UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
|
x
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended January 1, 2010
OR
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¨
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 1-14706
FRESH
DEL MONTE PRODUCE INC.
(Exact
Name of Registrant as Specified in Its Charter)
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The
Cayman Islands
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N/A
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S
Employer
Identification
No.)
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|
c/o
Walkers Corporate Services Limited
Walker
House, 87 Mary Street
George
Town, Grand Cayman, KY1-9002
Cayman
Islands
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N/A
|
|
(Address
of Registrant’s Principal Executive Offices)
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(Zip
Code)
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(305)
520-8400
(Registrant’s
telephone number including area code)
Please
send copies of notices and communications from the Securities and Exchange
Commission to:
c/o
Del Monte Fresh Produce Company
241
Sevilla Avenue
Coral
Gables, Florida 33134
(Address
of Registrant’s U.S. Executive Offices)
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Ordinary
Shares, par value $0.01 per share
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes x No ¨
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ¨ No x
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 x No ¨
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 ¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
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. (Check one):
|
Large accelerated filer
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x
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Accelerated filer
|
¨
|
|
|
Non-accelerated
filer
|
¨
|
Smaller reporting company
|
¨
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No x
The
aggregate market value of Ordinary Shares held by non-affiliates at
June 26, 2009, the last business day of the registrant’s most recently
completed second quarter, and was $692,624,994 based on the number of shares
held by non-affiliates of the registrant and the reported closing price of
Ordinary Shares on June 26, 2009 of $16.51. The registrant does not have
non-voting common stock outstanding.
As of
February 22, 2010, there were 63,600,150 Ordinary Shares of Fresh Del Monte
Produce Inc. issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s definitive Proxy Statement for the 2010 Annual General
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days after the end of the registrant’s fiscal year are incorporated
by reference in Part III of this report.
TABLE OF
CONTENTS
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Forward-Looking
Statements
In this
Annual Report (the “Report”), references to “$” and “dollars” are to United
States dollars. References in this Report to Fresh Del Monte, “we”, “our”
and “us” refer to Fresh Del Monte Produce Inc. and its subsidiaries, unless the
context indicates otherwise. Percentages and certain amounts contained herein
have been rounded for ease of presentation. Any discrepancies in any table
between totals and the sums of amounts listed are due to rounding. As used
herein, references to years ended 2007 through 2009 are to fiscal years ended
December 28, 2007, December 26, 2008 and January 1, 2010,
respectively.
This
Report, information included in future filings by us and information contained
in written material, press releases and oral statements, issued by or on behalf
of us contains, or may contain, statements that constitute forward-looking
statements in particular, information in Item 1. Business and Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Trend Information, contained in this Report. In this Report, these
statements appear in a number of places and include statements regarding the
intent, beliefs or current expectations of us or our officers (including
statements preceded by, followed by or that include the words “believes,”
“expects,” “anticipates” or similar expressions) with respect to various
matters, including our plans and future performance. These
forward-looking statements involve risks and uncertainties. Fresh Del
Monte’s actual plans and performance may differ materially from those in the
forward-looking statements as a result of various factors, including (i) the
uncertain global economic environment and the timing and strength of a recovery
in the markets we serve, and the extent to which adverse economic conditions
continue to affect our sales volume and results, including our ability to
command premium prices for certain of our principal products, or increase
competitive pressures within the industry, (ii) the impact of governmental
initiatives in the United States and abroad to spur economic activity, including
the effects of significant government monetary or other market interventions on
inflation, price controls and foreign exchange rates, (iii) our anticipated
cash needs in light of our liquidity, (iv) the continued ability of
our distributors and suppliers to have access to sufficient liquidity to fund
their operations, (v)
trends and other factors affecting our financial condition or results of
operations from period to period, including changes in product mix or consumer
demand for branded products such as ours, particularly as consumers remain
price-conscious in the current economic environment; anticipated price and
expense levels; the impact of crop disease, severe weather conditions or natural
disasters, such as the recent earthquake in Chile, on crop quality and yields
and on our ability to grow, procure or export our products; the impact of prices
for petroleum-based products and packaging materials; and the
availability of sufficient labor during peak growing and harvesting seasons,
(vi) the impact of pricing and other actions by our competitors,
particularly during periods of low consumer confidence and spending levels,
(vii) the impact of foreign currency fluctuations, (viii) our plans for
expansion of our business (including through acquisitions) and cost savings,
(ix) our ability to successfully integrate acquisitions into our
operations, (x) the timing and cost of resolution of pending legal and
environmental proceedings, (xi) the impact of changes in tax accounting or tax
laws (or interpretations thereof), and the impact of settlements of adjustments
proposed by the Internal Revenue Service or other taxing authorities in
connection with our tax audits, and (xii) the cost and other implications of
changes in regulations applicable to our business, including potential
legislative or regulatory initiatives in the United States or elsewhere directed
at mitigating the effects of climate change. All forward-looking
statements in this Report are based on information available to us on the
date hereof, and we assume no obligation to update any such forward-looking
statements.
The
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. It is important to note that our actual results may
differ materially from those in the forward-looking statements as a result of
various factors. The accompanying information contained in this Report,
identifies important factors that could cause our actual results to differ
materially from those in the forward-looking statements.
The
volume data included in this Report has been obtained from our records. Except
for volume data for Fresh Del Monte, the market share, volume and consumption
data contained in this Report have been compiled by us based upon data and other
information obtained from third-party sources, primarily from the Food and
Agriculture Organization of the United Nations (the “FAO”), and from our surveys
of customers and other company-compiled data. Except as otherwise indicated,
volume data contained in this Report is shown in millions of 40-pound equivalent
boxes.
|
Business
|
History
and Development of Fresh Del Monte
Our legal
name is Fresh Del Monte Produce Inc., and our commercial name is Del Monte Fresh
Produce. We are an exempted holding company, incorporated under the laws of the
Cayman Islands on August 29, 1996. At January 1, 2010, the close of our
most recent fiscal year, members of the Abu-Ghazaleh family directly owned 33.9%
of our outstanding Ordinary Shares.
Our
principal executive office is located at Walker House, 87 Mary Street, George
Town, Grand Cayman, KY1-9002, Cayman Islands. The address of our U.S. executive
office is located at Del Monte Fresh Produce Company, 241 Sevilla Avenue, Coral
Gables, Florida 33134. Our telephone number at our U.S. executive office is
(305) 520-8400. Our Internet address is http://www.freshdelmonte.com. The electronic version of
this Annual Report on Form 10-K, along with other information about us, our
operations and our results and other documents filed with the Securities and
Exchange Commission (the “SEC”) can be found on our Web site. Information on our
Web site is not a part of this Report on Form 10-K.
Our
global business, conducted through subsidiaries, is primarily the worldwide
sourcing, transportation and marketing of fresh and fresh-cut produce together
with prepared food products in Europe, Africa and the Middle East. We source our
fresh produce products (bananas, pineapples, melons, tomatoes, grapes, apples,
pears, peaches, plums, nectarines, apricots, cherries, citrus, avocados,
blueberries and kiwi) primarily from Central and South America, Africa, the
Philippines, North America and Europe. We source our prepared food
products primarily from Africa, Europe and Asia. Our products are
sourced from company-owned operations, through joint venture arrangements and
through supply contracts with independent producers. We distribute
our products in North America, Europe, Asia, the Middle East, Africa and South
America.
On
June 6, 2008, we acquired all of the shares of Desarollo Agroindustrial de
Frutales, S.A., a producer of high-quality bananas in Costa Rica; all of the
shares of Frutas de Exportacion, S.A., a major producer of gold pineapples in
Costa Rica; and all of the shares of an affiliated sales and marketing company,
collectively known as “Caribana”. The purchase price for Caribana was $405.9
million plus $2.9 million for acquisition-related expenses, financed with $88.5
million in cash on hand and drawings under our then-existing syndicated
revolving credit facility. As a result of this acquisition, our land holdings in
Costa Rica increased by approximately 13,000 hectares of quality farm land
producing approximately 13 million boxes of bananas and 11 million
boxes of gold pineapples annually. We also acquired state-of-the-art packing
facilities, as well as modern farming equipment. Caribana’s extensive production
area substantially increases our presence in the banana market and further
strengthens our number one position in the gold pineapple market. The close
proximity of Caribana’s production and packing operations to our existing farms
has provided significant operating efficiencies and synergies. This transaction
has enabled us to continue to capitalize on the growing global demand for fresh
produce and to expand our reach into existing and new markets.
On
June 27, 2008, we acquired certain operating assets, excluding land, of
Melones de Costa Rica, S.A. (“MCR”). MCR is a 50%-owned unconsolidated
subsidiary that produces melons for us in Costa Rica. MCR continues to own the
land that is leased to us on a long-term basis. Total area
under production is approximately 2,300 hectares with an estimated annual
production of three million boxes. The purchase price was $8.0
million.
1
During
the third quarter of 2008, we acquired two additional melon operations in
Guatemala. The assets acquired comprised principally farming equipment, packing
sheds and materials and supplies inventory. Total area under
production is approximately 1,500 hectares producing two crops annually on
leased land with an estimated annual production of 4.5 million boxes. The
purchase price was $13.9 million.
Our
capital expenditures totaled $84.5 million in 2009, consisting of approximately
$51.4 million primarily for distribution centers in Saudi Arabia and for
expansion of production facilities in Costa Rica, Guatemala, Brazil and the
Philippines related to the banana segment, $27.8 million principally for
expansion of our pineapple operations in Costa Rica and the Philippines,
expansion of non-tropical fruit operations in Chile and expansion of fresh-cut
fruit facilities in North America and the United Kingdom related to the other
fresh produce segment and $5.3 million for expansion of production facilities in
Jordan and Kenya related to the prepared food segment. Our
capital expenditures totaled $101.5 million in 2008, consisting of $59.4 million
principally for distribution centers in Saudi Arabia and South Korea and for
expansion of production facilities in the Philippines, Guatemala and Brazil
related to the banana segment, $23.1 million principally for expansion of
production facilities in Costa Rica, the Philippines and Chile related to the
other fresh produce segment and $19.0 million principally for production
facilities in Jordan and Kenya related to the prepared food segment. Our capital
expenditures for 2007 consisted of $81.4 million primarily for the expansion of
distribution and manufacturing facilities in the Middle East and the expansion
of production facilities in Kenya, Brazil and the Philippines. The
principal capital expenditures planned for 2010 consist primarily of the
expansion and improvements of production facilities in Costa Rica, Guatemala,
Chile, Kenya and the Philippines, and for our distribution and fresh-cut
facilities in North America and the United Kingdom. We expect to fund
our planned capital expenditures of approximately $103.0 million in 2010 through
operating cash flows and borrowings under credit facilities.
Business
Overview
We are
one of the world’s leading vertically integrated producers, marketers and
distributors of high-quality fresh and fresh-cut fruit and vegetables, as well
as a leading producer and distributor of prepared fruit and vegetables, juices,
beverages and snacks in Europe, Africa and the Middle East. We market our
products worldwide under the DEL MONTE®
brand, a symbol of product innovation, quality, freshness and reliability since
1892. Our global sourcing and logistics network allows us to provide regular
delivery of consistently high-quality fresh produce, juices, beverages,
processed fruit and vegetables and value-added services to our
customers.
We have
leading market positions in the following product categories. We believe we
are:
|
|
•
|
the
number one marketer of fresh pineapples worldwide, including our Del Monte Gold ® Extra Sweet
pineapple;
|
|
|
•
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a
leading marketer of branded melons in the United States and the United
Kingdom;
|
|
|
•
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a
leading marketer of branded fresh-cut fruit in the United
States;
|
|
|
•
|
the
third-largest marketer of bananas
worldwide;
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|
|
•
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a
leading re-packer of tomatoes in the United
States;
|
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|
•
|
a
leading year-round marketer of branded grapes in the United
States;
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|
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•
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a
leading marketer of branded non-tropical fruit in selected markets;
and
|
|
|
•
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a
leading marketer for canned fruit and pineapple in many Western European
markets.
|
We source
and distribute our products on a global basis. Our products are grown primarily
in Central and South America, Africa and the Philippines. We also source
products from North America and Europe. Our products are sourced from
company-controlled farms and independent growers. We transport our fresh produce
to markets using our fleet of 16 owned and 17 chartered refrigerated vessels,
and we operate four port facilities in the United States. At year end 2009, we
operated 44 distribution centers, generally with cold storage and banana
ripening facilities in our key markets worldwide, including the United States,
the United Kingdom, Germany, Japan, South Korea, Hong Kong, Poland, the United
Arab Emirates and Saudi Arabia. We also operate 13 fresh-cut facilities in the
United States, the United Kingdom, Japan and the United Arab Emirates, some of
which are located within our distribution centers. Through our vertically
integrated network, we manage the transportation and distribution of our
products in a continuous temperature-controlled environment. This enables us to
preserve quality and freshness, and to optimize product shelf life, while
ensuring timely and year-round distribution. Furthermore, our position as a
volume producer and shipper of bananas allows us to lower our average per-box
logistics cost and to provide regular deliveries of our premium fresh fruit to
meet the increasing demand for year-round supply.
2
We market
and distribute our products to retail stores, food clubs, wholesalers,
distributors and foodservice operators in more than 100 countries around the
world. North America is our largest market, accounting for 48% of our net sales
in 2009. Europe, Asia and the Middle East regions are our other major markets,
accounting for 28%, 12% and 9% of our net sales in 2009, respectively. Our
distribution centers and fresh-cut facilities address the growing demand from
supermarket chains, club stores, mass merchandisers and independent grocers to
provide value-added services, including the preparation of fresh-cut produce,
ripening, customized sorting and packing, just-in-time and direct-store-delivery
and in-store merchandising and promotional support. Large national retail chains
are increasingly choosing fewer suppliers – ones that can serve all of their
needs on a national basis – and there is a significant opportunity for a company
with a full fresh and fresh-cut produce line, a well-recognized brand, a
consistent supply of quality produce and a national distribution network to
become the preferred supplier to these large retail customers. We believe that
we are uniquely positioned as a preferred supplier, and our goal is to expand on
this status by increasing our leading position in fresh-cut produce, expanding
our banana, pineapple and melon business and diversifying our other fresh
produce selections. In recent years, we have transformed our company
from a fresh and fresh-cut produce company into a multinational prepared food
company with a product line that includes prepared fruit and vegetables, juices,
beverages and snacks in Europe, Africa and the Middle East.
Our
strategy is focused on a combination of maximizing revenues from our existing
infrastructure, entering new markets and strict cost control initiatives. We
plan to continue to capitalize on the growing global demand for fresh produce
and expand our reach into existing and new markets. We expect sales growth of
fresh produce in key markets by increasing sales volume and per unit sales
prices as permitted by market conditions. Our recent acquisitions have
substantially increased our production capability of bananas, pineapples and
melons and provide the potential over time for significant operating
efficiencies and synergies. In addition, our number one position in
the gold pineapple market has been further strengthened. Our strategy
includes increasing volumes from existing production and distribution facilities
in order to improve operating efficiencies and reduce per unit costs. We plan
additional investments in growth markets, such as the Middle East, by adding
distribution facilities and expanding our value-added services.
Products
Sourcing and Production
Our
products are grown and sourced primarily in Central and South America, Africa
and the Philippines. We also source products from North America and Europe. In
2009, 49% of the fresh produce we sold was grown on company-controlled farms and
the remaining 51% was acquired through supply contracts with independent
growers.
We
produce, source, distribute and market a broad array of fresh produce throughout
the world, primarily under the DEL MONTE®
brand, as well as under other proprietary brands, such as UTC® and
Rosy®. We
also produce, distribute and market prepared fruits and vegetables, juices,
beverages and snacks under the DEL MONTE®
brand, as well as other proprietary brands, such as Fruit Express™, Just
Juice®,
Fruitini® and
other regional trademarks in Europe, Africa and the Middle East.
3
The
following table indicates our net sales by product for the last three
years:
|
Year
ended
|
||||||||||||||||||||||||
|
January
1,
|
December
26,
|
December 28, | ||||||||||||||||||||||
|
2010
|
2008
|
2007
|
||||||||||||||||||||||
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(U.S.
dollars in millions)
|
||||||||||||||||||||||||
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Net
sales by product category:
|
||||||||||||||||||||||||
|
Banana
|
$ | 1,510.9 | 43 | % | $ | 1,420.2 | 40 | % | $ | 1,199.0 | 35 | % | ||||||||||||
|
Other
fresh produce:
|
||||||||||||||||||||||||
|
Gold
pineapples
|
475.6 | 14 | % | 458.2 | 13 | % | 428.7 | 13 | % | |||||||||||||||
|
Fresh-cut
produce
|
314.8 | 9 | % | 319.2 | 9 | % | 328.8 | 10 | % | |||||||||||||||
|
Non-tropical
fruit
|
278.6 | 8 | % | 286.1 | 8 | % | 273.8 | 8 | % | |||||||||||||||
|
Melons
|
242.1 | 7 | % | 221.1 | 6 | % | 250.9 | 7 | % | |||||||||||||||
|
Tomatoes
|
120.0 | 3 | % | 140.0 | 4 | % | 156.9 | 5 | % | |||||||||||||||
|
Vegetables
|
68.4 | 2 | % | 78.8 | 2 | % | 107.1 | 3 | % | |||||||||||||||
|
Other
fruit
|
52.0 | 1 | % | 56.4 | 2 | % | 68.7 | 2 | % | |||||||||||||||
|
Total
other fresh produce
|
1,551.5 | 44 | % | 1,559.8 | 44 | % | 1,614.9 | 48 | % | |||||||||||||||
|
Prepared
food
|
337.4 | 10 | % | 412.4 | 12 | % | 429.4 | 13 | % | |||||||||||||||
|
Other
products and services
|
96.6 | 3 | % | 138.6 | 4 | % | 122.2 | 4 | % | |||||||||||||||
|
Total
|
$ | 3,496.4 | 100 | % | $ | 3,531.0 | 100 | % | $ | 3,365.5 | 100 | % | ||||||||||||
See Note
23, “Business Segment
Data”, to the Consolidated Financial Statements included in Item 8.
Financial Statements and
Supplementary Data for further information.
Bananas
Bananas
are the leading internationally traded fresh fruit in terms of volume and dollar
sales and the best-selling fresh fruit in the United States. Europe
and North America are the world’s largest banana markets and Asia is the third
largest market. According to the latest published statistics from the Food and
Agriculture Organization of the United Nations (“FAO”), in 2007, Europe, North
America, Asia and the Middle East consumed 17.8, 9.9, 4.0 and 1.7 billion pounds
of bananas, respectively. Bananas are a key produce department product due to
their high turnover and the premium margins realized by grocers.
Bananas
have a relatively short growing cycle and are grown in tropical locations with
humid climates and heavy rainfall, such as Central and South America, the
Caribbean, the Philippines and Africa. Bananas are grown throughout the year in
these locations, although demand and prices fluctuate based on the relative
supply of bananas and the availability of seasonal and alternative
fruit.
We
believe that we are the world’s third-largest marketer of bananas, based on
internally generated data. Our banana sales in North America, Europe,
Asia and the Middle East accounted for approximately 41%, 28%, 21% and 10% of
our net sales of bananas in 2009, respectively. We produced 39% of the banana
volume we sold in 2009 on company-controlled farms, and we purchased the
remainder from independent growers. As a result of our Caribana acquisition, on
an annualized basis, we have increased our total company-controlled banana
volume by approximately 27%.
Bananas
are the best-selling fresh produce item, as well as a high-margin product for
many of our customers. Accordingly, our ability to provide our customers with a
year-round supply of high-quality DEL MONTE®
bananas is important to maintaining our existing customer relationships and
attracting new customers. Our position as a volume shipper of bananas has also
allowed us to make regular shipments of a wide array of other fresh produce,
such as pineapples, melons and plantains, reducing our average per-box logistics
costs and maintaining higher quality produce with a longer shelf
life.
We
produce bananas on company-controlled farms in Costa Rica, Guatemala, Brazil,
Cameroon and the Philippines and we purchase bananas from independent growers in
Costa Rica, Ecuador, Colombia, Guatemala, the Philippines and India. Although
our supply contracts are primarily long-term, we also make purchases in the spot
market, primarily in Ecuador. In Ecuador and Costa Rica, there are minimum
export prices for the sale of bananas, which are established by the respective
governments and reviewed by them on a periodic basis.
4
Due in
part to limitations in the Philippines on foreign ownership of land, we purchase
the majority of bananas in the Philippines through long-term contracts with
independent growers. Approximately 76% of our Philippine-sourced bananas are
supplied by one grower, representing 15% of the supplier’s industry volume in
2009. In the Philippines, we have leased approximately 3,000 hectares
of land where we have planted Highland bananas for the Asia market.
