Instead of crying over spilled applesauce, Snokist Growers has decided to liquidate its assets in bankruptcy.

The fruit cooperative filed for Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Washington in Spokane/Yakima on Wednesday, Dec. 7, after contaminated applesauce it produced led to an investigation by the U.S. Food & Drug Administration.

Along with its petition, Snokist also requested to use cash collateral.

Judge Frank L. Kurtz will preside over the case, but no hearings have been scheduled as of Friday at noon.

According to a declaration by Belinda Cole, Snokist's vice president of finance, the company was notified in May that the applesauce it provided for school lunches caused stomach aches in 18 children, leading the school district to conduct an initial investigation. While no students had any more severe health issues, the school found that some of Snokist's products weren't properly sealed.

The FDA then came to Snokist's plant in Terrance Heights, Wash., and conducted a thorough probe. In a June 2 report, the FDA detailed 12 counts against the company, including mold found in numerous products, leaking containers and food stored at incorrect temperatures. The report also notes that employees hadn't been properly trained in food handling and protection techniques and didn't wash their hands before handling food.

Moreover, Snokist's equipment wasn't properly maintained, and the FDA found hydraulic fluid dripping from a pipe onto an apple slice conveyer and found that another apple processing machine was disintegrating and flaking into the products.

The FDA also observed fruit flies, larvae, bird feathers and bird excreta inside the facility.

In court documents, Cole asserts that the plant has recently passed the in-plant portion of a certification from SQF Institute, an independent organization that checks compliance with food safety standards.

SQF, however, states in a Nov. 7 press release on its website that Snokist isn't certified and its certification process was suspended when the company failed an audit conducted by NSF International between Oct. 4 and Oct. 6.

Meanwhile, the FDA report caused Snokist's biggest customers, the U.S. Department of Agriculture and the U.S. Food Service, to suspend further orders from Snokist. The USDA also required Snokist to recall products delivered under USDA contracts.

Cole said Snokist promptly responded to the requirements of the FDA and USDA, but the FDA waited five months before giving any feedback. The delay cost the company millions of dollars in sales, said Cole.

With the reduction in revenues, the company could not service its debts. Furthermore, Cole said Snokist decided that instead of defending itself against a "cascade of lawsuits," the company has chosen to liquidate in bankruptcy.

Cole said the debtor's assets exceed its liabilities and value will be realized under a sale.

Snokist won't be purchasing any more fruit products and plans to liquidate in the next 18 to 24 months.

Snokist is a non-profit cooperative founded in 1967 as the result of a merger between Yakima Fruit Growers and Yakima County Horticultural Union. Originally, the company stored, packed and sold fresh fruit and operated a processing and canning operation for apples, pears and other fruits. A few years ago, however, the company stopped selling fresh fruit and focused on its canning business.

In 2011, Snokist had 140 members that have provided fruit for the co-op's operations. Members can either sell their fruit to the co-op for cash or under a pooling arrangement under which they would receive a payment based on Snokist's profits made from its products. Snokist pays members under the pooling arrangement at least the amount they would receive for selling their products for cash, according to Cole.

Under the pooling arrangement, Snokist deposits money in its member's ledger accounts, which the members can request to draw from at any time. Snokist also uses the deposits in the ledger accounts to fund operations.

In 2008, the company entered into a marketing agreement with Pacific Coast Producers under which PCP arranged for the sales of substantially all of Snokist's inventory.

Snokist's gross sales for 2010 totaled $50 million and its gross sales for 2011 up to the petition date are $29 million.

Snokist finances its operations from several sources. First, the company has a $27 million revolving line of credit from Rabo Agrifinance and KeyBank NA that is secured by all of Snokist's assets. The balance of the loan is $26.5 million. KeyBank is also owed an additional $1.3 million.

Snokist also owes Community Bank $9.5 million secured by its storage facility in Sawyer, Wash.

The co-op's members also provide financing for its operations through the ledger accounts and through revolving funds. The ledger accounts' current balance is $5.5 million.

As for revolving funds, when Snokist cannot pay members for the fruit they provide, Snokist books that amount as equity in the co-op. Snokist has about $23.9 million in booked equity owed to its members.

Snokist also owes about $3.35 million to fruit growers who have sold Snokist their products but aren't members of the co-op and $2.4 million to vendors.

The debtor employs about 610 people. Recently, Snokist has been unable to provide benefits to its employees, according to Cole.

In court papers, Snokist listed assets of $69.6 million and liabilities of $73.4 million.

Debtor counsel Roger Bailey and Joshua Busey of Bailey & Busey LLC could not immediately be reached on Friday.