including government regulation, currency restrictions, fluctuations and other restraints, import and export restrictions, burdensome taxes, additional tax assessments in foreign jurisdictions, risks of expropriation, threats to employees, political and economic instability, terrorist activities including extortion, and risks of U.S. and foreign governmental action in relation to us. Under certain circumstances, we might need to curtail, cease or alter our activities in a particular region or country. Trade restrictions apply to certain countries and certain parties under various sanctions, laws and regulations; our sales into Iran and Syria must be and are authorized by the U.S. government pursuant to these regulations, which generally or by specific license allow sales of our food

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products to those countries. In order to avoid transactions with parties subject to trade restrictions, we screen parties to our transactions against relevant trade sanctions lists.
See Note 15 to the Condensed Consolidated Financial Statements for a further description of legal proceedings and other risks including, in particular, (1) the civil litigation and investigations relating to payments made by our former Colombian subsidiary to a Colombian paramilitary group and (2) customs and tax proceedings in Italy.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2013.
New Accounting Standards
See Note 16 to the Condensed Consolidated Financial Statements for information on relevant new accounting standards.
* * * * *
This quarterly report contains certain statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, including: the customary risks experienced by global food companies, such as prices for commodity and other inputs, currency exchange rate fluctuations, industry and competitive conditions (all of which may be more unpredictable in light of continuing uncertainty in the global economic environment), government regulations, food safety issues and product recalls affecting the company or the industry, labor relations, burdensome taxes, additional tax assessments in foreign jurisdictions, political instability and terrorism; challenges in implementing the relocation of our corporate headquarters and other North American corporate functions to Charlotte, North Carolina; challenges in our ability to achieve cost savings and other benefits from restructuring and strategic changes; unusual weather events, conditions or crop risks; continued ability to access the capital and credit markets on commercially reasonable terms and comply with the terms of our debt instruments; access to and cost of financing; the risk that the acquisition by Cutrale-Safra does not occur; and the outcome of pending litigation and governmental investigations involving the company, as well as the legal fees and other costs incurred in connection with such items.
The forward-looking statements speak as of the date made and are not guarantees of future performance. Actual results or developments may differ materially from the expectations expressed or implied in the forward-looking statements, and we undertake no obligation to update any such statements.
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Reference is made to the discussion under Management's Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Management – Financial Instruments in our 2013 Annual Report on Form 10-K. As of September 30, 2014, the only material changes from the information presented in the Form 10-K are contained in the information provided below.
Our products are distributed in nearly 70 countries. International sales are made primarily in U.S. dollars and major European currencies. We reduce currency exchange risk from sales originating in currencies other than the U.S. dollar by exchanging local currencies for dollars promptly upon receipt. We consider our exposure, current market conditions and hedging costs in determining when and whether to enter into new hedging instruments to hedge the dollar value of our estimated euro net sales up to 18 months into the future. We may use average rate put options, average rate collars (an average rate put option paired with an average rate call option) and average rate forward contracts to manage our exposure to euro exchange rates. Average rate 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 call options sold by us 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. We may use average rate call options to reduce the cost of currency hedging coverage. In some cases, we may simulate an average rate forward contract by entering into an average rate put and an average rate call at the same strike rate to lock in the future exchange rate of the notional amount ("synthetic average rate forward"). These instruments do not require upfront premium payments. We expect that any loss on these contracts would be more than offset by an increase in the dollar realization of the underlying sales denominated in foreign currencies.
At October 28, 2014, we had:
Average rate collars for approximately 30% of our expected net sales for the remainder of 2014 and approximately 25% of our expected net sales through September 2015 that protect from a decline in the exchange rate below $1.32 per euro and $1.34 per euro, respectively, and limit the benefit of an increase in the exchange rate above $1.40 per euro and $1.41 per euro, respectively.

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Average rate forwards and synthetic average rate forwards that lock in the value of the euro for approximately 50% of our expected net sales for the remainder of 2014 and approximately 25% of our expected net sales through September 2015 at $1.36 per euro and $1.37 per euro, respectively.
Our shipping operations are exposed to the risk of rising fuel prices. To reduce the risk of rising fuel prices, we maintain a fuel surcharge program on sales in North America, and we enter into bunker fuel forward contracts (swaps) that allow us to lock in fuel prices for our European shipping rotations up to three years in the future. Bunker fuel forward contracts can offset increases in market fuel prices or can result in higher costs from declines in market fuel prices, but in either case reduce the volatility of changing fuel prices on our results. The price we pay to ship bananas and other produce in container equipment on board third parties' container ships includes an adjustment for fuel costs that is not subject to our hedging program. At September 30, 2014, we had deferred losses on bunker fuel hedges included in "Accumulated other comprehensive income (loss)" of $1 million and $2 million that are expected to increase our cost of bunker fuel in 2014 and 2015, respectively, and represent coverage for expected fuel purchases of approximately 70% and 65%, respectively, for our European shipping rotation.
We carry hedging instruments at fair value on our Consolidated Balance Sheets. The fair value of the currency hedge portfolio and bunker fuel forward contracts was a net asset (liability) of $18 million, $(4 million) and $(10) million at September 30, 2014, December 31, 2013, and September 30, 2013, respectively. A hypothetical 10% increase in the euro currency rates would have resulted in a decline in fair value of the currency hedge portfolio of approximately $28 million at September 30, 2014. However, we expect that any loss on these put and call options would be more than offset by an increase in the dollar realization of the underlying sales denominated in euros. A hypothetical 10% decrease in bunker fuel rates would result in a decline in fair value of the bunker fuel forward contracts of approximately $4 million at September 30, 2014. However, we expect that any decline in the fair value of these contracts would be offset by a decrease in the cost of underlying fuel purchases.
See Note 7 to the Condensed Consolidated Financial Statements for additional discussion of our hedging activities. See Note 8 to the Condensed Consolidated Financial Statements for additional discussion of fair value measurements.
DEBT INSTRUMENTS
Although the Condensed Consolidated Balance Sheets do not present debt at fair value, we have a significant amount of fixed-rate debt whose fair value could fluctuate as a result of changes in prevailing market rates. At September 30, 2014, we had $615 million principal balance of fixed-rate debt, which included the 7.875% Notes and the 4.25% Convertible Senior Notes. The $200 million principal balance of the Convertible Notes is greater than their $173 million carrying value due to the accounting standards for convertible notes such as ours that are described in Note 6 to the Condensed Consolidated Financial Statements. The $415 million principal balance of the 7.875% Notes is greater than their $412 million carrying value due to the related discount that will be amortized over the life of the 7.875% Notes. A hypothetical 0.50% increase in interest rates would have resulted in a decline in the fair value of our fixed-rate debt of approximately $12 million at September 30, 2014.
The refinancing activities in 2013 significantly reduced our exposure to changes in variable interest rates to a nominal amount.
Item 4 – Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended, are (a) accumulated and communicated to our management to allow timely decisions regarding required disclosure and (b) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. An evaluation was carried out by management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness as of September 30, 2014 of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of that date.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes during the quarter ended September 30, 2014 in our internal control over financial reporting, as defined in Rule 13a-15f under the Exchange Act that have materially affected or are reasonably likely to affect our internal control over financial reporting.