Gold
Pineapples
Pineapples
are grown in tropical and sub-tropical locations, including the Philippines,
Costa Rica, Hawaii, Thailand, Malaysia, Brazil, Indonesia and various countries
in Africa. In contrast to bananas, pineapples have a long growing cycle of 18
months, and require re-cultivation after one to two harvests. Pineapple growing
thus requires a higher level of capital investment, as well as greater
agricultural expertise.
The
premium pineapples, such as our Del Monte Gold® Extra Sweet pineapple, which
has enhanced taste, golden shell color, bright yellow flesh and higher vitamin C
content, has replaced the Champaka and other traditional pineapple varieties in
popularity and demand and has led to increased competition.
We
believe we are the market leader of fresh pineapples worldwide, based on
internally generated data. This market share excludes the pineapple
we sell in the fresh-cut format. Pineapple sales in North America,
Europe, Asia and the Middle East accounted for 49%, 35%, 13% and 3% of our net
sales of pineapples in 2009, respectively. From 1996 to 2009, our
volume of the Del Monte
Gold® Extra Sweet pineapple
increased from two and a half million boxes to 27.6 million boxes. Our
pineapple volume has increased by 11% this year. Based on FAO data,
for the 10-year period from 1997 to 2007, the volume of pineapple sales in the
United States, Europe, Asia and the Middle East has increased by 250%, 203%, 74%
and 634%, respectively. We believe that a substantial portion of this growth is
due to our introduction of the Del Monte Gold® Extra Sweet pineapple. As a
result of our recent Caribana acquisition and our continued expansion of
existing pineapple operations, we expect to continue to increase the sales
volume of our extra sweet pineapples in the near future with extra sweet
pineapples grown in Costa Rica and the Philippines.
The
principal production and procurement areas for our gold pineapples are Costa
Rica and the Philippines. Given the complexity of pineapple cultivation relative
to our bananas, a higher percentage of the fresh pineapples we sell (84% by
volume in 2009) are produced on company-controlled farms. Our Caribana
acquisition has increased our total company-controlled Del Monte Gold® Extra Sweet pineapple volume
by approximately 29% on an annualized basis.
Fresh-Cut
Produce
Fresh-cut
produce first gained prominence in many U.S. and European markets with the
introduction of washed and cut vegetables. While packaged salads continue to
lead the category of fresh-cut produce sales, the category has expanded
significantly to include gold extra sweet pineapple, melons, mango, grapes,
citrus and assorted vegetable produce items that are washed, cut and packaged in
a ready-to-use form. Market expansion has been driven largely by consumer demand
for fresh, healthy and ready-to-eat food alternatives, as well as significant
demand from foodservice operators. Within this market, we believe that there has
been increasing differentiation between companies active primarily in the
packaged salad market and other companies, like us, that can offer a wide
variety of fresh-cut fruit and vegetable items.
The
majority of fresh-cut produce is sold to consumers through retail store and club
store settings, as well as non-conventional settings such as convenience stores,
gas stations and airports. We believe that outsourcing by food retailers will
increase, particularly as food safety regulations become more stringent and
retailers demand more value-added services. This trend should benefit large
branded suppliers like us, who are better positioned to invest in fresh-cut
facilities and to service regional and national chains and foodservice
operators, as well as supercenters, mass merchandisers and club stores. We also
believe that large branded suppliers benefit from merchandising, branding and
other marketing strategies for fresh-cut products, similar to those used for
branded processed food products, which depend substantially on product
differentiation.
We
believe that the fresh-cut produce market continues to be one of the
fastest-growing categories in the fresh produce segment, largely due to consumer
trends favoring healthy and conveniently packaged ready-to-eat foods. We
established a platform in this industry through acquisitions and by building
upon our existing fresh-cut pineapple business. We believe that our experience
in this market, coupled with our sourcing and logistics capabilities and the
DEL MONTE®
brand, have enabled us to achieve a leading position in this highly fragmented
market. Based on the latest supermarket scan data as supplied by an independent
market data provider for 2009, we believe that we are now the market leader in
branded fresh-cut fruit in the United States. Our fresh-cut fruit products
include pineapple, melons, grapes, citrus, apples, mango, kiwi and other fruit
items. The fruit we use in our fresh-cut operations are sourced within our
integrated system of company-controlled farms and from GAP-certified (good
agricultural practices) independent growers. We also offer fresh-cut vegetables
for prepared salads, such as coleslaw and potato salad. We purchase our
vegetables for these purposes from GAP-certified independent growers in the
United States and in Europe. Our purchase contracts for both fruit and
vegetables are typically short-term but vary by produce item. Our fresh-cut
products are sold in the United States, the United Kingdom, the Middle East and
Japan.
5
Non-Tropical
Fruit
Non-tropical
fruit includes grapes, apples, pears, peaches, plums, nectarines, cherries,
apricots, avocados, citrus and kiwis. Generally, non-tropical fruit grows on
trees, bushes or vines that shed their leaves seasonally. Approximately 41% of
our non-tropical fruit net sales are from the sale of grapes. Fresh grapes are a
favorite quick, easy and healthy snack among consumers young and old. In
addition to their delicious taste, a growing body of research on fresh grapes
suggests that grapes may offer significant health benefits as well. Fresh
grapes are a well-known fruit worldwide, fitting into almost any lifestyle.
Based on a 2009 study by the United States Department of Agriculture (“USDA”),
Economic Research Service, since the 1998/99 season, fresh grape consumption has
grown 20% in the United States and, on average, Americans now consume 8.5 pounds
of fresh grapes each year. Fresh grapes are also processed for the
production of wine, raisins, juices and canned products. The higher
production cost and higher product value of fresh grapes result from more
intensive production practices than are required for grapes grown for
processing. While California supplies the majority of total grape volumes,
imports have made fresh grapes available year-round in the United States, with
shipments mostly from Chile. Most U.S. production is marketed from
May to October. Chilean grapes dominate the market from December to
April.
Approximately
26% of our non-tropical fruit net sales are from the sale of
avocados. According to the latest published statistics from the FAO,
for the 10-year period from 1997 to 2007, avocado imports to the United States
have increased by 1200%. Per capita consumption of avocados in the
United Sates has also increased significantly in the last 10
years. According to the Economic Research service of the USDA, per
capita consumption of avocados was estimated to reach 3.8 pounds during the
2008/2009 season.
We sell a
variety of non-tropical fruit, including all of the types referred to
above. In 2009, non-tropical fruit sales in North America, Europe,
the Middle East, Asia and South America accounted for approximately 63%, 10%,
14%, 9% and 4% of our total net sales of non-tropical fruit, respectively. We
obtain our supply of non-tropical fruit from company-owned farms in Chile and
from independent growers in Chile, the United States, Mexico, Spain and New
Zealand. In Chile, we purchase non-tropical fruit from independent
growers and also produce a variety of non-tropical fruit on approximately 5,200
acres of company-owned or leased land. Our avocados are sourced principally from
Mexico. In Spain and Mexico, we have our own sourcing operations,
ensuring a consistent supply of high-quality non-tropical fruit during the
growing season. Purchase contracts for non-tropical fruit are typically made on
an annual basis.
Melons
Based on
FAO data, for the 10-year period from 1997 to 2007, the volume of imports of
cantaloupes and other melons increased in North America, Europe and the Middle
East by 18%, 74% and 150%, respectively. Melons are one of the highest volume
fresh produce items, and this category includes many varieties, such as
cantaloupe, honeydew and watermelon. During the summer and fall growing seasons
in the United States and Europe, demand is met in large part by local suppliers
of unbranded or regionally branded melons. By contrast, in North America and
Europe, imports significantly increase, and melons generally command premium
pricing from October to May. Melons are grown in temperate and tropical
locations and have a relatively short growing cycle.
We sell a
variety of melons including cantaloupe, honeydew, watermelon and specialty
melons, which we introduced to meet the different tastes and expectations of
consumers in Europe. Cantaloupes represented over 80% of our melon sales volume
in 2009. We are a significant producer and distributor of melons from October to
May in North American and European regions by sourcing melons from our
company-controlled farms and independent growers in Central and South America,
where production generally occurs during this period. Melons sold in
North America and Europe from October to May generally command a premium price
due to the relative scarcity of melons and alternative fruit. Melon sales in
North America and Europe accounted for 79% and 19% of our net sales of melons in
2009, respectively. In terms of volume, we produced 81% of the melons we sold in
2009 on company-controlled farms and purchased the remainder from independent
growers.
6
We are
able to provide our customers with a year-round supply of melons from diverse
sources. For example, we supply the North American market during its summer
season with melons from Arizona, California and the East Coast of the United
States, and we supply the European market during its summer season with melons
from Spain.
We have
devoted significant research and development efforts towards maintaining our
expertise in melons, especially cantaloupes. Melon crop yields are highly
sensitive to weather conditions and are adversely affected by high levels of
precipitation during the growing period of the fruit. We have developed
specialized melon growing technology that we believe has reduced our exposure to
the risk of intemperate weather conditions and significantly increased our
yields.
Tomatoes
The
United States is one of the largest producers of tomatoes in the world,
ranking second only to China. Mexico and Canada are also
important suppliers of fresh tomatoes within North America.
Based on “Fresh Trends”, an industry publication published in 2008,
fresh tomatoes remain a top performer for food retailers, generating
approximately 7.4% of a retailers produce sales.
We source
our fresh tomatoes mainly from the United States, Mexico and Canada. The tomato
category is highly fragmented with many suppliers, re-packers and wholesalers in
various geographic regions of the United States. As a high volume
item, tomatoes are important for our network of distribution and re-packing
facilities. This product category allows us to add value through leveraging our
purchase volumes to reduce costs and perform the sorting, packaging and custom
labeling locally, in addition to delivering on a just-in-time basis to retail
chains and foodservice customers. With our fresh-cut fruit and vegetable
facilities, we can add additional value by incorporating tomatoes into our
consumer-packaged products.
Vegetables
We
distribute and market a variety of vegetables including mainly potatoes, onions,
bell peppers and cucumbers. While we sell bulk product, we also use our size and
distribution network to find opportunities to add value such as sorting and
packaging. We source our vegetables from independent growers in North and
Central America.
Other
Fruit
We
produce, distribute and market a variety of other fruit, including strawberries,
plantains and mangos, as well as various other varieties of fruit. We source
these other fruit items from company-controlled farms and independent growers in
Costa Rica, Colombia, Guatemala and the United States.
Prepared
Food
We have a
royalty-free perpetual license to use the DEL MONTE®
Trademark in connection with the production, manufacture, sale and distribution
of prepared foods and beverages in over 100 countries throughout Western,
Eastern and Central Europe, Africa and the Middle East. Del Monte has operated
in Europe for over 75 years, is the premier brand associated with fruit-based or
fruit-derived products and is the leading brand for canned fruit and pineapple
in many Western European markets. Del Monte has had a presence in the United
Kingdom, the largest market, since 1926 and is perceived to be a quality brand
with high consumer awareness. Del Monte has a reputation with both consumers and
retailers for value, quality and reliability.
We
produce, distribute and market prepared pineapple, peaches, apricots, fruit
cocktail, pears, tomatoes and other fruit and vegetables. Our deciduous prepared
food products, which include peaches, apricots, pears and fruit cocktail are
principally sourced from our own facilities in Greece and South Africa. Our
tomato products are sourced from our own facilities in Greece together with
independent producers in Europe and the Middle East. Our prepared pineapple
products are primarily sourced from our own facility in Kenya and are also
sourced from independent producers in Asia. These products are sold primarily
under the DEL MONTE® label
and under the buyers’ own label for major retailers. We also distribute and
market beverages, including ambient juices and juice drinks as well as various
snacks. In the United Kingdom, our beverage production has been
outsourced to a third party since the first quarter of 2008. During
the second quarter of 2009, we consolidated the production, distribution and
sales and marketing function of our United Kingdom beverages with this same
third party. We believe that outsourcing these functions will reduce
costs and increase our competitiveness. We also produce and market
industrial products that are composed of fruit that has been processed in our
production facilities in the form of purees, pulps and concentrates for further
processing (yogurt, cake manufacture, pizza, etc.) and for sale to the
foodservice industry worldwide. We expect to continue investing in new product
development to increase revenue, defend our premium price position and maintain
market leadership in our product categories. In recent years, we have expanded
our offerings in the snack category by offering multiple varieties and sizes of
fruit in plastic pots and various frozen juice stick bars products, targeting
the convenience store and foodservice trade in selected European and Middle East
markets.
7
Our
prepared food segment also includes our Jordanian food business. This business
includes a state-of-the-art vertically integrated poultry business, including
poultry farms, a grain mill, a slaughterhouse and a meat processing plant in
Jordan. Our Jordanian poultry business is the leading provider of poultry
products to retail stores and foodservice operators in that country. The newly
established meat processing operation provides meat products for the Jordanian
market and to other Middle East and African markets.
Other
Products and Services
Our other
products and services include our third-party ocean freight business, our
third-party plastics and box manufacturing business and our Argentine grain
business. Our third-party ocean freight business allows us to generate
incremental revenue on vessels’ return voyages to our product sourcing locations
and when space is available on outbound voyages to our major markets, which
reduces our overall shipping costs. During the fourth quarter of
2009, as a result of unfavorable economic conditions, we eliminated our
third-party ocean freight service from North Europe to the
Caribbean. Our plastics and box manufacturing business produces bins,
trays, bags and boxes. Although this business is intended mainly to satisfy
internal packaging requirements, we also sell these products to third
parties.
In
addition, we grow grain on leased farms in Argentina, including soybean, wheat
and rice. We own and operate grain silos in Argentina for the storage of our
grain and that grown by third parties, which may be held for future
sales.
Logistics
Operations
We market
and distribute our products to retail stores, foodservice operators, wholesalers
and distributors in more than 100 countries around the world. As a result, we
conduct complex logistics operations on a global basis, transporting our
products from the countries in which they are grown to the many markets in which
they are sold worldwide. Maintaining fruit at the appropriate temperature is an
important factor in preventing premature ripening and optimizing product quality
and freshness. Consistent with our reputation for high-quality fresh produce, we
must preserve our fresh fruit in a continuous temperature-controlled
environment, beginning with the harvesting of the fruit in the field through its
distribution to our end markets.
We have a
fully integrated logistics network, which includes land and sea transportation
through a broad range of refrigerated environments in vessels, port facilities,
containers, trucks and warehouses. Our objective is to maximize utilization of
our logistics network to lower our average per-box logistics cost, while
remaining sufficiently flexible to redeploy capacity or shipments to meet
fluctuations in demand in our key markets. We believe that our control of the
logistics process is a competitive advantage because we are able to continuously
monitor and maintain the quality of our produce and ensure timely and regular
distribution to customers on a year-round basis. Because logistics costs are
also our largest expense other than our cost of products, we devote substantial
resources to managing the scheduling and availability of various means of
reliable transportation.
We
transport our fresh produce to markets worldwide using our fleet of 16 owned and
17 chartered refrigerated vessels. During 2009, we sold five of our
older, less efficient vessels and entered into 10-year agreements to charter
four new Japanese-built vessels. These vessels are capable of
carrying approximately 430,000 40-pound boxes of palletized and containerized
fruit. Two of these new vessels were put into service during the
fourth quarter of 2009 and the remaining two are scheduled for delivery during
the first half of 2010. We believe that our fleet of owned vessels,
combined with longer-term charters, is effective in reducing our ocean freight
costs and mitigates our exposure to the volatility of the charter
market. We also operate a fleet of approximately 6,100 refrigerated
containers, which are 43% owned or under capital leases, and the remaining 57%
are under operating leases. Our logistics system is supported by various
information systems. As a vertically integrated food company, managing the
entire distribution chain from the field to the customer requires the technology
and infrastructure to be able to meet our customers’ complex delivery
needs.
8
Sales
and Marketing
Our sales
and marketing activities are conducted by our sales force located at our sales
offices worldwide and at each of our distribution centers. Our commercial
efforts are supported by marketing professionals located in key markets and
regional offices. A key element of our sales and marketing strategy is to use
our distribution centers as a means of providing value-added services for our
customers. During 2009, we made significant investments in our network of
distribution centers, primarily concentrated in the Middle East, where we
believe that a strong presence will allow us to service a greater proportion of
customers’ needs and to capture a greater proportion of these expanding fresh
and fresh-cut produce markets. Investments in our network included new
distribution centers with banana ripening, cooling, re-packing and other
value-added service facilities.
We
actively support our customers through technical training in the handling of
fresh produce, in-store merchandising support, joint promotional activities,
market research and inventory and other logistical support. Since most of our
customers carry only one branded product for each fresh produce item, our
marketing and promotional efforts for fresh produce emphasize trade advertising
and in-store promotions.
One of
our most recent innovations is our new Controlled Ripening Technology (“CRT™”) banana
packaging. Launched in October 2009, our proprietary, patent pending
CRT™
packaging was created for individual single-serve packages and for our
40-pound bulk banana boxes. This packaging utilizes state-of-the-art
technology to help improve the ripening and handling process while helping
retailers increase banana sales, reduce product losses and maximize
profits. It also allows us to deliver to our customers the highest
quality fruit. As a result of this CRT™
packaging, we are able to broaden our distribution channels to include
vending machines and expand our product offerings to our convenience store
customer base.
During
2009, one customer, Wal-Mart, Inc. (including its affiliates), accounted for
approximately 13% of our total net sales. These sales are reported in our
banana, other fresh produce and prepared food segments. No other customer
accounted for 10% or more of our net sales. In 2009, the top 10 customers
accounted for approximately 34% of our net sales.
The level
of marketing investment necessary to support the prepared food business is
significantly higher than that required for the fresh produce and fresh-cut
fruit and vegetable business. We have utilized a variety of promotional tools to
build the DEL MONTE® brand
and engage consumers in key markets in Europe, Africa and the Middle
East. In recent years, we implemented a new strategy for the prepared
food business in certain key European markets consisting of utilizing exclusive
distributors to perform product distribution, sales and marketing activities.
Under these agreements, the sales, warehousing, logistics, marketing and
promotion functions are all performed by the distributor. This strategy of
utilizing independent distributors has enabled us to reduce distribution and
sales and marketing expenses. In addition, we plan to expand our prepared food
business by entering new markets in Eastern Europe, Africa and the Middle East
and by expanding our offerings in the snack category, targeting the convenience
store and foodservice trade in selected European and Middle East
markets.
North
America
In 2009,
48% of our net sales were made in North America. In North America, we have
established a highly integrated sales and marketing network that builds on our
ability to control transportation and distribution throughout our extensive
logistics network. We operate a total of 22 distribution centers and fresh-cut
facilities in the United States. Our distribution centers have ripening
capabilities and/or other value-added services. We also operate four port
facilities, which include cold storage facilities.
Our
logistics network provides us with a number of sales and marketing advantages.
For example, because we are able to maintain the quality of our fresh produce in
a continuous temperature-controlled environment, we are under less pressure to
fully sell a shipment prior to its arrival at port. We are thus better able to
manage the timing of our sales to optimize margins. Our ability to off-load
shipments for cold storage and distribution throughout our network also improves
ship utilization by minimizing in-port docking time. Our logistics network also
allows us to manage our inventory among distribution centers to respond more
effectively to fluctuations in customer demand in the regions we
serve.
9
We have
sales professionals in locations throughout the United States and in Canada. We
sell to leading grocery stores and other retail chains, wholesalers, mass
merchandisers, supercenters, foodservice operators, club stores and distributors
in North America. These large customers typically take delivery of our products
at the port facilities, which we refer to as FOB delivery. We also service these
large customers, as well as an increasing number of smaller regional chains and
independent grocers, through our distribution centers.
Europe
In 2009,
28% of our net sales were made in Europe. We distribute our products throughout
Europe. In the United Kingdom, where we operate three distribution centers and
two fresh-cut facilities, our products are distributed to leading retail chains,
smaller regional customers as well as to wholesalers and distributors through
direct sales and distribution centers. In Northern Europe, we distribute our
fresh produce products through our own marketing entities with operations
located in Germany and The Netherlands. In Southern Europe, we
distribute our fresh produce through an independent marketing
company. Our prepared food products are distributed through
independent distributors throughout most of Europe, except in Germany, France
and Poland where we use our own marketing entities. In Germany, we
operate three distribution centers. In Poland, we operate two distribution
centers. In recent years, we restructured various prepared food operations and
have transitioned to utilizing exclusive distributors to perform product
distribution and sales and marketing activities in certain key European markets.
