 
2002 Annual Report
Notes to Consolidated Financial Statements (2-8)
Note 2. Prior Year Restatement (Unaudited)
The Company has restated prior year's financial statements to reflect the accrual of additional pension liability in relation to one of its employee pension plans, and as such, the accompanying consolidated financial statements as of October 31, 2001 and for the year then ended, and all disclosures in the notes to the consolidated financial statements, are unaudited. The impact of this adjustment to the 2001 financial statements was a decrease in members' equity totaling $3.9 million, an increase in pension liability totaling $5.1 million, and an increase in other assets totaling $1.2 million. (See Note 16. "Retirement Plans and Other Benefits" for additional information regarding the Company's pension liability).
In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly its consolidated financial position as of October 31, 2001 and the results of its operations and cash flows for the year then ended.
Note 3. Receivables - Trade and Other - net
Licensing receivables are royalty fees due from third parties for the use of the SUNKIST brand under the Company's trademark licensing program.
Under certain circumstances, packinghouses are allowed to borrow against their uncollected fruit shipments. Interest (5.25 percent at October 31, 2002) is charged on such loans and the amount of such borrowings varies from time to time, depending on the needs of the respective packinghouses.
Other receivables include leased equipment and wax service receivables in the Company's Research and Technical Services division (the "Research Division") and receivables due to the Company's foreign subsidiaries from their customers.
Note 4. Advances in Excess of Margins Earned
Advances in excess of margins earned result from certain general and administrative costs that are incurred on inventory that will be sold in subsequent years. As the products inventory is sold and the product pools closed, realized margins are offset against such advances.
In fiscal 2002, a $6.25 million cash rebate paid in conjunction with a long-term sales agreement and recorded as a reduction of fruit products sales revenue, increased advances in excess of margins earned due to a timing difference between the date the rebate was paid and the date of corresponding sales under the sales agreement.
Note 5. Inventory - net
Fruit products inventory included a total of $3.9 million and $13 million of gross fruit value at October 31, 2002 and 2001, respectively.
Note 6. Investments
Debt and equity securities are held in a fund principally to satisfy future retirement obligations to participants under the Company's non-qualified deferred compensation and supplemental retirement plans. (See Note 12. "Long-term Obligations" for additional information). The securities are classified as trading and are stated at fair value as determined by quoted market prices. The Company recorded $379,000 of unrealized loss on investments in 2002, compared to $739,000 of unrealized loss in 2001. Investment losses and gains on deferred compensation plan assets are significantly offset by decreases and increases in amounts due participants in the deferred compensation plan.
Sunkist Real Estate, Inc. ("SREI") is a joint venture of Sunkist and Fruit Growers Supply Co. ("FGS"), each of which owns a 50 percent interest in SREI. SREI provides real estate advisory services and financing to members and prospective members. Such services are made available as a means of attracting additional citrus acreage to and retaining existing acreage within the Sunkist system.
The joint venture was initially capitalized by investments of $2.0 million each from Sunkist and FGS. The investment is accounted for under the equity method of accounting.
Note 7. Property - net
Included in machinery, equipment and fixtures for 2002 is $15.3 million pertaining to the construction of the tank farm. (See Note 1. "Organizational Structure and Significant Accounting Policies - Principles of Consolidation" for additional information).
Depreciation and amortization expense was $6.2 million for 2002 and $5.6 million for 2001.
The Company's Research Division builds various types of packinghouse machinery and equipment which it leases to both member and non-member packinghouses. In addition, the Company leases excess office space at its corporate headquarters location to various tenants. All such leases are classified as operating leases under the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases." Rental income recognized on these leases totaled $6.7 million and $6.8 million in 2002 and 2001, respectively, and is included in other revenues in the Consolidated Statements of Operations and Comprehensive (Loss) Income. At October 31, 2002, the Company's minimum future rental income on non-cancelable operating leases, for the years indicated, was as follows: $5.0 million for 2003; $1.5 million for 2004; $633,000 for 2005; $443,000 for 2006; and $125,000 for 2007. These minimum future amounts do not include contingent rentals, which may be received under certain leases of equipment on the basis of the amount of fruit handled on such equipment. Such income totaled $550,000 and $654,000 in 2002 and 2001, respectively.
The Company's investment in equipment leased to packinghouses subject to these operating leases totaled $16.8 million as of October 31, 2002, and is included in machinery, equipment, and fixtures in the above table. Accumulated depreciation on such assets totaled $12.4 million as of October 31, 2002.
Note 8. Other Assets
Other assets as of October 31, 2002 and 2001 includes $18.8 million and $14.2 million, respectively, of purchased lemon oil, as part of an agreement with an outside party, and $4.7 million and $5.0 million, respectively, of unamortized cost related to a payment made to one of the Company's customers. (See Note 14. "Commitments and Contingencies" for additional information). Also included in other assets as of October 31, 2002 and 2001, is an intangible asset of $1.1 million and $1.2 million, respectively, that was recognized in conjunction with the accrual of additional pension liability. (See Note 16. "Retirement Plans and Other Benefits" for additional information).
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