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2002 Annual Report
Notes to Consolidated Financial Statements (9-13)

Note 9. Short-term Obligations

Short-term obligations outstanding as of October 31, 2002 and 2001 includes $2.9 million and $3.4 million, respectively, relating to the Company's deferred payment program, under which member and affiliated packinghouses may request that the Company defer, on a short-term basis, fruit and other payments that are otherwise due them. Such future payments, and the interest thereon (1.18 percent at October 31, 2002), are made by the Company at the request of the respective packinghouses.

In addition, short-term obligations outstanding as of October 31, 2002 and 2001 includes $4.2 million and $1.1 million, respectively, of bank overdrafts resulting from normal delays in the presentation of checks for payment.

Short-term obligations also includes the principal portion of outstanding long-term borrowings that is due in monthly payments through October 31, 2003. Such amount totaled $1.2 million at October 31, 2002. (See Note 12. "Long-term Obligations" for additional information).

Interest expense on the Company's short-term obligations totaled $80,000 and $1.3 million in 2002 and 2001, respectively.

The Company is authorized by its Board to utilize short-term debt to finance its daily operations. Such debt can include lines of credit with CoBank and another commercial bank. At October 31, 2002, the Company had no unsecured debt outstanding. At October 31, 2001, the Company had $5.5 million of unsecured debt outstanding at an interest rate of 2.77%.

Note 10. Trade Payables and Other Accrued Liabilities

Trade payables and other accrued liabilities include various outstanding payments due to the Company's vendors, its trade partners, and various agencies as of October 31, 2002 and 2001. These payables and other accrued liabilities result primarily from the Company's normal operating activities.

Note 11. Payables to Members

Fresh Fruit Proceeds

Product Pools
The varietal components of product pools payables to members are shown in the following table:

Under the products pooling plan currently in effect, the Company makes an initial payment of approximately 50% of market value for fruit received from its members, as estimated at the time of delivery. Upon closure of a pool, which occurs when a substantial portion of the pool's inventory has been sold, a final settlement is made with respect to the difference between actual pool earnings, calculated in accordance with the pooling plan, and amounts previously paid. The total of product pools payables to members outstanding at any point in time represents the sum of any delivery payments not yet remitted and the net earnings or losses in the pools from products sold to that point in time.

Other

Comments regarding the capital fund are contained in Note 13. "Members' Equity."

Note 12. Long-term Obligations

At October 31, 2002 and 2001, the Company had $20 million of long-term borrowings outstanding under an unsecured revolving term loan agreement. Proceeds from such borrowings were used to finance the purchase of lemon oil under an agreement with several outside parties. (See Note 14. "Commitments and Contingencies" for additional information). The borrowings are to be paid in two equal installments of $10 million, due on January 20, 2005 and January 20, 2006, exclusive of interest charged at a rate indexed to the London Interbank Offered Rate ("LIBOR") plus a margin of 50 basis points (2.32% at October 31, 2002). Such interest is paid monthly.

At October 31, 2002, the Company had an additional $13.6 million of long-term borrowings outstanding under a $16 million term loan agreement. The proceeds of the loan were used to finance the construction of the tank farm. The loan is secured by an assignment to the lender of a lease agreement between Sunkist, as lessee, and an SPE, as lessor. (See Note 1. "Organizational Structure and Significant Accounting Policies - Principles of Consolidation" for additional information). Principal payments totaling between $100,000 and $125,000, plus interest charged at a rate indexed to LIBOR plus a margin of 75 basis points (2.94% at October 31, 2002), are made monthly. The balance of the remaining principal outstanding is due on October 1, 2006. The principal amount due through October 31, 2003 totaled $1.2 million at October 31, 2002 and is included in short-term obligations in the Company's Consolidated Statements of Financial Position.

The Company's lender has imposed various financial and non-financial covenants on its long-term borrowings. The Company was in compliance with such covenants as of and for the years ended October 31, 2002 and 2001, respectively.

Interest on the Company's long-term borrowings totaled $1.0 million in 2002, of which $232,000 was capitalized in relation to the construction of the tank farm as noted above. In 2001, interest totaled $66,000, none of which was capitalized.

The deferred compensation and pensions payable is primarily related to the liability to participants under the Company's non-qualified deferred compensation plans and to participants in a Company retirement plan for hourly employees. (See Note 6. "Investments" and Note 16. "Retirement Plans and Other Benefits" for additional information).

The subsidiary company retirement benefits is the Company's obligation to certain employees of Sunkist's Japanese subsidiary. Payments are due to such employees upon their separation from the subsidiary company.

Note 13. Members' Equity

Capital Fund
To provide a portion of the capital required to operate Sunkist's business, a non-interest-bearing fund is maintained through annual assessments against members' fruit shipments. The Company's total capital requirements from this source are determined annually by the Board. Each member's capital obligation is determined based upon the member's proportionate use of the facilities and services furnished by Sunkist. Once the member's proportionate assessment shares are calculated, each member's capital fund obligation is determined. The capital fund retention period is a rolling five-year period. As such, for growers who have an existing five-year capital fund balance, the net assessment or refund in the sixth year will be the difference between the sixth-year (current) assessment and the first-year refund.

The amounts assessed and refunded, both in aggregate and for individual members, are based upon the following: (1) comparative volumes of fresh fruit marketed and products fruit processed; (2) the assessment rates applied to such volumes; and (3) the length of the capital retention periods. The assessment rates and the length of the retention periods are established by the Board and are applied on a per-carton or per-carton equivalent basis for all grower fruit handled by Sunkist.

During fiscal 2001, the Board voted to suspend the capital fund assessment for the 2002 fiscal year. Under the current rolling 5-year retention period, such action resulted in a refund of each member's fiscal 1997 capital fund assessment. As a result, members' equity decreased by approximately $1.2 million in fiscal 2002.

Unallocated Retained Earnings
Amounts include accumulated income derived from the Trademark Licensing Division, the Research Division, and other non-member activities.

During fiscal 2002, a charge totaling $4.3 million was made against current retained income to reflect a $403,000 deficit in the 2000 products pool and a projected $3.9 million deficit in the 2002 products pool.

In fiscal 2001, a charge totaling $3.4 million was made against current retained income to increase the fruit products inventory valuation reserve.