Under these agreements, the sales, warehousing, logistics, marketing and
promotion functions are all performed by the distributors. This strategy of
utilizing independent distributors has enabled us to reduce distribution, sales
and marketing expenses.
Middle
East and North Africa
In 2009,
9% of our net sales were made in the Middle East and North Africa. We
distribute our products through independent distributors and company-operated
distribution facilities. We have increased our sales of bananas in the Middle
East market through distributors and established our own direct sales
initiatives. Our distribution/manufacturing center in Dubai, United Arab
Emirates (“UAE”) is a state-of-the-art facility with just-in-time delivery
capabilities that includes banana ripening and cold storage facilities,
fresh-cut fruit and vegetable operations and an ultra-fresh juice manufacturing
operation. We distribute these products in the UAE and export them to other
Middle East countries. We also operate a distribution center in Abu-Dhabi, UAE
that includes banana ripening and cold storage facilities. In Saudi Arabia,
through our 60%-owned joint venture, we are implementing an expansion program
that includes the construction of two distribution centers with banana ripening,
cold storage facilities and future manufacturing capabilities. One of
the distribution centers, located in Riyadh, the capital city of Saudi Arabia,
was completed in 2009 while the second one, located in Jeddah, is planned for
completion in the first quarter of 2010. These strategically
located distribution centers will distribute our fresh produce products to this
growing market. In addition, we market and distribute prepared food products in
the UAE, Jordan, Saudi Arabia and various other Middle East and North African
markets. We have also established a presence in Egypt where we market and
distribute prepared food. In Jordan, we own a state-of-the-art vertically
integrated poultry business including poultry farms, a grain mill, a
slaughterhouse and a meat processing plant. We are the leading provider of
poultry products to retail stores and foodservice operators in that country. In
recent years, we have expanded our food business in Jordan with the addition of
the meat processing operation that provides meat products for the local market
and for export to other Middle East and North African markets. We believe that
the Middle East and North Africa markets represent an area for rapid sales
development of our fresh and prepared food products. Utilizing our extensive
knowledge of this region, we plan to capitalize on this opportunity with
increased focus and investments in these markets.
Asia
In 2009,
12% of our net sales were made in Asia. We distribute our products in
Asia through direct marketing and large distributors. Our principal markets in
this region are Japan, South Korea, mainland China and Hong Kong. In Japan, we
distributed approximately 89% of the products we sold in 2009 through direct
sales and the remainder through Japan’s largest fresh produce wholesaler, which
distributes our products on a sales commission basis. Our products are
distributed from four distribution centers located at strategic ports in Japan
with cold storage and banana ripening operations.
10
We also
engage in direct sales and marketing activities in South Korea and Hong Kong. In
other Asian markets, including mainland China, we sell to local distributors. We
have one distribution center and banana ripening facility in Hong Kong. In South
Korea, we have three distribution centers that utilize state-of-the art ripening
technology, which we believe is not otherwise available in that market. This
increases our ability to offer value-added services to our
customers.
South
America
We also
distribute our products in South America. We have direct sales and marketing
activities in strategic markets and also utilize local distributors in this
region. Our sales in these markets focus mainly on non-tropical fruit including
grapes, apples, pears, peaches, plums, cherries, kiwi and
nectarines.
Competition
We
compete based on a variety of factors, including the appearance, taste, size,
shelf life and overall quality of our fresh produce, price and distribution
terms, the timeliness of our deliveries to customers and the availability of our
produce items. The fresh produce business is highly competitive, and the effect
of competition is intensified because our products are perishable. Competition
in the sale of bananas, pineapples, melons and the other fresh fruit and
vegetables that we sell comes from competing producers and distributors. Our
sales are also affected by the availability of seasonal and alternative produce.
While historically our main competitors have been multinational banana and
pineapple producers, our significantly increased product offering in recent
years has resulted in additional competition from a variety of companies. These
companies include local and regional producers and distributors in each of our
fresh produce and fresh-cut product categories.
The
extent of competition varies by product. In the pineapple and non-tropical fruit
markets, we believe that the high degree of capital investment and cultivation
expertise required, as well as the longer length of the growing cycle, makes it
relatively difficult to enter the market. However, in recent years we have
experienced an increase in competition with our Del Monte Gold® Extra Sweet pineapple, which
has negatively affected our results.
In the
banana market, we continue to face competition from a limited number of large
multinational companies. At times, particularly when demand is greater than
supply, we also face competition from a large number of relatively small banana
producers. Unlike the pineapple and non-tropical fruit markets, there are few
barriers to entry into the banana market. Supplies of bananas can be increased
relatively quickly due to bananas relatively short growing cycle and the limited
capital investment required for banana growing. As a result of changes in supply
and demand, as well as seasonal factors, banana prices fluctuate
significantly.
In the
melon market, we compete with producers and distributors of both branded and
unbranded melons. From June to October, the peak North American and European
melon-growing season, many growers enter the market with less expensive
unbranded or regionally branded melons due to the relative ease of growing
melons during this period, the short growth cycle and reduced transportation
costs resulting from the proximity of the melon farms to the markets. These
factors permit many smaller domestic growers to enter the market. During the
offshore growing season from October to May, we compete with growers principally
in Central America. In recent years, there has been an abundant
supply of melons in the market during the offshore growing season, which has
negatively affected our results.
The
fresh-cut produce market is highly fragmented, and we compete with a wide
variety of local and regional distributors of branded and unbranded fresh-cut
produce and, in the case of certain fresh-cut vegetables, a small number of
large, branded producers and distributors. In this market, however, we believe
that our principal competitive challenge is to capitalize on the growing trend
of retail chains and independent grocers to outsource their own on-premises
fresh-cut operations. We believe that our sales strategy, which emphasizes not
only our existing sources of fresh produce, but also a full range of value-added
services, strict compliance with food safety standards and our national
distribution capability, positions us to gain an increasing share of this
market.
The
processed fruit and beverage markets are mature markets characterized by high
levels of competition and consumer awareness. Consumer choices are driven by
price and/or quality. Large retailers with their “buyers own label” (“BOL”)
products appeal to price-conscious consumers, while brand names are the key
differentiator for quality-focused consumers. In the processed food and beverage
markets in Europe, Africa and the Middle East, we compete with various local
producers, large retailers with their BOL products, as well as with large
international branded companies. It is in the branded section that our processed
foods products, specifically, canned fruit and pineapple in many European
countries, hold a leading position in the markets. The mature state of the
market in Western Europe, together with the strength and sophistication of the
large retailers there, account in part for the increasing presence of BOL
products in many food and beverage categories. In the past few years, we have
faced increased competitive pressure, particularly in the U.K. market, for
branded processed food and beverage products. At the same time, our marketing
and distribution costs in these European markets have increased. In order to
reduce costs and increase our competitiveness in the processed food business, we
decided to use distributors in certain key European markets to perform product
distribution and sales and marketing activities. Under these arrangements, the
sales, warehousing, logistics, marketing and promotion functions are all
performed by the distributor. In the United Kingdom and Italian
markets we have also outsourced our beverage production. This
strategy, taking advantage of lower cost and established marketing and
distribution networks, has enabled us to reduce costs and increase our
competitiveness in these mature markets.
11
Quality
Assurance
To ensure
the consistent high quality of our products, we have a quality assurance group
that maintains detailed quality specifications for all our products so that they
meet or exceed minimum regulatory requirements. Our specifications require
extensive sampling of our fresh produce at each stage of the production and
distribution processes to ensure high quality and proper sizing, as well as to
identify the primary sources of any defects. Our fresh produce is evaluated
based on both external appearance and internal quality, using size, color,
porosity, translucence and sweetness as criteria. Only fresh produce meeting our
stringent quality specifications is sold under the DEL MONTE®
brand.
We are
able to maintain the high quality of our products by growing a substantial
portion of our own produce and working closely with our independent growers. We
insist that all produce supplied by our independent growers meet the same
stringent quality requirements as produce grown on our farms. Accordingly, we
monitor our independent growers to ensure that their produce will meet
agricultural and quality control standards, offer technical assistance on
certain aspects of production and packing and, in some cases, manage the farms.
The quality assurance process begins on the farms and continues as harvested
products enter our packing facilities. Where appropriate, we cool the fresh
produce at our packing facilities to maximize quality and optimize shelf life.
As an indication of our commitment to quality, many of our operations have
received certificates of compliance from the International Standards of
Operation, in environmental compliance (14001) and production processes
(9001). In 2003, we became the world’s first multinational fresh produce company
to receive GlobalGap certification. We believe that this certification is among
the more difficult food certifications to achieve, and signals to European
retailers and consumers that the fresh produce from our certified operations are
of the highest quality and that it meets the strictest food safety
standards.
Government
Regulation
Agriculture
and the sale and distribution of fresh produce are subject to extensive
regulation by government authorities in the countries where the produce is grown
and the countries where such produce is marketed. We have internal policies and
procedures to comply with the most stringent regulations applicable to our
products, as well as a technical staff to monitor pesticide usage and compliance
with applicable laws and regulations. We believe we are in material compliance
with these laws and regulations.
We are
also subject to various government regulations in countries where we market our
products. The countries in which we market a material amount of our products are
the United States, Canada, the countries of the European Union (the “EU”),
Japan, China, South Korea, Jordan and the UAE. These government regulations
include:
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sanitary
regulations, particularly in the United States and the countries of the
EU;
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regulations
governing pesticide use and residue levels, particularly in the United
States, United Kingdom, Germany and Japan;
and
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regulations
governing traceability, packaging and labeling, particularly in the United
States and the countries of the EU.
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12
Any
failure to comply with applicable regulations could result in an order barring
the sale of part or all of a particular shipment of our products or, in an
extreme case, the sale of any of our products for a specified period. In
addition, we believe there has been an increasing emphasis on the part of
consumers, as well as retailers, wholesalers, distributors and foodservice
operators, on food safety issues, which could result in our business and
operations being subject to increasingly stringent food safety regulations or
guidelines.
Although
the fresh-cut produce industry is not currently subject to any specific
governmental regulations, we cannot predict whether or when any regulation will
be implemented or the scope of any possible regulation.
European
Union Banana Import Regulations
In
November 2005, the EU agreed to reform its controversial banana import license
regime. Latin America banana exporters and the United States long have
complained that the EU’s banana trading system favored African, Caribbean and
Pacific countries (“ACP”) in violation of global trade rules. From
January 1, 2006, the quotas controlling import volumes of “third country”
(almost exclusively Latin American) bananas coming into the EU were eliminated.
Importers are now required to pay a euro (“€”) tariff of €176 per ton and a
small guarantee of €15 per ton. Import licenses have been eliminated,
but an import certificate is still required. The EU agreed to retain a duty-free
quota of 775,000 tons per annum for bananas from ACP countries. In December
2007, most of the ACP countries, including Cameroon, signed a bilateral
agreement with the EU that allows bananas duty free access to the EU market
without any quantitative limitation commencing on January 1,
2008. On December 15, 2009, the EU entered into an agreement
with certain Latin America banana exporting countries to settle the long running
dispute over banana import tariffs. The EU will gradually reduce
import tariffs on bananas from Latin America from the current level of €176 per
ton to €114 per ton in 2017. The largest reduction in the import
tariff of €28 per ton will be retroactively effective to December 15, 2009, once
the national lawmakers ratify the agreement. The import tariff will
then be reduced again on January 1, 2011 and at the beginning of each subsequent
year for seven years, as follows: 2011-€143, 2012-€136, 2013-€132, 2014-€127,
2015-€122, 2016-€117 and 2017-€114. This agreement is expected to be
ratified during the first half of 2010. If certain global
agricultural trade conditions, as stipulated in the agreement, are not meet by
the end of 2013, the reduction in import tariffs will be frozen for two years
until 2015. Afterwards, commencing in 2016, irrespective of meeting
the stipulated conditions, the EU will continue to reduce its tariff each year
as agreed, until the tariff reaches €114 on January 1, 2019. We
cannot predict the impact of this reduction of banana import tariffs on the EU
market.
Environmental
Proceedings
The
management, use and disposal of some chemicals and pesticides are inherent
aspects of our production operations. These activities and other aspects of
production are subject to various environmental laws and regulations, depending
upon the country of operation. In addition, in some countries of operation,
environmental laws can require the investigation and, if necessary, remediation
of contamination related to past or current operations. We are not a party to
any dispute or legal proceeding relating to environmental matters where we
believe that the risk associated with the dispute or legal proceeding would be
material, except as described in Item 3. Legal Proceedings and Note
18, “Litigation” to the
Consolidated Financial Statements included in Item 8. Financial Statements and
Supplementary Data in
connection with the Kunia Well Site.
On
May 10, 1993, the EPA identified a certain site at our plantation in Hawaii
for potential listing on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended. See
Item 3. Legal
Proceedings and Note 18, “Litigation” to the
Consolidated Financial Statements included in Item 8. Financial Statements and
Supplementary Data.
Research
and Development, Patents and Licenses, Etc.
Our
research and development programs have led to improvements in agricultural and
growing practices and product packaging technology. These programs are directed
mainly at reducing the cost and risk of pesticides, using natural biological
agents to control pests and diseases, testing new varieties of our principal
fruit varieties for improved crop yield and resistance to wind damage and
improving post-harvest handling. We have also been seeking to increase the
productivity of low-grade soils for improved banana growth and experimenting
with various other types of fresh produce. Our research and development efforts
are conducted by our staff of professionals and include studies conducted in
laboratories, as well as on-site field analyses and experiments. Our research
and development professionals are located at our production facilities and in
the United States, and we provide our growers with access to improved
technologies and practices. We operate research and development facilities in
the San Francisco Bay area of California and Costa Rica where we conduct various
research activities relating to the development of new fruit
varieties.
13
Some of
the research and development projects include:
|
•
|
the
development of the Del
Monte Gold®
Extra Sweet
pineapple and other pineapple and melon
varieties;
|
|
•
|
improved
irrigation methods and soil preparation for melon planting;
and
|
|
•
|
the
development of our new CRT™ banana packaging created
for individual single-serve packages and for our 40-pound bulk banana
boxes that improves the ripening and handling
process.
|
Our total
corporate research and development expenses were $3.2 million, $3.5 million and
$3.1 million for 2009, 2008 and 2007, respectively, and are included in selling,
general and administrative expenses in the Consolidated Financial
Statements.
We have
the exclusive right to use the DEL MONTE® brand
for fresh fruit, fresh vegetables and other fresh and fresh-cut produce and
certain other specified products on a royalty-free basis under a worldwide,
perpetual license from Del Monte Corporation, an unaffiliated company that owns
the DEL MONTE®
trademark. Del Monte Corporation and several other unaffiliated companies
manufacture, distribute and sell under the DEL MONTE® brand
canned or processed fruit, vegetables and other produce, as well as dried fruit,
snacks and other products. Our licenses allow us to use the trademark
“DEL MONTE®” and
the words “DEL MONTE®” in
association with any design or logotype associated with the brand. The licenses
also give us certain other trademarks and trademark rights, on or in connection
with the production, manufacture, sale and distribution of fresh fruit, fresh
vegetables, other fresh produce and certain other specified products. In
addition, the licenses allow us to use certain patents and trade secrets in
connection with the production, manufacture, sale and distribution of our fresh
fruit, fresh vegetables, other fresh produce and certain other specified
products.
We have a
royalty-free perpetual license to use the DEL MONTE®
trademark in connection with the production, manufacture, sale and distribution
of all food and beverage products in Europe, Africa and the Middle
East.
We also
sell produce under several other brands for which we have obtained registered
trademarks, including UTC®,
Rosy®,
Fruit Express®, Just
Juice®,
Fruitini® and
other regional brands.
14
Seasonality
In part
as a result of seasonal sales price fluctuations, we have historically realized
a greater portion of our net sales and of our gross profit during the first two
calendar quarters of the year. The sales price of any fresh produce item
fluctuates throughout the year due to the supply of and demand for that
particular item, as well as the pricing and availability of other fresh produce
items, many of which are seasonal in nature. For example, the production of
bananas is continuous throughout the year and production is usually higher in
the second half of the year, but the demand for bananas varies because of the
availability of other fruit. As a result, demand for bananas is seasonal and
generally results in higher sales prices during the first six months of the
calendar year. We make most of our sales of non-tropical fruit from October to
May. In the melon market, the entry of many growers selling unbranded or
regionally branded melons during the peak North American and European melon
growing season results in greater supply, and therefore lower sales prices, from
June to October. As a result of greater demand during the fourth quarter, the
prepared food business is expected to have higher net sales and gross profit
during this period. These seasonal fluctuations are illustrated in the following
table, which presents certain unaudited quarterly financial information for the
periods indicated:
|
Year
ended
|
||||||||
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008
|
|||||||
|
Net
sales:
|
||||||||
|
First
quarter
|
$ | 879.7 | $ | 894.9 | ||||
|
Second
quarter
|
978.4 | 972.2 | ||||||
|
Third
quarter
|
766.2 | 832.9 | ||||||
|
Fourth
quarter
|
872.1 | 831.0 | ||||||
|
Total
|
$ | 3,496.4 | $ | 3,531.0 | ||||
|
Gross
profit:
|
||||||||
|
First
quarter
|
$ | 83.8 | $ | 96.9 | ||||
|
Second
quarter
|
91.0 | 99.6 | ||||||
|
Third
quarter
|
69.0 | 79.0 | ||||||
|
Fourth
quarter
|
67.0 | 68.5 | ||||||
|
Total
|
$ | 310.8 | $ | 344.0 | ||||
Employees
At year
end 2009, we employed approximately 44,000 persons worldwide, substantially all
of whom are year-round employees. Approximately 88% of these persons are
employed in production locations. We believe that our overall relationship with
our employees and unions is satisfactory.
15
Organizational
Structure
We are
organized under the laws of the Cayman Islands and, as set forth in our Amended
and Restated Memorandum of Association, we are a holding company for the various
subsidiaries that conduct our business on a worldwide basis. Our significant
subsidiaries, all of which are directly or indirectly wholly owned,
are:
|
Subsidiary
|
Country
of Incorporation
|
|
|
Corporacion
de Desarrollo Agricola Del Monte S.A.
|
Costa
Rica
|
|
|
Del
Monte B.V.
|
Netherlands
|
|
|
Del
Monte Fresh Produce (Asia-Pacific) Limited
|
Hong
Kong
|
|
|
Del
Monte Fresh Produce Company
|
United
States
|
|
|
Del
Monte Fresh Produce International Inc.
|
Liberia
|
|
|
Del
Monte Fresh Produce N.A., Inc.
|
United
States
|
|
|
Del
Monte Fund B.V.
|
Netherlands
Antilles
|
|
|
Fresh
Del Monte Produce N.V.
|
Netherlands
Antilles
|
Web
site Access to Reports
Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports can be viewed on the Company’s Web
site at www.freshdelmonte.com
as soon as reasonably practicable after such material is electronically filed
with, or furnished to, the SEC.
In
addition, copies of our annual report may be obtained free of charge at Fresh
Del Monte Produce Inc., upon written request to attention: Investor Relations
c/o Del Monte Fresh Produce Company, 241 Sevilla Avenue, Coral Gables, Florida
33134.
|
Risk
Factors
|
We are
subject to many risks and uncertainties that may affect our future financial
performance and our stock price. Some of the risks and uncertainties that may
cause our financial performance to vary or that may materially or adversely
affect our financial performance or stock price are discussed
below.
We
could realize losses and suffer liquidity problems due to declines in sales
prices for bananas, pineapples and other fresh produce.
Our
profitability depends largely upon our profit margins and sales volumes of
bananas, pineapples and other fresh produce. In 2007, 2008 and 2009, banana
sales accounted for the most significant portion of our total net sales, and
historically pineapple sales have accounted for the most significant portion of
our total gross profit.
Supplies
of bananas can be increased relatively quickly due to the banana’s relatively
short growing cycle and the limited capital investment required for banana
growing. As a result of imbalances in supply and demand and import regulations,
banana prices fluctuate; consequently, our operating results could be adversely
affected.
Sales
prices for bananas, pineapples and other fresh produce are difficult to predict.
It is possible that sales prices for bananas and pineapples will decline in the
future, and sales prices for other fresh produce may also decline. In recent
years, there has been increasing consolidation among food retailers, wholesalers
and distributors. We believe the increasing consolidation among food retailers
may contribute to further downward pressure on our sales prices. In the event of
a decline in sales prices or sales volumes, we could realize significant losses,
experience liquidity problems and suffer a weakening in our financial condition.
A significant portion of our costs is fixed, so that fluctuations in the sales
prices have an immediate impact on our profitability. Our profitability is also
affected by our production costs, which may increase due to factors beyond our
control.
16
Due
to fluctuations in the supply of and demand for fresh produce, our results of
operations are seasonal, and we realize a greater portion of our net sales and
gross profit during the first two quarters of each year.