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PART II – Other Information
Item 1 – Legal Proceedings
The information included in Note 15 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q regarding the Colombia Related Matters and the Italian Customs and Tax Cases is incorporated by reference into this Item.
On October 7, 2014, a purported shareholder of Chiquita filed a putative class action in Federal Court in New Jersey challenging the combination of Chiquita and Fyffes. The case is captioned City of Birmingham Firemen's and Policemen's Supplemental Pension System v. Chiquita Brands International Inc., et al., Case Number 14-6200-NLH-AMD (D.N.J.). The action names as defendants Chiquita and each of the members of the Chiquita board of directors. The plaintiff alleges, among other things, that the Chiquita board of directors breached its fiduciary duties in various respects concerning the combination and the unsolicited Cutrale/Safra proposal. On October 16, 2014, the judge in the case entered an order that, among other things, denied plaintiff's request for expedited discovery and required the parties to appear for a show cause hearing on October 23, 2014, on plaintiff’s application for a preliminary injunction regarding the combination.
On October 21, 2014, plaintiff voluntarily withdrew its application for a preliminary injunction and notified the court that it will instead pursue a damages action. Under the current scheduling order the plaintiff has until November 21, 2014 to file an amended complaint.  Chiquita and its board of directors believe that the claims asserted against them by the plaintiff are without merit and will defend this case vigorously.
Item 1A – Risk Factors
For a discussion of risk factors attributable to our business, refer to Part 1, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no material changes to the risk factors disclosed in the Annual Report, except for the risks and uncertainties related to the Cutrale-Safra definitive merger agreement discussed in the Schedule 14D-9 that we filed with the SEC on November 4, 2014, including those set forth under “Cautionary Statement Concerning Forward-Looking Statements,” which are incorporated by reference herein.

Item 6 – Exhibits
*Exhibit 10.1 – Amendment to Employment Agreement between Chiquita Brands International, Inc. and Edward F. Lonergan dated as of September 8, 2014 (Exhibit (e)(12) to Schedule 14D-9 filed November 4, 2014)
*Exhibit 10.2 – Restricted Stock Unit Award Agreement from Chiquita Brands International, Inc. to Edward F. Lonergan, dated as of September 8, 2014, with respect to an aggregate 79,412 shares of Common Stock (Exhibit (e)(9) to Schedule 14D-9 filed November 4, 2014)
*Exhibit 10.3 – Form of Change in Control Severance Agreement being used on and after August 22, 2014 (Exhibit (e)(15) to Schedule 14D-9 filed November 4, 2014)
Exhibit 31.1 – Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Exhibit 31.2 – Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Exhibit 32 – Section 1350 Certifications
Exhibit 101.INS – XBRL Instance Document
Exhibit 101.SCH – XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL – XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF – XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.PRE – XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 101.LAB – XBRL Taxonomy Extension Label Linkbase Document
* Incorporated by reference.


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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.
 
CHIQUITA BRANDS INTERNATIONAL, INC.
 
 
 
 
 
By:
 
 
 
 
 
 
 
Vice President and Chief Accounting Officer
November 6, 2014

52

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
2/1/21
2/5/18
8/15/16
8/14/16
5/15/16
2/5/16
2/1/16
1/1/15
11/21/14
Filed on:11/6/148-K
11/4/14SC 14D9,  SC TO-T
10/28/148-K
10/26/148-K
10/24/144,  425,  8-K
10/23/14425,  8-K,  DFAN14A
10/21/14425,  8-K,  DFAN14A
10/16/14425,  8-K,  DFAN14A,  DFRN14A
10/7/14
For Period end:9/30/144,  DFAN14A
9/25/148-K,  DFRN14A
9/8/144,  425,  8-K,  DFAN14A
8/22/14
7/17/14
6/30/1410-Q,  4
3/31/1410-Q,  4,  CORRESP,  UPLOAD
3/10/14425,  8-K
2/4/14
1/31/14
1/6/14EFFECT
1/1/14
12/31/1310-K,  11-K,  ARS
12/1/13
10/1/13
9/30/1310-Q
8/1/13
6/30/1310-Q
3/1/13
2/5/138-K
12/31/1210-K,  10-K/A,  11-K,  ARS
 List all Filings 
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