In part
as a result of seasonal sales price fluctuations, we have historically realized
a greater portion of our gross profit during the first two quarters of each
year. The sales price of any fresh produce item fluctuates throughout the year
due to the supply of and demand for that particular item, as well as the pricing
and availability of other fresh produce items, many of which are seasonal in
nature. For example, the production of bananas is continuous throughout the year
and production is usually higher in the second half of the year, but the demand
for bananas during that period varies because of the availability of seasonal
and alternative fruit. As a result, demand for bananas is seasonal and generally
results in higher sales prices during the first six months of each calendar
year. In the melon market, the entry of many growers selling unbranded or
regionally branded melons during the peak North American and European melon
growing season results in greater supply, and therefore, lower sales prices from
June to October. In North American and European regions, we realize most of our
sales and gross profit for melons, grapes and non-tropical fruit from October to
May. During 2009, due to higher industry volumes, melon per unit sales prices
decreased, adversely affecting our results of operations. In the
prepared food business, we historically realize the largest portion of our net
sales and gross profit in the third and fourth quarters of the
year.
Crop
disease, severe weather, natural disasters and other conditions affecting the
environment, including the effects of climate change, could result in
substantial losses and weaken our financial condition.
Crop
disease, severe weather conditions, such as floods, droughts, windstorms and
hurricanes, and natural disasters, such as the recent earthquake in Chile, may
adversely affect our supply of one or more fresh produce items, reduce our sales
volumes, increase our unit production costs or prevent or impair our ability to
ship products as planned. This is particularly true in the case of our premium
pineapple product, the Del
Monte Gold ® Extra Sweet pineapple,
because a substantial portion of our production is grown in one region in Costa
Rica. Since a significant portion of our costs are fixed and contracted in
advance of each operating year, volume declines due to production interruptions
or other factors could result in increases in unit production costs, which could
result in substantial losses and weaken our financial condition. We have
experienced crop disease, insect infestation, severe weather and other adverse
environmental conditions from time to time, including hurricanes, droughts,
floods and earthquakes in our sourcing locations. Severe weather
conditions may occur with higher frequency or may be less predictable in the
future due to the effects of climate change. When crop disease,
insect infestations, severe weather, earthquakes and other adverse environmental
conditions destroy crops planted on our farms or our suppliers’ farms or prevent
us from exporting them on a timely basis, we may lose our investment in those
crops or our purchased fruit cost may increase.
The
fresh produce and prepared food markets in which we operate are highly
competitive.
The fresh
produce and prepared food business is highly competitive, and the effect of
competition is intensified because most of our products are perishable. In
banana and pineapple markets, we compete principally with a limited number of
multinational and large regional producers. In the case of our other fresh fruit
and vegetable products, we compete with numerous small producers, as well as
regional competitors. Our sales are also affected by the availability of
seasonal and alternative fresh produce. The extent of competition varies by
product. To compete successfully, we must be able to strategically source fresh
produce and prepared food of uniformly high quality and sell and distribute it
on a timely and regular basis. In addition, our profitability has depended
significantly on our gross profit on the sale of our Del Monte Gold® Extra Sweet pineapples.
Increased competition in the production and sale of Del Monte Gold® Extra Sweet pineapples has
adversely affected our results. We expect these competitive pressures to
continue.
We
are subject to material currency exchange risks because our operations involve
transactions denominated in various currencies.
We
conduct operations in many areas of the world involving transactions denominated
in a variety of currencies, and our results of operations, as expressed in
dollars, may be significantly affected by fluctuations in rates of exchange
between currencies. Although a substantial portion of our net sales (41% in
2009) are denominated in non-dollar currencies, we incur a significant portion
of our costs in dollars. Although we periodically enter into currency forward
contracts as a hedge against currency exposures, we may not enter into these
contracts during any particular period or these contracts may not adequately
offset currency fluctuations. We generally are unable to adjust our non-dollar
local currency sales prices to compensate for fluctuations in the exchange rate
of the dollar against the relevant local currency. In addition, there is
normally a time lag between our incurrence of costs and collection of the
related sales proceeds. Accordingly, if the dollar appreciates relative to the
currencies in which we receive sales proceeds, our operating results may be
negatively affected. Our costs are also affected by fluctuations in the value,
relative to the U.S. dollar, of the currencies of countries in which we have
significant production operations, with a weaker dollar resulting in increased
production costs.
17
Our
strategy of diversifying our product line, expanding into new geographic markets
and increasing the value-added services that we provide to our customers may not
be successful.
We
are diversifying our product line through acquisitions and internal growth. In
addition, we have expanded our service offerings to include a higher proportion
of value-added services, such as the preparation of fresh-cut produce, ripening,
customized sorting and packing, direct-to-store delivery and in-store
merchandising and promotional support. This represents a significant departure
from our traditional business of delivering our products to our customers at the
port. In recent periods, we have made significant investments in distribution
centers, fresh-cut and prepared food facilities through capital expenditures and
acquisitions and have expanded our business into new geographic markets. We may
not be successful in anticipating the demand for these products and services, in
establishing the requisite infrastructure to meet customer demands or the
provision of these value-added services. During recent years, we incurred
significant asset impairment and other charges as a result of our continuing
efforts to align our diversified product lines to market demand. If we are
unable to recover from current challenging economic conditions in Europe,
specifically in the United Kingdom, the prepared food goodwill and trademark may
be at risk for impairment in the future. If we are not successful in
our diversification efforts, our business, financial condition or results of
operations could be further materially and adversely affected.
Increased
prices for fuel, packaging materials or short-term refrigerated vessel charter
rates could increase our costs significantly.
Our costs
are determined in large part by the prices of fuel and packaging materials,
including containerboard, plastic, resin and tin plate. We may be adversely
affected if sufficient quantities of these materials are not available to us.
Any significant increase in the cost of these items could also materially and
adversely affect our operating results. Other than the cost of our products
(including packaging), sea and inland transportation costs represent the largest
component of cost of products sold.
During
2007, the cost of fuel increased 17% and containerboard had a slight increase as
compared with 2006. During 2008, the cost of fuel increased by 42% and
containerboard increased by 11%. During 2008, we also experienced a
significant amount of cost increases on our products due to higher fertilizer
and other raw material prices. During 2009, cost of fuel decreased by
32% and containerboard decreased 24% as compared with 2008. In
addition, we are subject to the volatility of the short-term charter vessel
market because approximately one-half of our refrigerated vessels are chartered
rather than owned. These charters are for periods of one to 10
years. Charter rates have generally increased during 2007 and 2008 as
compared with the relevant prior year, but did not experience any further
increase during 2009. As a result, significant increases in fuel,
packaging material and short-term charter rates would materially and adversely
affect our results.
Compliance
with regulation aimed at mitigating the effects of climate change, as discussed
elsewhere in these Risk Factors, could also increase the cost of fuel for our
shipping and logistics operations. We may be unable to pass along any
cost increases in our product pricing. Even if we can pass on cost increases,
significant changes in product pricing could also change consumer buying
patterns, including a greater reliance on local production rather than
imports.
We
are subject to the risk of product contamination and product liability
claims.
The sales
of our products involve the risk of injury to consumers. Such injuries may
result from tampering by unauthorized personnel, product contamination or
spoilage, including the presence of foreign objects, substances, chemicals, or
residues introduced during the growing, packing, storage, handling or
transportation phases. While we are subject to governmental inspection and
regulations and believe our facilities comply in all material respects with all
applicable laws and regulations, including internal product safety policies, we
cannot be sure that consumption of our products will not cause a health-related
illness in the future or that we will not be subject to claims or lawsuits
relating to such matters. Even if a product liability claim is unsuccessful, the
negative publicity surrounding any assertion that our products caused illness or
injury could adversely affect our reputation with existing and potential
customers and our brand image. In addition, claims or liabilities of this sort
might not be covered by our insurance or by any rights of indemnity or
contribution that we may have against others. We maintain product liability
insurance in an amount that we believe is adequate. However, we cannot be sure
that we will not incur claims or liabilities for which we are not insured or
that exceed the amount of our insurance coverage, resulting in significant cash
outlays that would materially and adversely affect our results and financial
condition.
18
We
are subject to legal and environmental risks that could result in significant
cash outlays.
We are
involved in several legal and environmental matters that, if not resolved in our
favor, could require significant cash outlays and could materially and adversely
affect our results of operations and financial condition. In addition, we may be
subject to product liability claims if personal injury results from the
consumption of any of our products. In addition, although the fresh-cut produce
market is not currently subject to any specific governmental regulations, we
cannot predict whether or when any regulation will be implemented or the scope
of any possible regulation.
The U.S.
Environmental Protection Agency (the “EPA”) has placed a certain site at our
former plantation in Oahu, Hawaii on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980.
Under an order entered into with the EPA, we completed a remedial investigation
and engaged in a feasibility study to determine the extent of the environmental
contamination. The remedial investigation report was finalized on
January 21, 1999 and approved by the EPA in February 1999. A final draft
feasibility study was submitted for EPA review in December 1999 and updated in
December 2001 and October 2002, and approved by the EPA on April 22, 2003.
On September 25, 2003, the EPA issued the Record of Decision (“ROD”). The
EPA estimates in the ROD that the remediation costs associated with the cleanup
of our plantation will range from $12.9 million to $25.4 million. Certain
portions of the EPA’s estimates have been discounted using a 5% interest rate.
The undiscounted estimates are between $14.8 million to $28.7 million. As of
January 1, 2010, there is $19.4 million included in other noncurrent liabilities
and $0.5 included in accounts payable and accrued expenses in our Consolidated
Balance Sheets relating to the Kunia well site clean-up. We expect to expend
approximately $0.5 million per year on this matter for the next five years. See
Item 3. Legal
Proceedings and Note 18, “Litigation” to the
Consolidated Financial Statements included in Item 8. Financial Statements and
Supplementary Data. In addition, we are involved in several actions in
U.S. and non-U.S. courts involving allegations by numerous Central American and
Philippine plaintiffs that they were injured by exposure to a nematocide
containing the chemical Dibromochloropropane (“DBCP”) during the 1970’s. See
Item 3. Legal
Proceedings and Note 18, “Litigation” to the
Consolidated Financial Statements included in Item 8. Financial Statements and
Supplementary Data.
Environmental
and other regulation of our business, including potential climate change
regulation, could adversely impact us by increasing our production cost or
restricting our ability to import certain products into the United
States.
Our
business depends on the use of fertilizers, pesticides and other agricultural
products. The use and disposal of these products in some jurisdictions are
subject to regulation by various agencies. A decision by a regulatory agency to
significantly restrict the use of such products that have traditionally been
used in the cultivation of one of our principal products could have an adverse
impact on us. For example, most uses of methyl bromide, a pesticide used for
fumigation of imported produce (principally melons) for which there is currently
no known substitute, were phased out in the United States in 2006, however,
various exemptions will allow its use offshore until 2015. Also, under the
Federal Insecticide, Fungicide and Rodenticide Act, the Federal Food, Drug and
Cosmetic Act and the Food Quality Protection Act of 1996, the EPA is undertaking
a series of regulatory actions relating to the evaluation and use of pesticides
in the food industry. Similarly, in the EU, regulation (EC) No.
1107/2009 will apply starting June 14, 2011 and will fundamentally change the
pesticide approval process from the current risk base to hazard criteria based
on the intrinsic properties of the substance. These actions and
future actions regarding the availability and use of pesticides could have an
adverse effect on us. In addition, if a regulatory agency were to determine that
we are not in compliance with a regulation in that agency’s jurisdiction, this
could result in substantial penalties and a ban on the sale of part or all of
our products in that jurisdiction.
There has
been a broad range of proposed and promulgated state, national and international
regulation aimed at reducing the effects of climate change. Such regulations
apply or could apply in countries where we have interests or may have interests
in the future. In the United States, there is a significant possibility that
some form of regulation will be forthcoming at the federal level to address the
effects of climate change. Such regulation could take any of several forms that
result in the creation of additional costs in the form of taxes, the restriction
of output, investments of capital to maintain compliance with laws and
regulations, or required acquisition or trading of emission allowances. Climate
change regulation continues to evolve, and while it is not possible to
accurately estimate either a timetable for implementation or our future
compliance costs relating to implementation, we do not believe that such
regulation is reasonably likely to have a material effect in the foreseeable
future on our business, results of operations, capital expenditures or financial
position.
19
We
are exposed to political, economic and other risks from operating a
multinational business.
Our
business is multinational and subject to the political, economic and other risks
that are inherent in operating in numerous countries. These risks include those
of adverse government regulation, including the imposition of import and export
duties and quotas, currency restrictions, expropriation and potentially
burdensome taxation. For example, banana import regulations have in prior years
restricted our access to the EU banana market and increased the cost of doing
business in the EU. On December 15, 2009, the EU entered into an
agreement with certain Latin America banana exporting countries to settle the
long running dispute over banana import tariffs. The EU will
gradually reduce import tariffs on bananas from Latin America from the current
level of €176 per ton to €114 per ton in 2017. The largest reduction
in the import tariff of €28 per ton will be retroactively effective to December
15, 2009, once the national lawmakers ratify the agreement. This
agreement is expected to be ratified during the first half of 2010.
We have a
contract to purchase all of the banana production from an entity controlled by
the Government of Cameroon. In 2007, we signed a new banana purchasing agreement
with our Cameroon partner, effective May 1, 2008 and terminating on
December 31, 2008 with automatic one-year renewal and a cancellation notice
period of 12 months. This contract was automatically renewed for 2009 and once
more for 2010. Effective January 1, 2010, the cancelation notice
period has been extended to 36 months. The Government of Cameroon has
declared again its intention to privatize these banana plantations in the
future. Since bananas produced in Cameroon benefit from certain banana import
preferences and tax exemptions in the EU, privatization may have a negative
effect on our results of operations.
Costa
Rica and Ecuador, countries in which we operate, have established “minimum”
export prices for bananas that are used as the reference point in banana
purchase contracts from independent producers, thus limiting our ability to
negotiate lower purchase prices. These minimum export price requirements could
potentially increase the cost of sourcing bananas in countries that have
established such requirements.
We are
also subject to a variety of government regulations in countries where we market
our products, including the United States, the countries of the EU, Asia,
countries of the Middle East and Africa. Examples of the types of regulation we
face include:
|
|
•
|
sanitary
regulations;
|
|
|
•
|
regulations
governing pesticide use and residue levels;
and
|
|
|
•
|
regulations
governing packaging and labeling.
|
If we
fail to comply with applicable regulations, it could result in an order barring
the sale of part or all of a particular shipment of our products or, possibly,
the sale of any of our products for a specified period. Such a development could
result in significant losses and could weaken our financial
condition.
The
distribution of our fresh produce in Southern Europe could be adversely affected
if we fail to maintain our distribution arrangement.
We import
and distribute a substantial portion of our fresh produce in Southern Europe
through a marketing entity with which we have an exclusive arrangement. If we
were to discontinue this exclusive arrangement, our ability to import and
distribute our fresh produce products in Southern Europe and the Mediterranean
region may be affected. On June 16, 2008, as a result of continuing
disagreements with this distributor related to operational issues, we delivered
our formal notice that we will cease all business with them by December 31,
2011. We are continuing to negotiate with this distributor in order to establish
a revised distribution agreement. Our inability to successfully establish a new
agreement could affect the distribution of our fresh produce products in
Southern Europe and the Mediterranean region and may have a negative effect on
our results of operations.
20
Acts
or omissions of other companies could adversely affect the value of the
DEL MONTE® brand.
We depend
on the DEL MONTE® brand
in marketing our products. We share the DEL MONTE® brand
with unaffiliated companies that manufacture, distribute and sell canned or
processed fruit and vegetables, dried fruit, snacks and other products. Acts or
omissions by these companies, including an instance of food-borne contamination
or disease, may adversely affect the value of the DEL MONTE®
brand. Our reputation and the value of the DEL MONTE® brand
may be adversely affected by negative consumer perception of this
brand.
Our
success depends on the services of our senior executives, the loss of whom could
disrupt our operations.
Our
ability to maintain our competitive position is dependent to a large degree on
the services of our senior management team. We may not be able to retain our
existing senior management personnel or attract additional qualified senior
management personnel.
Our
acquisition and expansion strategy may not be successful.
Our
growth strategy is based in part on growth through acquisitions or expansion,
which poses a number of risks. We may not be successful in identifying
appropriate acquisition candidates, consummating acquisitions on satisfactory
terms or integrating any newly acquired or expanded business with our current
operations. We may issue Ordinary Shares, incur long-term or short-term
indebtedness, spend cash or use a combination of these for all or part of the
consideration paid in future acquisitions or to expand our operations. The
execution of our acquisition and expansion strategy may entail repositioning or
similar actions that in turn require us to record impairments, restructuring and
other charges. Any such charges would reduce our earnings.
Our
indebtedness could limit our financial and operating flexibility and subject us
to other risks.
Our
ability to obtain additional debt financing or refinance our debt in the future
for working capital, capital expenditures or acquisitions may be limited either
by financial considerations or due to covenants in existing loan agreements. Our
principal working capital revolving credit facility was refinanced on July 17,
2009. The new credit facility has an outstanding balance of $309.7 million as of
January 1, 2010.
Our
ability to meet our financial obligations will depend on our future performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, some of which are beyond our control. Our ability to meet our
financial obligations also may be adversely affected by the seasonal nature of
our business, the cyclical nature of agricultural commodity prices, the
susceptibility of our product sourcing to crop disease, severe weather and other
adverse environmental conditions and other factors.
Since we
are an exempted holding company, our ability to meet our financial obligations
depends primarily on receiving sufficient funds from our subsidiaries. The
payment of dividends or other distributions to us by our subsidiaries may be
restricted by the provisions of our credit agreements and other contractual
requirements and by applicable legal restrictions on payment of
dividends.
If we
were unable to meet our financial obligations, we would be forced to pursue one
or more alternative strategies, such as selling assets, restructuring or
refinancing our indebtedness or seeking additional equity capital, strategies
which might not be successful. Additional sales of our equity capital could
substantially dilute the ownership interest of existing
shareholders.
Our new
credit facility imposes operating and financial restrictions on our activities.
Our failure to comply with the obligations under this facility, including
maintenance of financial ratios, could result in an event of default, which, if
not cured or waived, would permit acceleration by the lender of the indebtedness
due under the facility.
We
are controlled by our principal shareholders.
Members
of the Abu-Ghazaleh family, including our Chairman and Chief Executive Officer
and one of our directors, are our principal shareholders. Together, as of
February 22, 2010, they beneficially own approximately 34% of our
outstanding Ordinary Shares, and our Chairman and Chief Executive Officer holds,
and is expected to continue to hold, an irrevocable annual proxy to vote all of
these shares. We expect our principal shareholders to continue to use their
interest in our Ordinary Shares to direct our management, to significantly
influence the election of our entire board of directors, to determine the method
and timing of the payment of dividends also limited by debt covenants, to
determine substantially all other matters requiring shareholder approval and to
control us. The concentration of our beneficial ownership may have the effect of
delaying, deterring or preventing a change in control, may discourage bids for
the Ordinary Shares at a premium over their market price and may otherwise
adversely affect the market price of the Ordinary Shares.
21
A
substantial number of our Ordinary Shares are available for sale in the public
market, and sales of those shares could adversely affect our share
price.
Future
sales of our Ordinary Shares by our principal shareholders, or the perception
that such sales could occur, could adversely affect the prevailing market price
of our Ordinary Shares. Of the 63,600,150 Ordinary Shares outstanding as of
February 22, 2010, 21,565,457 Ordinary Shares are owned by the principal
shareholders and are “restricted securities.” These “restricted” Ordinary Shares
can be registered upon demand and are eligible for sale in the public market
without registration under the Securities Act of 1933 (the “Securities Act”),
subject to compliance with the resale volume limitations and other restrictions
of Rule 144 under the Securities Act.
Our
organizational documents contain a variety of anti-takeover provisions that
could delay, deter or prevent a change in control.
Various
provisions of our organizational documents and Cayman Islands law may delay,
deter or prevent a change in control of us that is not approved by our board of
directors. These provisions include:
|
|
•
|
a
classified board of directors;
|
|
|
•
|
a
prohibition on shareholder action through written
consents;
|
|
|
•
|
a
requirement that general meetings of shareholders be called only by a
majority of the board of directors or by the Chairman of the
Board;
|
|
|
•
|
advance
notice requirements for shareholder proposals and
nominations;
|
|
|
•
|
limitations
on the ability of shareholders to amend, alter or repeal our
organizational documents; and
|
|
|
•
|
the
authority of the board of directors to issue preferred shares with such
terms as the board of directors may
determine.
|
In
addition, a change of control would constitute an event of default under our new
credit facility, which would have a material adverse effect on us. These
provisions also could delay, deter or prevent a takeover attempt.
Our
shareholders have limited rights under Cayman Islands law.
We are
incorporated under the laws of the Cayman Islands, and our corporate affairs are
governed by our Memorandum and Articles of Association and by the Companies Law
(As Revised) of the Cayman Islands. Principles of law relating to matters, such
as the validity of corporate procedures, the fiduciary duties of our management,
directors and controlling shareholders and the rights of our shareholders differ
from those that would apply if we were incorporated in a jurisdiction within the
United States. Further, the rights of shareholders under Cayman Islands law are
not as clearly established as the rights of shareholders under legislation or
judicial precedent applicable in most U.S. jurisdictions. As a result, our
public shareholders may have more difficulty in protecting their interests in
the face of actions by the management, directors or controlling shareholders
than they might have as shareholders of a corporation incorporated in a U.S.
jurisdiction. In addition, there is doubt as to whether the courts of the Cayman
Islands would enforce, either in an original action or in an action for
enforcement of judgments of U.S. courts, liabilities that are predicated upon
the U.S. federal securities laws.
|
Unresolved
Staff Comments
|
None.
22
|
Properties
|
The
following table summarizes the approximate plantation acreage under production
that are owned or leased by us and the principal products grown on such
plantations by location as of the end of 2009:
|
Acres Under Production
|
||||||||||
|
Location
|
Acres Owned
|
Acres Leased
|
Products
|
|||||||
|
Costa
Rica
|
41,500 | 9,700 |
Bananas, Pineapples,
Melons
|
|||||||
|
Guatemala
|
8,300 | 15,900 |
Bananas,
Melons
|
|||||||
|
Brazil
|
5,800 | — |
Bananas, Melons
|
|||||||
|
Chile
|
4,400 | 800 |
Non-Tropical
Fruit
|
|||||||
|
Kenya
|
— | 10,200 |
Pineapples
|
|||||||
|
Philippines
|
180 | 11,500 |
Bananas,
Pineapples
|
|||||||
|
United
States
|
— | 4,800 |
Melons
|
|||||||
We also
lease land in Argentina on a seasonal basis for our grain operations. Our
significant properties include the following:
North
America
We
operate a total of 22 distribution centers in the United States of which nine
are also fresh-cut facilities. We own seven of our distribution centers,
including a 200,000 square foot distribution center in Dallas, Texas, a
distribution center in Plant City, Florida and a repack facility in Winder,
Georgia. The remaining 15 distribution centers are leased from third parties.
All of our distribution centers have ripening capabilities and/or other
value-added services. Also included are two stand-alone fresh-cut facilities
that we own in Kankakee, Illinois and Portland, Oregon. In addition, we lease
four port facilities that include cold storage capabilities.
Europe
We
operate three distribution centers, mostly under leases from third parties, in
the United Kingdom and own one and lease two distribution centers in Germany,
where our products are distributed to leading retail chains. We also own and
operate two fresh-cut facilities in the United Kingdom. In Poland, we operate
two distribution centers that are leased from third parties and include ripening
facilities and other value added services. We own and operate a production
facility for prepared fruit, tomato products and snacks in Larissa,
Greece.
Asia
Our
products are distributed from four leased distribution centers located at
strategic ports in Japan with cold storage and banana ripening operations. In
addition, we own three distribution centers in South Korea and lease a
distribution center in Hong Kong. Our South Korean distribution centers include
state-of-the art ripening technology and other value-added services. We also own
and operate one fresh-cut facility in Japan.
South
America
We own
and operate grain silos in Argentina. In Uruguay, we own approximately 9,600
acres of which 7,400 acres contain a citrus plantation that is leased to a third
party on a five-year basis.
Africa
We own
and operate a warehouse and cannery in Thika, Kenya. In Tulbagh, South Africa,
we own and operate a production facility for prepared non-tropical fruit. The
total amount of land owned in South Africa is approximately 700
acres.
Middle
East
In
Jordan, we own an integrated poultry business including poultry farms, a grain
mill and a poultry slaughterhouse and a meat processing plant. We
also own a combined distribution/manufacturing center in Dubai, UAE. This
state-of-the-art facility includes banana ripening and cold storage facilities,
fresh-cut fruit and vegetable operations and an ultra fresh juice manufacturing
operation. In addition, we operate a distribution center under an operating
lease from a third party in Abu-Dhabi, UAE that includes banana ripening and
cold storage facilities. In Saudi Arabia, we own 60% of a joint venture, which
has initiated an expansion program that includes the construction of two owned
distribution centers with banana ripening, cold storage facilities and future
manufacturing capabilities. One of the distribution centers was
completed in December 2009 and the second is planned for completion in the first
quarter of 2010.
23
Maritime
and Other Equipment (including Containers)
We own a
fleet of 16 and charter another 17 refrigerated vessels. In addition, we own or
lease other related equipment, including approximately 6,100 refrigerated
container units and 170 trucks and refrigerated trailers used to transport our
fresh produce in the United States.
Other
Properties
We own
our U.S. executive headquarters building in Coral Gables, Florida, our Central
America regional headquarters building in San Jose, Costa Rica and our South
America regional headquarters building in Santiago, Chile. We own our office
space in Guatemala City, Guatemala and Amman, Jordan. Our remaining office space
in North America, Europe, Asia, Central and South America is leased from third
parties.
We
believe that our property, plant and equipment are well maintained, in good
operating condition and adequate for their present needs. Except as noted in
Item 3. Legal
Proceedings and Note 18, “Litigation” to the
Consolidated Financial Statements included in Item 8. Financial Statements and
Supplementary Data, we know of no other environmental issues that may
affect the utilization of our property plant and equipment. For further
information with respect to our property, plant and equipment, see Note 8,
“Property, Plant and
Equipment” to the Consolidated Financial Statements filed as part of this
Report.
The
principal capital expenditures planned for 2010 are approximately $103.0
million, consisting of expansion and improvements of production facilities in
Costa Rica, Guatemala, Chile, Kenya and the Philippines and distribution
facilities in North America and the United Kingdom. We expect to fund
our capital expenditures in 2010 through operating cash flows and borrowings
under credit facilities.
|
Legal
Proceedings
|
See Note
18, “Litigation” to the
Consolidated Financial Statements included in Item 8. Financial Statements and
Supplementary Data.
24
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
Ordinary
Share Prices and Related Matters
Our
Ordinary Shares are traded solely on the New York Stock Exchange, under the
symbol FDP, and commenced trading on October 24, 1997, the date of our
initial public offering.
The
following table presents the high and low sales prices of our Ordinary Shares
for the periods indicated as reported on the New York Stock Exchange Composite
Tape:
|
High
|
Low
|
|||||||
|
2008
|
||||||||
|
First
quarter
|
$ | 37.90 | $ | 30.17 | ||||
|
Second
quarter
|
$ | 39.20 | $ | 23.25 | ||||
|
Third
quarter
|
$ | 25.30 | $ | 21.00 | ||||
|
Fourth
quarter
|
$ | 25.24 | $ | 14.33 | ||||
|
2009
|
||||||||
|
First
quarter
|
$ | 26.04 | $ | 13.02 | ||||
|
Second
quarter
|
$ | 18.75 | $ | 14.52 | ||||
|
Third
quarter
|
$ | 24.00 | $ | 15.51 | ||||
|
Fourth
quarter
|
$ | 24.43 | $ | 20.91 | ||||
Dividend
Policy
We have
not paid dividends for the years 2007, 2008 and 2009. Because we are an exempted
holding company, our ability to pay dividends and to meet our debt service
obligations depends primarily on receiving sufficient funds from our
subsidiaries. Pursuant to the new credit facility, we may declare and pay
dividends and distributions in cash solely out of and up to 50% of our net
income for the year immediately preceding the year in which the dividend or
distribution is paid; provided that we may declare dividends in cash solely out
of and up to 70% of our net income for the fiscal year immediately preceding the
year in which the dividend or distribution is paid if, after giving effect to
such dividend payment, we have a leverage ratio of 2.50 to 1.00 for such year.
It is also possible that countries in which one or more of our subsidiaries are
located could institute exchange controls, which could prevent those
subsidiaries from remitting dividends or other payments to us. Dividends are
payable when, as and if declared by our board of directors, and we cannot assure
you that dividends will be paid in the future.
Shareholders
As of
February 22, 2010, we had 106 shareholders of record, which excludes
shareholders whose shares were held by brokerage firms, depositories and other
institutional firms in “street name”.
25
Performance
Graph
The graph
below matches the cumulative five-year total return of holders of Fresh Del
Monte Produce Inc.'s common stock with the cumulative total returns of the
S&P 500 index and the S&P 500 Food Products index. The graph assumes
that the value of the investment in the Company's common stock and in each of
the indexes (including reinvestment of dividends) was $100 on December 31, 2004
and tracks it through January 1, 2010.
|
12/31/04
|
12/30/05
|
12/29/06
|
12/28/07
|
12/26/08
|
1/1/10
|
||
|
Fresh
Del Monte Produce Inc.
|
100.00
|
79.15
|
53.25
|
120.92
|
84.53
|
78.92
|
|
|
S&P
500
|
100.00
|
104.91
|
121.48
|
128.16
|
80.74
|
102.11
|
|
|
S&P
500 Food Products
|
100.00
|
93.98
|
114.61
|
119.74
|
97.65
|
115.01
|
The
stock price performance included in this graph is not necessarily indicative of
future stock price performance.
26
Share
Repurchase Program
The
following table provides information regarding our purchases of Ordinary Shares
during the periods indicated:
|
Period
|
Total
Number of
Shares
Purchased
|
Average
Price Paid
per
Share
|
Total
Number of
Shares
Purchased
as
Part of Publicly
Announced
Plans
or
Programs
|
Maximum
Dollar Value
of
Shares that May
Yet
Be Purchased
Under
the
Program
(1)
|
|
September
26, 2009
through
October
31, 2009
|
-
|
-
|
-
|
$ 150,000,000
|
|
November
1, 2009
through
November
30, 2009
|
-
|
-
|
-
|
$ 150,000,000
|
|
December
1, 2009
through
January
1, 2010
|
-
|
-
|
-
|
$ 150,000,000
|
|
Total
|
-
|
-
|
-
|
$ 150,000,000
|
|
(1) On
August 3, 2009, we announced that our Board of Directors, at their July
31, 2009 board meeting,
approved
a three-year stock repurchase program of up to $150.0 million of our
Ordinary Shares.
|
||||
27
|
Selected
Financial Data
|
Our
fiscal year end is the last Friday of the calendar year or the first Friday
subsequent to the end of the calendar year, whichever is closest to the end of
the calendar year.
The
following selected financial data for the years ended December 30,
2005, December 29, 2006, December 28, 2007, December 26, 2008 and
January 1, 2010 is derived from our audited Consolidated Financial Statements
for the applicable year, prepared in accordance with U.S. generally accepted
accounting principles.
The
following selected financial data should be read in conjunction with
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
and our Consolidated Financial Statements and accompanying notes contained in
Item 8. Financial
Statements and Supplementary Data in this Report.
|
Year
ended (a)
|
||||||||||||||||||||
|
As
adjusted (b)
|
||||||||||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
December
29,
|
December
30,
|
||||||||||||||||
|
2010
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(U.S.
Dollars in millions, except share and per share data)
|
||||||||||||||||||||
|
Statement
of Income Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 3,496.4 | $ | 3,531.0 | $ | 3,365.5 | $ | 3,214.3 | $ | 3,259.7 | ||||||||||
|
Cost
of products sold
|
3,185.6 | 3,187.0 | 3,000.6 | 3,024.9 | 2,944.7 | |||||||||||||||
|
Gross
profit
|
310.8 | 344.0 | 364.9 | 189.4 | 315.0 | |||||||||||||||
|
Selling,
general and administrative expenses
|
165.8 | 162.5 | 176.8 | 201.6 | 190.9 | |||||||||||||||
|
Gain
on sales of property, plant and equipment
|
11.2 | 7.5 | 17.4 | 1.6 | 1.2 | |||||||||||||||
|
Asset
impairment and other charges, net
|
8.0 | 18.4 | 12.5 | 105.3 | 3.1 | |||||||||||||||
|
Operating
income (loss)
|
148.2 | 170.6 | 193.0 | (115.9 | ) | 122.2 | ||||||||||||||
|
Interest
expense, net
|
11.2 | 13.1 | 25.9 | 25.6 | 16.1 | |||||||||||||||
|
Other
income (expense), net
|
(5.2 | ) | 4.5 | 14.3 | (1.4 | ) | (3.8 | ) | ||||||||||||
|
Income
(loss) before income taxes
|
131.8 | 162.0 | 181.4 | (142.9 | ) | 102.3 | ||||||||||||||
|
Provision
for (benefit from) income taxes
|
(12.8 | ) | 4.8 | 1.4 | (0.5 | ) | (8.3 | ) | ||||||||||||
|
Net
income (loss)
|
$ | 144.6 | $ | 157.2 | $ | 180.0 | $ | (142.4 | ) | $ | 110.6 | |||||||||
|
Less:
net income (loss) attributable to
|
||||||||||||||||||||
|
noncontrolling
interest (c)
|
0.7 | (0.5 | ) | 0.2 | (0.2 | ) | 0.5 | |||||||||||||
|
Net
Income (loss) attributable to
|
||||||||||||||||||||
|
Fresh
Del Monte Produce Inc.
|
$ | 143.9 | $ | 157.7 | $ | 179.8 | $ | (142.2 | ) | $ | 110.1 | |||||||||
|
Net
income (loss) per ordinary share - Basic
|
$ | 2.26 | $ | 2.49 | $ | 3.07 | $ | (2.46 | ) | $ | 1.90 | |||||||||
|
Net
income (loss) per ordinary share - Diluted
|
$ | 2.26 | $ | 2.48 | $ | 3.06 | $ | (2.46 | ) | $ | 1.90 | |||||||||
|
Dividends
declared per ordinary share
|
$ | - | $ | - | $ | - | $ | 0.50 | $ | 0.80 | ||||||||||
|
Weighted
average number of ordinary shares:
|
||||||||||||||||||||
|
Basic
|
63,570,999 | 63,344,941 | 58,490,281 | 57,819,416 | 57,926,466 | |||||||||||||||
|
Diluted
|
63,668,352 | 63,607,786 | 58,772,718 | 57,819,416 | 58,077,282 | |||||||||||||||
|
Balance
Sheet Data (at period end):
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 34.5 | $ | 27.6 | $ | 30.2 | $ | 39.8 | $ | 24.5 | ||||||||||
|
Working
capital
|
543.1 | 200.2 | 491.2 | 436.7 | 419.7 | |||||||||||||||
|
Total
assets
|
2,596.0 | 2,651.0 | 2,185.7 | 2,089.6 | 2,128.3 | |||||||||||||||
|
Total
debt
|
325.2 | 512.8 | 238.6 | 469.9 | 360.8 | |||||||||||||||
|
Shareholders'
equity (c)
|
1,695.2 | 1,513.9 | 1,379.6 | 1,038.5 | 1,174.8 | |||||||||||||||
|
_______________
|
||||||||||||||||||||
|
(a) We
reclassified gain on sales of property, plant and equipment in other
income (expense), net on the Consolidated Statements of Income for 2008
and 2007. Accordingly, we have reclassified these amounts for
years prior to 2009 to gain on sales of property, plant and equipment, a
component of operating income. See Note 1, "General" to our
Consolidated Financial Statements.
|
|
(b)
Effective December 30, 2006, the first day of our 2007 year, we adopted
the deferral method of accounting for planned major maintenance activities
related to vessel dry-dock activities, whereby actual costs incurred are
deferred and amortized on a straight-line basis over the period until the
next scheduled dry-dock activity. We have applied the new guidance
included in the ASC related to "Other Assets and Deferred
Costs" retrospectively to the years ended December 29,
2006 and December 30, 2005. See Note 2, "Summary of Significant
Accounting Policies" to our Consolidated Financial
Statements.
|
|
(c)
The ASC on “Consolidation” was
amended to require classification of noncontrolling interests as a
component of consolidated shareholders’ equity and the elimination of
“minority interest” accounting in results of
operations. Earnings attributable to noncontrolling interests
are required to be reported as part of consolidated earnings and not as a
separate component of income or expense and are required to be disclosed
on the face of the statement of income. We adopted this additional
guidance on December 27, 2008, the first day of our 2009 fiscal
year. See Note 2, "Summary of Significant
Accounting Policies" to our Consolidated Financial
Statements.
|
28
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We are
one of the world’s leading vertically integrated producers, marketers and
distributors of high-quality fresh and fresh-cut fruit and vegetables, as well
as a leading producer and marketer of prepared fruit and vegetables, juices,
beverages and snacks in Europe, Africa and the Middle East. We market our
products worldwide under the DEL MONTE®
brand, a symbol of product innovation, quality, freshness and reliability since
1892. Our global sourcing and logistics system allows us to provide regular
delivery of consistently high-quality produce and value-added services to our
customers. Our major producing operations are located in North, Central and
South America, Asia and Africa. Production operations are aggregated on the
basis of our products: bananas, other fresh produce, prepared foods and other
products and services. Other fresh produce includes pineapples, melons,
tomatoes, non-tropical fruit (including grapes, apples, pears, peaches, plums,
nectarines, apricots, avocados, citrus and kiwis), fresh-cut produce and other
fruit and vegetables. Prepared foods include prepared fruit and vegetables,
juices, beverages, snacks, poultry and meat products. Other products and
services includes a plastic product and box manufacturing business, a grain
business and third-party ocean freight services.
Strategy
Our
strategy is focused on a combination of maximizing revenues from our existing
infrastructure, entering new markets and strict cost control initiatives. We
plan to continue to capitalize on the growing global demand for fresh produce
and expand our reach into existing and new markets. We expect sales growth of
fresh produce in key markets by increasing sales volume and per unit sales
prices as permitted by market conditions. Our recent acquisitions have
substantially increased our production capability of bananas, pineapples and
melon and provide the potential over time for significant operating efficiencies
and synergies. In addition, our number one position in the gold
pineapple market has been further strengthened. Our strategy includes increasing
volumes from existing production and distribution facilities in order to improve
operating efficiencies and reduce per unit costs. We plan additional investments
in growth markets by adding distribution facilities and expanding our
value-added services.
Net
Sales
Our net
sales are affected by numerous factors, including mainly the balance between the
supply of and demand for our produce and competition from other fresh produce
companies. Our net sales are also dependent on our ability to supply a
consistent volume and quality of fresh produce to the markets we serve. For
example, seasonal variations in demand for bananas as a result of increased
supply and competition from other fruit are reflected in the seasonal
fluctuations in banana prices, with the first six months of each year generally
exhibiting stronger demand and higher prices, except in those years where an
excess supply exists. During 2009, generally, bananas were in short supply at
certain times of the year, which contributed to a 4% improvement in our
worldwide per unit sales prices. In the processed foods business, we
generally realize the largest portion of our net sales and gross profit in the
third and fourth quarters of the year. During 2009, our prepared food
net sales were negatively affected by the current challenging economic
conditions, principally in the U.K. market, which resulted in lower sales
volume.
Since our
financial reporting currency is the U.S. dollar, our net sales are significantly
affected by fluctuations in the value of the currency in which we conduct our
sales versus the dollar, with a weak dollar versus such currencies resulting in
increased net sales in dollar terms. Including the effect of our foreign
currency hedges, net sales for 2009 were negatively impacted by approximately
$80.3 million, as compared to 2008, principally as a result of a weaker British
pound, South Korean won, euro and Polish zloty, partially offset by a stronger
Japanese yen, versus the U.S. dollar.
Our net
sales growth in recent years has been achieved primarily through increased sales
volume in existing markets of other fresh produce, primarily pineapples, melons
and non-tropical fruit, and favorable pricing on our Del Monte Gold® Extra Sweet pineapple
combined with increased sales volume and per unit sales prices of bananas in
existing and new markets. During 2009, our net sales were positively affected by
higher sales volume of bananas, gold pineapples and melons that resulted from
our recent acquisitions and production expansion, which were offset principally
by lower net sales of prepared food and other products and
services. Also positively impacting our sales in 2009 were higher
sales volumes of avocados in North America. Our net sales growth in
recent years is also attributable to a broadening of our product line with the
expansion of our fresh-cut produce business and our expansion into new markets.
We expect our net sales growth to continue to be driven by increased sales
volumes in our banana, other fresh produce and the prepared food segments. As a
result of our 2008 acquisitions and expansion of our production of banana, gold
pineapple and melon operations, we expect a further increase in net sales of
these products in North America, Europe and the Middle East. In the
Middle East, we expect to increase our net sales of our fresh produce and
prepared food product offerings as a result of our expansion in the Saudi
Arabian market. We also expect to increase our sales by developing new products
in the prepared food segment, targeting the convenience store and foodservice
trade in selected European and Middle East markets.
29
Cost
of Products Sold
Cost of
products sold is principally composed of two elements, product and logistics
costs. Product cost for our produce is primarily composed of cultivation (the
cost of growing crops), harvesting, packaging, labor, depreciation and farm
administration. Product cost for produce obtained from independent growers is
composed of produce and packaging costs. Logistics costs include land and sea
transportation and expenses related to port facilities and distribution centers.
Sea transportation cost is the most significant component of logistics costs and
is comprised of the cost of vessel operating expenses and chartering
refrigerated vessels. Vessel operating expenses for our owned vessels include
operations, maintenance, depreciation, insurance, fuel (the cost of which is
subject to commodity price fluctuations), and port charges. For chartered
vessels, operating expenses include the cost of chartering the vessels, fuel and
port charges. Variations in containerboard prices, which affect the cost of
boxes and other packaging materials, and fuel prices can have a significant
impact on our product cost and our profit margins. Also, variations
in the production yields, fertilizers and other input costs and the cost to
procure products from independent growers can have a significant impact on our
costs. Containerboard, plastic, resin and fuel prices have
historically been volatile. During 2008, the cost of fuel increased by 42% and
containerboard increased by 11%. This increase in containerboard and fuel prices
added approximately $48.0 million to cost of products sold in 2008 as compared
to 2007. During 2009, fuel prices decreased by 32% and containerboard decreased
24% as compared with 2008, reducing cost of products sold by $67.0
million. This decrease in cost of products sold that resulted from
lower fuel and containerboard prices was partially offset by an increase in
production costs due to lower yields and higher input costs and increased cost
of produce from independent growers of approximately $75.0 million and a charge
of $17.2 million related to growing crop inventory as a result of our decision
to discontinue pineapple operations in Brazil.
In
general, changes in our volume of products sold can have a disproportionate
effect on our gross profit. Within any particular year, a significant portion of
our cost of products sold is fixed, both with respect to our operations and with
respect to the cost of produce purchased from independent growers from whom we
have agreed to purchase all the products they produce. Accordingly, higher
volumes produced on company-owned farms directly reduce the average per-box
cost, while lower volumes directly increase the average per-box cost. In
addition, because the volume that will actually be produced on our farms and by
independent growers in any given year depends on a variety of factors, including
weather, that are beyond our control or the control of our independent growers,
it is difficult to predict volumes and per-box costs.
Since our
financial reporting currency is the U.S. dollar, our costs are affected by
fluctuations in the value of the currency in which we have significant
operations versus the dollar, with a weak dollar versus those currencies
resulting in increased costs. During 2009, cost of products sold was favorably
impacted by approximately $75.1 million as a result of a stronger U.S. dollar
versus the various currencies in which we have significant
operations.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses primarily include the costs associated with
selling in countries where we have our own sales force, advertising and
promotional expenses, professional fees, general corporate overhead and other
related administrative functions.
Gain
on Sales of Property, Plant and Equipment
Gain on
sales of property, plant and equipment was $11.2 million in 2009 principally as
a result of the sale of five refrigerated vessels and properties in South
America and Africa. In 2008, the gain on sales of property, plant and
equipment of $7.5 million resulted primarily from the sale of land and equipment
in South America.
Asset
Impairment and Other Charges, Net
Asset
impairment and other charges, net were $8.0 million in 2009 as compared with
$18.4 million in 2008, a decrease of $10.4 million. In 2009, we recorded asset
impairment and other charges totaling $10.9 million as a result of our decision
to discontinue pineapple planting in Brazil and our decision to not use certain
property, plant and equipment as originally intended for other crop
production. During 2009, we also incurred charges of $1.2 million for
termination benefits and contract termination costs resulting from our decision
to discontinue our commercial cargo service in Germany, a $2.0 million
impairment charge of the DEL MONTE®
perpetual, royalty-free brand name license for beverage products in the United
Kingdom due to lower than expected sales volume and pricing and a $2.8 million
asset impairment charge related to an intangible asset for a non-compete
agreement as a result of the Caribana acquisition. These charges were
partially offset by $5.5 million of credits due to the reversal of contract
termination costs as a result of the closure of an under-utilized distribution
center in the United Kingdom, and the discontinuance of retiree medical benefits
and the reversal of contract termination costs related to the closing of our
Hawaii pineapple operations. Also included in asset impairments and
other charges, net, for 2009 was $3.4 million of insurance recoveries related to
the 2008 floods of our Brazil banana operations.
30
Asset
impairment and other charges were $18.4 million in 2008 as compared with $12.5
million in 2007, an increase of $5.9 million. In 2008, we recorded asset
impairment charges totaling $11.3 million as a result of extensive flood damage
at our banana farms in Brazil and Costa Rica and $10.0 million principally due
to the closure of under-utilized distribution centers and the previously
announced closure of our beverage production operation in the United Kingdom
combined with related contract termination costs related to the banana and
prepared food segments. During 2008, we also recorded a net benefit of
approximately $2.9 million related to the previously announced closing of our
Hawaii pineapple operations.
In 2007,
we recorded asset impairment and other charges, net of $12.5 million, consisting
of $16.9 million related to exit activities principally in Europe and South
America. In addition, as a result of the decision to exit all
production activities in Hawaii in 2006, we recorded a net gain of $4.4 million
during 2007 which consisted of a curtailment gain related to the retiree medical
plan, partially offset by additional severance and other exit activity
charges.
Interest
Expense
Interest
expense consists primarily of interest on borrowings under working capital
facilities that we maintain and interest on other long-term debt primarily for
capital lease obligations. In 2009, our interest expense declined, reflecting a
slight decrease in our average outstanding debt and lower average interest
rates, partially offset by the write-off of debt issuance cost related to the
refinancing of the term loan previously being amortized through May 10,
2011.
Other
Income (Expense), Net
Other
income (expense), net, primarily consists of currency exchange gains or losses,
equity gains and losses in unconsolidated companies and other miscellaneous
income and expense items. During 2009, we recorded currency exchange
losses that resulted primarily from unfavorable exchange rate movements in the
euro, British pound and other currencies versus the U.S. dollar.
Provision
for (Benefit from) Income Taxes
Provision
for (benefit from) income taxes was a benefit of $(12.8) million in 2009 related
principally to $13.6 million of net changes in the deferred tax valuation
allowance due to expected utilization of deferred tax assets as a result of
increased profitability of our North America operations combined with the
settlement of certain tax positions in connection with an audit.
Income taxes consist of the consolidation of the tax provisions, computed
on a separate entity basis, in each country in which we have operations. Since
we are a non-U.S. company with substantial operations outside the United States,
a substantial portion of our results of operations is not subject to U.S.
taxation. Many of the countries in which we operate have favorable tax rates. We
are subject to U.S. taxation on our operations in the United States. From time
to time, tax authorities in various jurisdictions in which we operate audit our
tax returns and review our business structures and positions and there are
audits presently pending in various countries. There can be no assurance that
any tax audits, or changes in existing tax laws or interpretations in countries
in which we operate, will not result in an increased effective tax rate for us.
We have established tax accruals for uncertain tax positions, including those
relating to various tax audits currently in process. The amount of income taxes
due as a result of the eventual outcome of these audits may differ from the
amount of estimated tax accruals.
31
Results
of Operations
The
following table presents, for each of the periods indicated, certain income
statement data expressed as a percentage of net sales:
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Statement
of Income Data:
|
||||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Gross
profit
|
8.9 | 9.7 | 10.8 | |||||||||
|
Selling,
general and
|
||||||||||||
|
administrative
expenses
|
4.7 | 4.6 | 5.3 | |||||||||
|
Operating
income
|
4.2 | 4.8 | 5.7 | |||||||||
|
Interest
expense
|
0.3 | 0.4 | 0.8 | |||||||||
|
Net
income attributable to
|
||||||||||||
|
Fresh
Del Monte Produce Inc.
|
4.1 | 4.5 | 5.3 | |||||||||
The
following tables present for each of the periods indicated (i) net sales by
geographic region, (ii) net sales by product category and (iii) gross
profit (loss) by product category and, in each case, the percentage of the total
represented thereby:
|
Year
ended
|
||||||||||||||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||||||||||||||
|
2010
|
2008
|
2007
|
||||||||||||||||||||||
|
(U.S.
dollars in millions)
|
||||||||||||||||||||||||
|
Net
sales by geographic region:
|
||||||||||||||||||||||||
|
North
America
|
$ | 1,675.9 | 48 | % | $ | 1,633.1 | 46 | % | $ | 1,530.2 | 45 | % | ||||||||||||
|
Europe
|
995.2 | 28 | % | 1,081.4 | 30 | % | 1,113.6 | 33 | % | |||||||||||||||
|
Asia
|
420.2 | 12 | % | 408.1 | 12 | % | 374.8 | 11 | % | |||||||||||||||
|
Middle
East
|
314.1 | 9 | % | 275.8 | 8 | % | 228.2 | 7 | % | |||||||||||||||
|
Other
|
91.0 | 3 | % | 132.6 | 4 | % | 118.7 | 4 | % | |||||||||||||||
|
Total
|
$ | 3,496.4 | 100 | % | $ | 3,531.0 | 100 | % | $ | 3,365.5 | 100 | % | ||||||||||||
|
Year
ended
|
||||||||||||||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||||||||||||||
|
2010
|
2008
|
2007
|
||||||||||||||||||||||
|
(U.S.
dollars in millions)
|
||||||||||||||||||||||||
|
Net
sales by product category:
|
||||||||||||||||||||||||
|
Banana
|
$ | 1,510.9 | 43 | % | $ | 1,420.2 | 40 | % | $ | 1,199.0 | 36 | % | ||||||||||||
|
Other
fresh produce
|
1,551.5 | 44 | % | 1,559.8 | 44 | % | 1,614.9 | 48 | % | |||||||||||||||
|
Prepared
food
|
337.4 | 10 | % | 412.4 | 12 | % | 429.4 | 13 | % | |||||||||||||||
|
Other
products and services
|
96.6 | 3 | % | 138.6 | 4 | % | 122.2 | 4 | % | |||||||||||||||
|
Total
|
$ | 3,496.4 | 100 | % | $ | 3,531.0 | 100 | % | $ | 3,365.5 | 101 | % | ||||||||||||
|
Gross
profit by product category:
|
||||||||||||||||||||||||
|
Banana
|
$ | 108.7 | 35 | % | $ | 117.7 | 34 | % | $ | 61.0 | 17 | % | ||||||||||||
|
Other
fresh produce
|
148.7 | 48 | % | 171.1 | 50 | % | 240.5 | 66 | % | |||||||||||||||
|
Prepared
food
|
52.2 | 17 | % | 51.9 | 15 | % | 59.7 | 16 | % | |||||||||||||||
|
Other
products and services
|
1.2 | 0 | % | 3.3 | 1 | % | 3.7 | 1 | % | |||||||||||||||
|
Total
|
$ | 310.8 | 100 | % | $ | 344.0 | 100 | % | $ | 364.9 | 100 | % | ||||||||||||
32
2009
Compared with 2008
Net
Sales
|
Net
sales in 2009 were $3,496.4 million compared with $3,531.0 million in
2008. The decrease in net sales of $34.6 million was primarily
attributable to lower net sales of prepared food, other products and
services and other fresh produce, partially offset by higher net sales of
bananas.
|
|
·
|
Net
sales in the prepared food segment decreased by $75.0 million principally
due to lower sales volume of canned pineapples, beverage and deciduous
products due to poor market conditions and unfavorable exchange
rates. Also contributing to the decrease in net sales in the
prepared food segment was a change to a beverage production and
distribution agreement in the United Kingdom, whereby sales are recognized
net of production and distribution costs, resulting in approximately $11.0
million of lower net sales in 2009 as compared to
2008.
|
|
·
|
Net
sales in the other products and services segment decreased by $42.0
million principally due to lower commodity selling prices affecting our
Argentine grain business and lower third-party freight revenue due to the
elimination of freight services from Northern Europe to the
Caribbean.
|
|
·
|
Net
sales in the other fresh produce segment decreased by $8.3 million
principally as a result of lower net sales of tomatoes, other fruits and
vegetables, non-tropical fruit and fresh-cut products, partially offset by
higher net sales of melons and
pineapples.
|
|
o
|
Net
sales of tomatoes decreased primarily due to lower sales volume resulting
from fluctuations in supply and demand. Net sales of other
fruits and vegetables decreased primarily due to product rationalization
in North America combined with challenging market
conditions.
|
|
o
|
Net
sales of non-tropical fruit decreased principally as a result of lower
sales volume of grapes and lower per unit sales prices for apples,
partially offset by higher sales volume of
avocados.
|
|
o
|
Net
sales of fresh-cut products decreased primarily due to lower sales in
Europe due to unfavorable exchange rates and product
rationalization.
|
|
o
|
Net
sales of melons increased as a result of higher sales volume that resulted
principally from improved yields and increased production from
Company-operated facilities in Central America, partially offset by a 7%
decrease in per unit selling prices that resulted from higher industry
volumes.
|
|
o
|
Net
sales of pineapples increased principally due to an 11% increase in sales
volume that resulted from the Caribana acquisition, partially offset by
lower per unit sales prices. Pineapple per unit sales prices decreased as
a result of the unfavorable current economic conditions and unfavorable
exchange rates in Europe and South
Korea.
|
|
·
|
Net
sales in the banana segment increased by $90.8 million due to higher sales
volume in North America, the Middle East and Asia combined with higher per
unit sales prices in all regions, partially offset by unfavorable exchange
rates in Europe and South Korea. Also contributing to the
increase in sales volume was the additional sales volume that resulted
from the Caribana acquisition.
|
Cost
of Products Sold
Cost of
products sold was $3,185.6 million in 2009 compared with $3,187.0 million in
2008, a decrease of $1.4 million. This decrease in cost of products sold was
primarily attributable to lower ocean freight rates that resulted from lower
fuel prices, favorable exchange rates and $2.1 million of insurance proceeds
related to the 2008 Brazil flood damage, partially offset by an increase in
production costs due to lower yields and higher input costs and increased cost
of produce from independent growers and a charge of $17.2 million related to
growing crop inventory as a result of our decision to discontinue pineapple
operations in Brazil.
Gross
Profit
Gross
profit was $310.8 million in 2009 compared with $344.0 million in 2008, a
decrease of $33.2 million. The decrease in gross profit was attributable to
lower gross profit on other fresh produce, bananas and other products and
services, partially offset by higher gross profit on prepared food.
|
·
|
Gross
profit on the other fresh produce segment decreased by $22.4 million
principally as a result of lower gross profit on gold pineapples, melons
and non-tropical fruit, partially offset by higher gross profit on
fresh-cut products.
|
33
|
o
|
Gross
profit on gold pineapples decreased principally as a result of a charge of
$17.2 million related to growing crop inventory as a result of our
decision to discontinue pineapple operations in Brazil, combined with
lower per unit sales prices principally in Europe and North America as a
result of poor market conditions and unfavorable exchange rates in Europe,
partially offset by higher volume in all
markets.
|
|
o
|
Gross
profit on melons decreased principally due to lower per unit sales prices
as a result of higher industry volumes in North
America.
|
|
o
|
Gross
profit in non-tropical fruit decreased principally due to lower gross
profit on apples and grapes as a result of unfavorable market conditions,
partially offset by higher gross profit on stone fruit (peaches,
nectarines, plums, cherries, apricots) and avocados as a result of lower
fruit costs.
|
|
o
|
Gross
profit on fresh-cut products increased principally due to lower per unit
costs and improved efficiencies in North
America.
|
|
·
|
Gross
profit in the banana segment decreased by $9.0 million principally due to
a 5% increase in per unit cost as a result of higher procurement,
production and distribution costs, partially offset by higher per unit
sales prices and lower per unit ocean freight costs that resulted from
lower fuel costs and improvements in vessel utilization. Also
affecting gross profit in the banana segment was the effect of the Brazil
flood, which decreased gross profit by $2.1 million in 2008 due to
inventory write-offs and increased gross profit in 2009 for the same
amount due to insurance recovery.
|
|
·
|
Gross
profit on the other products and services segment decreased by $2.1
million principally due to lower gross profit in our Argentine grain
business resulting from lower commodity
prices.
|
|
·
|
Gross
profit in the prepared food segment increased by $0.3 million primarily
due to lower freight costs, partially offset by higher distribution
costs.
|
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased $3.3 million to $165.8 million in
2009 compared with $162.5 million in 2008. The increase was primarily due to
higher marketing and selling expenses in Europe and the Middle East as a result
of our efforts to support brand awareness, combined with higher professional
fees and employee benefit expenses.
Gain
on Sales of Property, Plant and Equipment
Gain on
sales of property, plant and equipment was $11.2 million in 2009 principally as
a result of the sale of five refrigerated vessels and properties in South
America and Africa. In 2008, the gain on sales of property, plant and
equipment of $7.5 million resulted primarily from the sale of land and equipment
in South America.
Asset
Impairment and Other Charges
Asset
impairment and other charges, net were $8.0 million in 2009 as compared with
$18.4 million in 2008, a decrease of $10.4 million.
Asset
impairment and other charges (credits) for 2009 were as follows:
|
·
|
$10.9
million in asset impairment and other charges as a result of our decision
to discontinue pineapple operations in Brazil and our decision to not use
certain property, plant and equipment as originally intended for other
crop production related to the other fresh produce
segment.
|
|
·
|
$1.2
million in termination benefits and contract termination costs resulting
from our decision to eliminate our commercial cargo service from Northern
Europe to the Caribbean related to the other products and services
segment.
|
|
·
|
$2.0
million charge for impairment of the DEL MONTE®
perpetual, royalty-free brand name license for beverage products in the
United Kingdom due to lower than expected sales volume and pricing related
to the prepared food segment.
|
|
·
|
$2.8
million impairment charge related to an intangible asset for a non-compete
agreement as a result of the Caribana acquisition related to the banana
segment.
|
34
|
·
|
$(0.8)
million in reversals of contract termination costs previously recorded
related to the closure of an under-utilized distribution center in the
United Kingdom related to the banana
segment.
|
|
·
|
$(4.7)
million principally due to a gain from the discontinuance of the retiree
medical plan and the reversal of certain contract termination costs
related to the previously announced closing of our Hawaii pineapple
operations related to the other fresh produce
segment.
|
|
·
|
$(3.4)
million gain due to insurance proceeds related to the 2008 Brazil floods
related to the banana segment.
|
Asset
impairments and other charges for 2008 were as follows:
|
·
|
$11.3
million in asset impairment and other charges as a result of extensive
flood damage at our banana farms in Brazil and Costa
Rica.
|
|
·
|
$10.0
million in asset impairment and contract termination costs principally due
to the closure of under-utilized distribution centers and the previously
announced closure of our beverage production operation in the United
Kingdom related to the banana and prepared food
segments.
|
|
·
|
$(2.9)
million net gain primarily due to unrecognized prior service costs as a
result of the previously announced closing of our Hawaii pineapple
operations related to the other fresh produce
segment.
|
Operating
Income
Operating
income in 2009 was $148.2 million compared with an operating income of $170.6
million in 2008, a decrease of $22.4 million. The decrease in operating income
is attributable to lower gross profit and higher selling, general and
administrative expense, partially offset by increased gain on sales of property,
plant and equipment and lower asset impairment and other charges.
Interest
Expense
Interest
expense was $11.9 million in 2009 as compared with $14.5 million in 2008, a
decrease of $2.6 million. The lower interest expense in 2009 reflects a slight
decrease in our average outstanding debt and lower average interest rates,
partially offset by the write-off of debt issuance cost related to the
refinancing of our term loan that was previously being amortized through May 10,
2011.
Other
Income (Expense), Net
Other
income (expense), net was a loss of $(5.2) million in 2009 compared with income
of $4.5 million in 2008. The loss in 2009 was principally due to $6.4 million in
foreign exchange losses primarily as a result of unfavorable exchange rates for
the euro and British pound as compared with $6.5 million in foreign
exchange gains in 2008. Partially offsetting the foreign exchange
losses incurred in 2009 were higher equity earnings from unconsolidated
subsidiaries.
Provision
for (Benefit from) Income Taxes
Provision for (benefit from) income
taxes was a benefit of $(12.8) million in 2009 as compared with a provision of
$4.8 million in 2008. The benefit from income taxes for 2009 related
principally to $13.6 million of net changes in the deferred tax valuation
allowance due to expected utilization of deferred tax assets as a result of
increased profitability of our North America operations combined with the
settlement of certain tax positions in connection with an audit.
35
2008
Compared with 2007
Net
Sales
Net sales
in 2008 were $3,531.0 million compared with $3,365.5 million in 2007. The
increase in net sales of $165.5 million was primarily attributable to higher net
sales of bananas and other products and services, partially offset by lower net
sales of other fresh produce and prepared food. Net sales of bananas increased
by $221.2 million due to higher per unit sales prices in all regions and higher
sales volume in North America and the Middle East, partially offset by lower
sales volume in Europe and Asia. On a worldwide basis, per unit sales prices
increased 14%. The Caribana acquisition contributed to the increase in sales
volume in North America. Net sales in the other products and services segment
increased $16.4 million primarily due to increased sales in the Argentina grain
and Chile plastic businesses. Net sales in the other fresh produce segment
decreased by $55.1 million principally due to lower sales of melons, tomatoes,
potatoes, vegetables and fresh-cut produce, partially offset by higher sales of
gold pineapples and non-tropical fruit. Melon sales decreased due to a 12%
decrease in sales volumes that resulted primarily from unfavorable growing
conditions in Central America and North America. Sales of tomatoes, potatoes and
other vegetables decreased primarily due to lower sales volume resulting from
continuing product rationalization in North America and the salmonella outbreak
in the United States originally linked to tomatoes. Sales of fresh-cut produce
decreased due to the economic downturn affecting North America and Europe, which
has resulted in consumers buying less expensive whole fruit as compared to
pre-cut products. Sales of gold pineapples increased as a result of an 8%
increase in sales volume primarily as a result of the Caribana acquisition,
partially offset by a slight decrease in per unit sales prices. Sales of
non-tropical fruit increased primarily due to higher per unit sales prices. Net
sales in the prepared food segment decreased $17.0 million primarily as a result
of the weakening British pound as compared to the U.S. dollar combined with
increased sales of inventory on-hand that occurred during 2007 as a resulted
from the conversion to independent distributors in the U.K. and Benelux markets,
partially offset by higher sales in the Jordanian poultry and prepared meat
business.
Cost
of Products Sold
Cost of
products sold was $3,187.0 million in 2008 compared with $3,000.6 million in
2007, an increase of $186.4 million. This increase in cost of products sold was
primarily attributable to higher fruit costs resulting from increase input
prices and procurement costs combined with negative foreign exchange impact as
currencies in producing countries strengthened against the U.S. dollar as well
as increased ocean freight that resulted from higher fuel prices, vessel
operating expenses and charter rates. Also contributing to the increase in cost
of sales were approximately $3.0 million in charges incurred principally related
to wages paid to idled workers and write-offs of packaging materials and other
clean-up costs as a result of extensive flood damage to our banana farms in
Brazil and Costa Rica combined with a credit of $3.0 million for insurance
proceeds related to the Kenya product recall that was included in cost of
product sold in 2007.
Gross
Profit
Gross
profit was $344.0 million in 2008 compared with $364.9 million in 2007, a
decrease of $20.9 million. The decrease in gross profit was primarily
attributable to lower gross profit on the other fresh produce segment of $69.4
million and lower gross profit on the prepared food segment of $7.8 million,
partially offset by higher gross profit on bananas of $56.7
million.
Gross
profit on other fresh produce decreased principally as a result of lower gross
profit on gold pineapples, fresh-cut products and melons, partially offset by
higher gross profit on non-tropical fruit. Gross profit on gold pineapples
decreased principally as a result of a 15% increase in per unit fruit costs that
resulted from higher production costs and higher ocean freight costs. Gross
profit on fresh-cut produce decreased principally as a result of a 17% increase
in cost due to higher production costs as a result of labor shortages in North
America and higher input costs combined with a 10% reduction in sales volume due
to a weaker economic environment. Gross profit on melons decreased principally
due to a reduction in sales volume that resulted from poor production conditions
in North and Central America, which also contributed to a 10% increase in
cost.
36
Gross
profit on prepared food decreased principally as a result of higher production
and transportation costs and as a result of our decision to market our prepared
food products through independent distributors in the United Kingdom, Italy and
the Benelux countries, which was offset by lower selling, general and
administrative expenses as indicated below.
Gross
profit on bananas increased primarily due to higher per unit selling prices in
all regions and higher sales volumes in North America and the Middle East,
partially offset by higher input, procurement and ocean freight costs. On a per
unit basis, worldwide banana pricing increased 14% while total costs increased
10%.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses decreased $14.3 million to $162.5 million in
2008 compared with $176.8 million in 2007. The decrease was primarily due to
lower selling and marketing expenses in Europe as a result of our decision to
market our prepared food products through independent distributors in the United
Kingdom, Italy and the Benelux countries.
Gain
on Sales of Property, Plant and Equipment
Gain on
sales of property, plant and equipment was $7.5 million in 2008 principally as a
result of the sale of land and equipment in South America. In 2007, the gain on
sales of property, plant and equipment of $17.4 million was principally due to
our disposal of non-performing assets, the sale of a refrigerated vessel and the
insurance proceeds related to the accidental loss of another
vessel.
Asset
Impairment and Other Charges
Asset
impairment and other charges were $18.4 million in 2008 as compared with $12.5
million in 2007, an increase of $5.9 million. In 2008, we recorded asset
impairment totaling $11.3 million as a result of extensive flood damage at our
banana farms in Brazil and Costa Rica and $10.0 million principally due to the
closure of under-utilized distribution centers and the previously announced
closure of our beverage production operation in the United Kingdom combined with
related contract termination cost related to the banana and prepared food
segments. During 2008, we also recorded a net benefit of approximately $2.9
million related to the previously announced closing of our Hawaii pineapple
operations related to the other fresh produce segment.
In 2007,
we recorded asset impairment charges totaling $15.5 million related to exit
activities in the prepared food and other fresh produce segments principally in
Europe and South America. In addition, as a result of the decision to exit all
production activities in Hawaii in 2006, we recorded a net gain of $4.4 million
during 2007 related to the other fresh produce segment. This net gain consisted
principally of a curtailment gain related to the U.S.-based post-retirement
health plan, partially offset by additional severance and other exit activity
charges. Also included in asset impairment and other charges in 2007 were $1.4
million principally related to exit activities in the prepared food segment in
Europe as a result of our decision to market our prepared food products through
independent distributors in certain European markets and to outsource the U.K.
beverage production.
Operating
Income
Operating
income in 2008 was $170.6 million compared with an operating income of $193.0
million in 2007, a decrease of $22.4 million. The decrease in operating income
was attributable to lower gross profit, lower gain on sales of property, plant
and equipment and higher asset impairment and other charges, partially offset by
lower selling, general and administrative expenses.
Interest
Expense
Interest
expense was $14.5 million in 2008 as compared with $27.8 million in 2007, a
decrease of $13.3 million. In 2008, interest expense declined, reflecting a
slight decrease in our average outstanding debt and lower average interest
rates.
Other
Income (Expense), Net
Other
income (expense), net was $4.5 million in 2008 compared with $14.3 million in
2007. The decrease in other income (expense), net was principally due
to lower foreign exchange gains as a result of unfavorable exchange rate
movements in our principal trading currencies.
37
Provision
for Income Taxes
Provision
for income taxes was $4.8 million in 2008 compared with $1.4 million in 2007, an
increase of $3.4 million. The increase in provision for income taxes was due to
increased taxable earnings in certain jurisdictions, combined with additional
accruals for uncertain tax positions.
Liquidity
and Capital Resources
Net cash
provided by operating activities was $256.1 million for 2009 as compared with
$205.0 million for 2008, an increase of $51.1 million. The increase in cash
provided by operating activities was principally attributable to lower levels of
trade receivables that resulted from improved collections and lower sales
combined with lower levels of raw materials and packaging supplies inventories,
partially offset by lower net income and higher payments for accounts payable
and accrued expenses.
Net cash
provided by operating activities for 2008 was $205.0 million, an increase of
$57.7 million from 2007. The increase in cash provided by operating activities
was primarily attributable to changes in operating assets and liabilities
primarily comprised of lower levels of accounts receivable that resulted from
improved collections, higher accounts payable and accrued expenses due to
increased costs, partially offset by higher levels of growing crop inventory as
a result of expanded melon and pineapple farming operations.
Working
capital was $543.1 million at January 1, 2010, compared with $200.2 million at
December 26, 2008, an increase of $342.9 million. This increase in working
capital was primarily attributable to the classification of the borrowings under
the New Credit Facility (as defined below), as long-term debt as of January 1,
2010 compared with the classification of borrowings under the Credit Facility
(as defined below), as current as of December 26, 2008, combined with lower
levels of accounts payable and accrued expenses, partially offset by lower
levels of trade receivables and inventories and prepaid expenses and other
current assets.
Net cash
used in investing activities was $66.9 million for 2009, $499.5 million for 2008
and $50.8 million for 2007. Net cash used in investing activities for 2009
consisted primarily of capital expenditures of $84.5 million, partially offset
by proceeds from sales of property, plant and equipment of $17.6
million. Our capital expenditures for 2009 were comprised of $51.6
million primarily for distribution centers in Saudi Arabia and expansion of
production facilities in Costa Rica, Guatemala, Brazil and the Philippines
related to the banana segment, $29.9 million principally for expansion and
improvements of our pineapple operations in Costa Rica and the Philippines,
improvements of non-tropical fruit operations in Chile and of fresh-cut fruit
facilities in North America and the United Kingdom related to the other fresh
produce segment and $5.3 million for expansion of production facilities in
Jordan and Kenya related to the prepared food segment. Proceeds from
sale of property, plant and equipment for 2009 consisted primarily of the sale
of five refrigerated vessels that were scrapped and properties in South America
and Africa.
Net cash
used in investing activities for 2008 consisted primarily of capital
expenditures of $101.5 million, purchase business combination of $414.5 million,
partially offset by $16.5 million of proceeds from sale of property, plant and
equipment. Capital expenditures for 2008 consisted of $59.4 million principally
for distribution centers in Saudi Arabia and South Korea and for production
facilities in the Philippines, Guatemala and Brazil related to the banana
segment, $23.1 million principally for expansion of production facilities in the
Philippines, Costa Rica and Chile related to the other fresh produce segment and
$19.0 million principally for production facilities in Jordan and Kenya related
to the prepared food segment. Cash payments for purchases of business
combinations consisted principally of the acquisition of Caribana for $401.2
million and the purchase of melon operations in Costa Rica and Guatemala for
$12.4 million. Proceeds from sale of property, plant and equipment consisted
primarily of disposal of non-performing assets in South America and
Europe.
Net cash
used in investing activities for 2007 consisted primarily of capital
expenditures of $81.4 million and an additional investment of $2.0 million in an
unconsolidated subsidiary in Costa Rica, partially offset by $32.2 million of
proceeds from sale of property, plant and equipment. Capital expenditures for
2007 consisted primarily of expansion of distribution and manufacturing
facilities in the Middle East and expansion of production facilities in Kenya,
Brazil and the Philippines. Proceeds from sale of property, plant and equipment
principally consisted of disposals of non-performing assets in Europe, Africa
and North America, combined with the sale of a refrigerated vessel and the
insurance proceeds related to the accidental loss of another
vessel.
Net cash
used in financing activities of $182.2 million for 2009 was primarily
attributable to net repayments on long-term debt of $198.0 million, partially
offset by contributions from noncontrolling interest of $14.8 million and
proceeds from stock options exercised of $1.0 million.
38
Net cash
provided by financing activities of $304.5 million for 2008 was attributable to
net borrowings under our credit facilities of $271.8 million, proceeds from
stock options exercised of $22.1 million and contributions from noncontrolling
interest of $10.6 million.
Net cash
used in financing activities of $106.3 million for 2007 was attributable to net
repayment of long-term debt of $242.3 million, partially offset by $117.5
million of proceeds from the issuance of our Ordinary Shares and $13.3 million
from stock options exercised and $5.2 million of contributions from
noncontrolling interest. During November 2007, we sold 4,222,000 of our Ordinary
Shares in a public offering. The net proceeds from the issuance of our Ordinary
Shares were primarily used for repayments of long-term debt.
During
the first six months of 2009, we financed our working capital and other
liquidity requirements primarily through cash from operations and borrowings
under a credit facility administered by Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland,” New York Branch, which we
refer to as Rabobank (the “Credit Facility”). The Credit Facility included a
revolving commitment of $600.0 million expiring November 10, 2009 and a term
loan commitment (the “Term Loan”).
On July
17, 2009, we refinanced and replaced the Credit Facility (including the Term
Loan) with a $500 million senior secured revolving credit facility (the “New
Credit Facility”) with Rabobank Nederland, New York Branch, as administrative
agent and lead arranger. The New Credit Facility has a 3.5-year term,
with a scheduled maturity date of January 17, 2013. The New Credit
Facility includes a swing line facility and a letter of credit facility with a
$100 million sublimit. Borrowings under the New Credit Facility bear
interest at a spread over the London Interbank Offer Rate (“LIBOR”) that varies
with our leverage ratio. The New Credit Facility is collateralized
directly or indirectly by substantially all of our assets and is guaranteed by
certain of our subsidiaries. At January 1, 2010, we had $309.7
million outstanding under the New Credit Facility bearing interest at
3.26%. In addition, we pay a fee on unused commitments.
The New
Credit Facility requires us to be in compliance with financial and other
covenants, including limitations on capital expenditures, the amount of
dividends that can be paid in the future, the amount and types of liens and
indebtedness, material asset sales and mergers. As of January 1,
2010, we were in compliance with all of the financial and other covenants
contained in the New Credit Facility.
At
January 1, 2010, we had $184.7 million available under committed working capital
facilities, primarily under the New Credit Facility. At January 1,
2010, we applied $17.9 million to the letter of credit facility, comprised
primarily of certain contingent obligations and other governmental agencies
guarantees combined with guarantees for purchases of raw materials and
equipment. We also had $7.8 million in other letters of credit and
bank guarantees not included in the letter of credit facility.
As of
January 1, 2010, we had $325.2 million of long-term debt and capital lease
obligations, including the current portion, consisting of $309.7 million
outstanding under the New Credit Facility, $6.0 million of capital lease
obligations and $9.5 million of other long-term debt.
Based on
our operating plan combined with our borrowing capacity under our New Credit
Facility, we believe we will have sufficient resources to meet our cash
obligations in 2010 and the foreseeable future.
As of
January 1, 2010, we had cash and cash equivalents of $34.5 million.
As a
result of the previously announced closure of our Hawaii pineapple operations,
the closure of an under-utilized facility in the United Kingdom and the
discontinuance of commercial cargo service in Europe, we paid approximately $2.1
million in termination benefits and contractual obligations during
2009. We expect to make additional payments of $3.1 million in 2010
and thereafter related to these matters. These cash outlays will be
funded from operating cash flows and available borrowings under our credit
facilities. We do not expect additional charges related to the exit
activities mentioned above that would significantly impact our results of
operations and financial condition.
The
principal capital expenditures planned for 2010 consist of approximately $103
million consisting of expansion and improvements of production facilities in
Costa Rica, Guatemala, Chile, Kenya and the Philippines and distribution
facilities in North America and the United Kingdom. We expect to fund
our capital expenditures in 2010 through operating cash flows and borrowings
under credit facilities. We generated cash from operations of $256.1 million in
2009 and had $172.4 million available under our New Credit Facility as of
January 1, 2010.
The fair
value of our derivatives increased from a net asset of $7.1 million as of
December 26, 2008, to a net asset of $19.6 million as of January 1, 2010,
related to our foreign currency and bunker fuel cash flow hedges. For
foreign currency hedges, these fluctuations are primarily driven by the
strengthening or weakening of the U.S. dollar compared to the euro, British
pound and Japanese yen currencies being hedged relative to the contracted
exchange rates. For bunker fuel hedges, these fluctuations are driven
by the increase or decrease in bunker fuel prices relative to the contracted
bunker fuel price. During 2009, we predominately entered into
derivative contracts to hedge the British pound, euro and Japanese yen, as well
as to hedge bunker fuel prices. The change in 2009 was primarily related to
the strengthening of the U.S. dollar compared to the Japanese yen relative to
the contracted hedge position coupled with the fact that we entered into bunker
fuel derivatives in 2009 of which the fair valuation resulted in a net
unrealized gain of $4.3 million. We enter into derivative instruments
with counterparties that are highly rated and do not expect a deterioration of
our counterparty’s credit rating; however, the deterioration of our
counterparty’s credit would affect the consolidated financial
statements in the recognition of the fair value of the hedges that would be
transferred to earnings as the contracts settle. We expect that gains
of $16.3 million and $3.3 million of the fair value of hedges will be
transferred to earnings in 2010 and 2011 along with the earnings effect of the
hedged forecasted transactions.
39
Other
We are
involved in several legal and environmental matters that, if not resolved in our
favor, could require significant cash outlays and could have a material adverse
effect on our results of operations, financial condition and liquidity. See
Item 1. Business Overview
under “Environmental Matters” and Item 3. Legal Proceedings and Note
18, “Litigation” to the
Consolidated Financial Statements included in Item 8. Financial Statements and
Supplementary Data.
Critical
Accounting Policies
We
believe the following accounting polices used in the preparation of our
Consolidated Financial Statements may involve a high degree of judgment and
complexity and could have a material effect on our Consolidated Financial
Statements.
Growing
Crops
Expenditures
on pineapple, melon and non-tropical fruit, including grapes, growing crops are
valued at the lower of cost or market and are deferred and charged to cost of
products sold when the related crop is harvested and sold. The deferred growing
costs consist primarily of land preparation, cultivation, irrigation and
fertilization costs. The deferred growing crop calculation is dependent on an
estimate of harvest yields and future crop expenditures. If there is an
unexpected decrease in estimated harvest yields, a write-down of deferred
growing costs may be required. During 2009, we incurred a charge of $17.1
million in cost of products sold primarily related to growing crop inventory as
a result of our decision to discontinue pineapple operations in Brazil, in the
other fresh produce segment.
Stock-Based
Compensation
Our
share-based payments are composed entirely of compensation expense related to
stock options and all stock option awards are granted to employees and members
of our Board of Directors, each of whom meets the definition of an employee
under the provisions of the Accounting Standards CodificationTM (the
“Codification” or “ASC”) guidance on “Compensation-Stock
Compensation”. We use the Black-Scholes option pricing
model to estimate the fair value of stock options granted.
Stock-based
compensation expense related to stock options for the year ended January 1,
2010, included in the determination of income before provision for income taxes
and net income, totaled $10.4 million on the straight-line, single award basis,
or $0.16 per diluted share, respectively, and are included in the accompanying
Consolidated Statements of Income for the year ended January 1, 2010 in selling,
general and administrative expenses. We are in a net operating loss carryforward
position in the relevant jurisdictions for the years ended 2007, 2008 and 2009,
therefore there was no reduction in taxes currently payable or related effect on
cash flows as the result of excess tax benefits from stock options exercised in
these periods. The amount of cash received from the exercise of
stock options was $1.0 million for the year ended January 1, 2010. As of January
1, 2010, the total remaining unrecognized compensation costs related to
non-vested stock options amounted to $16.2 million, which will be amortized over
the weighted-average remaining requisite service period of 2.1
years.
Goodwill
and Indefinite-Lived Intangible Assets
We assess
goodwill for impairment on an annual basis on the first day of the fourth
quarter of each year, or sooner if events indicate such a review is necessary.
Based on this valuation, we have determined that there was no impairment of
goodwill in 2009, 2008 or 2007. As of January 1, 2010, we were not aware of any
items or events that would cause us to further adjust the recorded value of
goodwill for impairment. Potential impairment exists if the fair value of a
reporting unit to which goodwill has been allocated is less than the carrying
value of the reporting unit. The amount of the impairment to recognize, if any,
is calculated as the amount by which the carrying value of goodwill exceeds its
implied value. Future changes in the estimates used to conduct the impairment
review, including revenue projection, market values and changes in the discount
rate used, could cause the analysis to indicate that our goodwill is impaired in
subsequent periods and result in a write-off of a portion or all of goodwill.
The discount rate used is based on independently calculated risks, our capital
mix and an estimated market risk premium. The fair value of the prepared and
melon reporting units’ goodwill is highly sensitive to differences between
estimated and actual cash flows and changes in the related discount rate used to
evaluate the fair value of this asset. If we are unable to recover from current
challenging economic conditions in Europe, the prepared reporting unit goodwill
may be at risk for impairment in the future. If we are unable to
recover from lower melon pricing in North America, the melon reporting unit may
be at risk for impairment in the future. As of the latest annual
impairment test, the fair values of the prepared and melon reporting units’
goodwill exceeded their carrying values by 10% and 20%,
respectively. We estimate that a one-percentage point increase in the
discount rate and a five percent decrease in expected future cash flows used
would result in the carrying values exceeding the fair values by $30.9 million
and $1.8 million related to the prepared and melon reporting units,
respectively. This would then trigger a fair valuation of the
respective reporting unit to determine the amount of the
impairment.
40
As part
of the Del Monte Foods acquisition, we acquired perpetual, royalty-free licenses
to use the DEL MONTE® brand
for processed and/or canned food in more than 100 countries throughout Europe,
Africa and the Middle East. Included in other non-current assets at January 1,
2010 is an indefinite-lived intangible asset of $70.3 million related to these
licenses. This indefinite-lived intangible asset is not being amortized but is
reviewed for impairment consistent with the Codification guidance on “Intangibles – Goodwill and
Other”. In 2009, we recorded a $2.0 million charge for
impairment of the DEL MONTE®
royalty-free brand name license for U.K. beverage products due to lower than
expected sales volume and pricing. This indefinite-lived asset is
highly sensitive to differences between estimated and actual cash flows and
changes in the related discount rate used to evaluate the fair value of this
asset. We estimate that a five percent decrease in the expected future cash
flows of this indefinite-lived intangible asset and a one-percentage point
increase in the discount rate used would result in a further impairment loss of
approximately $0.6 million related to this asset.
Impairment
of Long-Lived Assets
We
account for the impairment of long-lived assets in accordance with the
Codification guidance related to “Property, Plant and
Equipment”. The Codification guidance requires write-downs to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets’ carrying amount. In 2007, we recorded asset
impairment charges of $15.5 million related to exit activities in the prepared
food and other fresh produce segments principally in Europe and South America.
In 2008, we recorded asset impairment of $15.7 million primarily as a result of
extensive flood damage at our banana farms in Brazil and Costa Rica, the closure
of under-utilized distribution centers and the previously announced closure of
our beverage production operation in the United Kingdom. During 2009,
we recorded asset impairment charges of $13.3 million due to our decision to
discontinue pineapple planting in Brazil, our decision not to use certain
property, plant and equipment as originally intended for other crop production
and an impairment of an intangible asset for a non-compete agreement as a result
of the Caribana acquisition.
In
assessing potential impairment, we consider the operating performance and
projected undiscounted cash flows of the relevant assets. If the projected cash
flows are estimated to be less than the assets’ carrying value, we may have to
record additional impairment charges. The fair value of the assets is determined
based on discounted future cash flows or independent appraisals from third
parties.
Income
Taxes
Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year end, based on enacted tax laws and statutory tax
rates applicable to the year in which the differences are expected to affect
taxable income. Valuation allowances are established when it is deemed more
likely than not that some portion or all of the deferred tax assets will not be
realized. Our judgments regarding future profitability may change due to future
market conditions and other factors. These changes, if any, may require
adjustments to our deferred tax assets. We have established tax accruals for
uncertain tax positions, including those as a result of various tax audits
currently in process. The amount of income taxes due as a result of the eventual
outcome of these audits could differ from the amount of the estimated tax
accruals.
41
Contingencies
Estimated
losses from contingencies are expensed if it is probable that an asset has been
impaired or a liability has been incurred at the date of the financial
statements and the amount of the loss can be reasonably estimated. Gain
contingencies are not reflected in the financial statements until realized. We
use judgment in assessing whether a loss contingency is probable and estimable.
Actual results could differ from these estimates.
Environmental
Remediation Liabilities
Estimated
expenses associated with environmental remediation obligations are accrued when
such expenses are probable and can be reasonably estimated. We have recorded
provisions for the Kunia Well Site related to the expected environmental
remediation. The related liability is based on the Record of Decision, which was
issued by the EPA on September 25, 2003. Certain portions of the EPA’s
estimates have been discounted using a 5% interest rate. Interest expense of
$0.6 million was accrued during 2009. In 2004, we commenced certain remediation
and further testing activities. At January 1, 2010 and December 26, 2008, the
total liability for the Kunia Well Site was $19.9 million and $20.2 million,
respectively. We expect to expend approximately $0.5 million in cash per year
for the next five years. The ultimate amount of the cost for the expected
environmental remediation of the Kunia Well Site is dependent on the actual
cost. Actual remediation costs could significantly differ from our
estimates.
Derivative
Financial Instruments
We
account for derivative financial instruments in accordance with the ASC guidance
on “Derivatives and
Hedging”. The ASC on “Derivatives and Hedging”
requires us to recognize the value of derivative instruments as either assets or
liabilities in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e., gains or losses) of a derivative
instrument depends on whether it has been designated as a hedge and qualifies as
part of a hedging relationship. The accounting also depends on the
type of hedging relationship, whether a cash flow hedge, a fair value hedge, or
hedge of a net investment in a foreign operation. A fair value hedge
requires that the effective portion of the change in the fair value of a
derivative financial instrument be offset against the change in the fair value
of the underlying asset, liability, or firm commitment being hedged through
earnings. A cash flow hedge requires that the effective portion of the change in
the fair value of a derivative instrument be recognized in other comprehensive
income, a component of shareholders’ equity, and reclassified into earnings in
the same period or periods during which the hedged transaction affects
earnings. The ineffective portion of the change in fair value of a
derivative instrument is to be recognized in earnings in the same line in which
the hedge transaction affects earnings. The ineffective portion of
the change in fair value is immaterial for the year ended January 1,
2010.
We use
derivative financial instruments primarily to reduce our exposure to adverse
fluctuations in foreign exchange rates and bunker fuel prices. When entered
into, we formally designate and document the financial instrument as a hedge of
a specific underlying exposure, as well as the risk management objectives and
strategies for undertaking the hedge transaction. The fair values of derivatives
used to hedge or modify our risks fluctuate over time. These fair value amounts
should not be viewed in isolation, but rather in relation to the cash flows or
fair value of the underlying hedged transactions or assets and other exposures
and to the overall reduction in our risk relating to adverse fluctuations in
foreign exchange rates and bunker fuel prices.
We
account for the fair value of our derivative financial instruments as either an
asset in other current assets or noncurrent assets or a liability in accrued
expenses or other noncurrent liabilities. We use an income approach
to value our outstanding foreign currency and bunker fuel cash flow
hedges. An income approach consists of a discounted cash flow model
that takes into account the present value of future cash flows under the terms
of the contracts using current market information as of the measurement date
such as foreign currency and bunker fuel spot and forward rates. An
element of default risk based on observable inputs is also built into the fair
value calculation.
Fair
Value Measurements
We
measure fair value for financial instruments, such as derivatives on an ongoing
basis. We measure fair value for non-financial assets, when a
valuation is necessary, such as for impairment of long-lived and
indefinite-lived assets when indicators of impairment exist. Fair
value is measured in accordance with the ASC on “Fair Value Measurements and
Disclosures”. The ASC on “Fair Value Measurements and
Disclosures” defines fair value, establishes a framework for measuring
fair value and enhances disclosures about fair value measures required under
other accounting pronouncements, but does not change existing guidance as to
whether or not an instrument is carried at fair value. The ASC also
requires us to classify fair value measurements based on the weight of
observable and unobservable valuation inputs as follows: Level
1: inputs are derived from quoted prices in active markets for
identical assets; Level 2: inputs are derived from significant other observable
inputs and Level 3: inputs utilized are not observable. We
adopted the provisions of “Fair Value Measurements and
Disclosures” for financial instruments effective December 29, 2007, the
first day of our 2008 fiscal year and for non-financial assets effective
December 27, 2008, the first day of our 2009 fiscal year.
42
During
the quarter ended March 27, 2009, we recognized an impairment charge of $2.0
million related to the Del Monte indefinite-lived intangible of a perpetual,
royalty-free brand name license due to lower than expected sales volumes and
pricing in the United Kingdom in the prepared foods segment specifically related
to beverage products. There was no further impairment on the U.K.
beverage licenses for the year ended January 1, 2010. An income-based
approach was used to value the trademark intangible, which measures the fair
value of an intangible asset by capitalizing the royalties saved due to
ownership of the intangible asset rather than paying a rent or royalty for the
use of the asset. This income-based approach referred to as the
royalty savings method utilizes internal unobservable inputs such as a
discounted net sales cash flow model with the application of a royalty savings
rate assumption corroborated by a mix of internal and market
inputs. Due to the weight of the unobservable inputs used, we
classify the fair value of this indefinite-lived intangible asset within Level 3
of the fair value hierarchy.
Our
trademarks are valued on the basis of prepared products, specifically beverage
products produced and sold in the United Kingdom, with a trademark carrying
value at January 1, 2010 of $6.7 million and all other prepared products with a
trademark carrying value at January 1, 2010 of $63.6 million.
We
recorded $10.5 million in asset impairment and other charges (credits) resulting
from our decision in May 2009 to discontinue pineapple planting in Brazil and
our subsequent decision, during the third quarter, to not use certain property,
plant and equipment as originally intended for other crop
production. The carrying value of these assets was $17.4 million and
was written down to a fair value of $6.9 million. We estimated the
fair value of the underlying assets by using a combination of the market
approach and the cost approach. The cost approach is based on the
amount that currently would be required to replace the service capacity of the
assets. The market approach uses prices and other relevant
information generated by market transactions involving comparable
assets. We used a combination of observable inputs primarily based on
appraisals and unobservable inputs using market participant assumptions to
estimate the fair value of the underlying assets. Due to the weight
of the unobservable inputs used, we classify the fair value of these long-lived
assets within Level 3 of the fair value hierarchy.
Recent
Developments
On
February 27, 2010, Chile experienced an earthquake of significant magnitude that
caused widespread damage in the central part of the country, including Santiago,
where our South American regional headquarters is located. Our
preliminary assessment revealed no significant damage to our
facilities. However, we are still assessing the earthquake’s effects
on our operations and our ability to export fruit from Chile. At this
time, we are not able to determine the effect on our financial condition or
results of operations due to this event.
New
Accounting Pronouncements
On
December 23, 2009, the Financial Accounting Standards Board (“FASB”) issued an
Accounting Standards Update (“ASU”) on accounting for transfers of financial
assets, which codifies Statement of Financial Accounting Standard (“SFAS”) No.
166, “Accounting for Transfers
of Financial Assets – an amendment of FASB Statement No.
140”. ASC guidance on “Transfers and Servicing”
provides accounting and financial reporting rules for sales, securitizations,
and servicing of receivables and other financial assets, and for secured
borrowing and collateral transactions. Furthermore, existing guidance
on “Transfers and
Servicing” defines the criteria for determining whether a transfer of
financial assets represents a sale of the assets or a collateralized borrowing
arrangement. This ASU amends the guidance on “Transfers and Servicing” to
(a) eliminate the concept of Qualified Special Purpose Entities (“QSPEs”); (b)
clarify many of the requirements to account for a transfer of financial assets
as a sale; and (c) include additional disclosure requirements. We are
required to comply with the requirements of this ASU commencing on the first day
of our 2010 fiscal year and we expect an immaterial impact, if any, on our
Consolidated Financial Statements.
On
December 23, 2009, the FASB issued an ASU on variable interest entities, which
codifies SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”, which amends the consolidation guidance that applies to
Variable Interest Entities (“VIEs”). The ASU amends many important
provisions of the existing guidance on “Consolidation”. The
key changes include (a) the requirement that QSPEs be considered under the
consolidation guidance, whereas QSPEs were previously exempted from the existing
consolidation guidance; (b) the requirement that the reconsideration of an
entity’s status as the primary beneficiary be assessed qualitatively on an
on-going basis and not only when a triggering event occurs; (c) the
consideration of “kick-out” rights in determining if an entity is a VIE, which
may cause additional entities to now be considered VIEs; and (d) amendment to
the events that trigger a reassessment of whether an entity is a
VIE. We are required to comply with the requirements of this ASU
commencing on the first day of our 2010 fiscal year and we expect an immaterial
impact, if any, on our Consolidated Financial Statements.
On
January 21, 2010, the FASB issued an ASU on improving disclosures about fair
value measurements, which amends the ASC on “Fair Value Measurements and
Disclosures” to add new requirements for disclosures about transfers into
and out of Levels 1 and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. The ASU
also clarifies existing fair value disclosures about the level of disaggregation
and about inputs and valuation techniques used to measure fair
value. Further, the ASU amends guidance on employers’ disclosures
about postretirement benefit plan assets under the ASC guidance on “Compensation – Retirement
Benefits” to require that disclosures be provided by classes of assets
instead of by major categories of assets. We are required to comply
with the requirements of this ASU commencing the first day of our 2010 fiscal
year. This ASU will not have an impact to our Consolidated Financial
Statements except to require us to provide increased disclosure.
43
Trend
Information
Our net
sales growth in recent years has been achieved primarily through increased sales
volume in existing markets of other fresh produce, primarily pineapples, melons
and non-tropical fruit, and favorable pricing on our Del Monte Gold® Extra Sweet pineapple
combined with increased sales volume of bananas in existing and new markets.
During 2009, our net sales were positively affected by higher sales volume of
bananas, gold pineapples and melons that resulted from our recent acquisitions
and production expansion, which was offset principally by lower net sales of
prepared food and other products and services. Our net sales growth in recent
years is also attributable to a broadening of our product line with the
expansion of our fresh-cut produce business and our expansions into new markets.
We expect our net sales to continue to be driven by increased sales volumes in
our banana, other fresh produce and the prepared food segments. As a result of
our 2008 acquisitions of banana, gold pineapple and melon operations, we expect
a continued increase in net sales of these products in North America, Europe and
the Middle East. In Europe, Africa and the Middle East, we expect increased
sales of our fresh produce and prepared food product offerings. More
specifically, we expect to increase our sales in the Middle East by expanding
our distribution networks and increasing our sales volume in the fresh produce
product lines. We also expect to increase our sales by developing new products
in the prepared food segment, such as various frozen juice stick bars, targeting
the convenience store and foodservice trade in selected European and Middle East
markets.
In the
pineapple, grape and non-tropical fruit markets, we believe that the high degree
of capital investment and cultivation expertise required, as well as the longer
length of the growing cycle, makes it relatively difficult to enter the market.
However, in recent years we have experienced an increase in competition with
respect to our Del Monte
Gold® Extra Sweet pineapple, which
has affected our results. We expect these competitive pressures to continue in
2010.
In the
EU, the banana import tariff system that has been in effect since 2006 is
expected to be modified in 2010. On December 15, 2009, the EU entered
into an agreement with certain Latin America banana exporting countries to
settle the long running dispute over banana import tariffs. The EU
will gradually decrease import tariffs on bananas from Latin America from the
current level of €176 per ton to €114 per ton in 2017. The largest
reduction in the import tariff of €28 per ton will be retroactively
effective to December 15, 2009, once the national lawmakers ratify
the agreement, which is expected within four months. During 2009, the
EU banana market was stable and per unit net sales prices
increased. We cannot predict the impact of this reduction of banana
import tariffs on the EU market.
Our costs
are determined in large part by the prices of fuel and packaging materials,
including containerboard, plastic, resin and tin plate. Any significant increase
in the cost of these items could also materially and adversely affect our
operating results. Other than the cost of our products (including packaging),
sea and inland transportation costs represent the largest component of cost of
products sold. Fuel prices increased by 21% and containerboard prices increased
by 17% in 2006 as compared with 2005. During 2007, the cost of fuel
further increased by 17% and containerboard increased slightly as compared with
2006, and during 2008, fuel prices increased an additional 42% and
containerboard increased 11%. During 2009, fuel prices decreased by 32% and
containerboard decreased 24% as compared with 2008, reducing cost of product
sold by $67.0 million. We do not expect the cost of fuel and
containerboard to continue to decrease in 2010. In addition, we are
subject to the volatility of the short-term charter vessel market because
approximately one-half of our refrigerated vessels are chartered rather than
owned. These charters are for periods of one to 10 years. Charter
rates have generally increased during 2007 and 2008 as compared with the
relevant prior year, but did not experience any further increase during 2009.
During 2009, we entered into 10-year agreements to charter four new
vessels. Two of these new vessels were put into service during the
fourth quarter of 2009 and the remaining two are scheduled for delivery during
the first half of 2010. We believe that our fleet of owned vessels
combined with longer-term charters is effective in reducing our ocean freight
costs and mitigates our exposure to the volatility of the charter
market.
44
Tabular
Disclosure of Contractual Obligations
The
following details information with respect to our contractual obligations as of
January 1, 2010.
|
(U.S.
dollars in millions)
|
||||||||||||||||||||
|
Contractual
obligations by period
|
Total
|
Less
than
1
year
|
1
- 3 years
|
3
- 5 years
|
More
than
5
years
|
|||||||||||||||
|
Fruit
purchase agreements
|
$ | 1,724.2 | $ | 250.8 | $ | 441.9 | $ | 393.1 | $ | 638.4 | ||||||||||
|
Purchase
obligations
|
243.2 | 178.7 | 33.4 | 22.1 | 9.0 | |||||||||||||||
|
Operating
leases and charter agreements
|
477.1 | 102.6 | 120.5 | 77.3 | 176.7 | |||||||||||||||
|
Capital
lease obligations (including interest)
|
6.5 | 3.2 | 3.2 | 0.1 | - | |||||||||||||||
|
Long-term
debt
|
319.2 | 2.0 | 317.1 | 0.1 | - | |||||||||||||||
|
Retirement
benefits
|
84.8 | 7.5 | 14.7 | 15.5 | 47.1 | |||||||||||||||
|
Uncertain
tax positions
|
9.4 | 1.6 | 7.2 | 0.6 | - | |||||||||||||||
|
Totals
|
$ | 2,864.4 | $ | 546.4 | $ | 938.0 | $ | 508.8 | $ | 871.2 | ||||||||||
We have
agreements to purchase the entire production of certain products of our
independent growers in Costa Rica, Guatemala, Ecuador, Cameroon, Colombia,
Chile, Brazil and the Philippines that meet our quality standards. Total
purchases under these agreements amounted to $670.0 million, $690.3 million and
$580.8 million for 2009, 2008 and 2007, respectively. During 2009, we
entered into a contract to charter four refrigerated vessels for a 10 year
period. The contractual obligation related to this long-term charter
agreement is included in operating leases and charter agreements
above.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
We are
exposed to market risk from changes in currency exchange rates and interest
rates, which may adversely affect our results of operations and financial
condition. We seek to minimize the risks from these currency exchange rate and
interest rate fluctuations through our regular operating and financing
activities and, when considered appropriate, through the use of derivative
financial instruments. Our policy is to not use financial instruments for
trading or other speculative purposes and not to be a party to any leveraged
financial instruments.
We manage
our currency exchange rate risk by hedging a portion of our overall exposure
using derivative financial instruments. We also have procedures to monitor the
impact of market risk on the fair value of long-term debt, short-term debt
instruments and other financial instruments, considering reasonably possible
changes in currency exchange and interest rates.
Exchange
Rate Risk
Because
we conduct our operations in many areas of the world involving transactions
denominated in a variety of currencies, our results of operations as expressed
in U.S. dollars may be significantly affected by fluctuations in rates of
exchange between currencies. These fluctuations could be significant.
Approximately 41% of our net sales and a significant portion of our costs and
expenses in 2009 were denominated in currencies other than the dollar. We
generally are unable to adjust our non-dollar local currency sales prices to
reflect changes in exchange rates between the dollar and the relevant local
currency. As a result, changes in exchange rates between the euro, Japanese yen,
British pound or other currencies in which we receive sale proceeds and the
dollar have a direct impact on our operating results. There is normally a time
lag between our sales and collection of the related sales proceeds, exposing us
to additional currency exchange rate risk.
To reduce currency exchange rate risk,
we generally exchange local currencies for dollars promptly upon receipt. We
periodically enter into currency forward contracts as a hedge against a portion
of our currency exchange rate exposures; however, we may decide not to enter
into these contracts during any particular period. As of January 1, 2010, we had
several foreign currency cash flow hedges outstanding. The fair value of these
hedges as of that date was a net asset of $19.6 million.
The
results of a hypothetical 10% strengthening in the average value of the dollar
during 2009 relative to the other currencies in which a significant portion of
our net sales are denominated would have resulted in a decrease in net sales of
approximately $132.0 million for the year ended January 1, 2010. This
calculation assumes that each exchange rate would change in the same direction
relative to the dollar. In addition to the direct effect of changes in exchange
rates quantified above, changes in exchange rates also affect the volume of
sales. Our sensitivity analysis of the effects of changes in currency exchange
rates does not factor in a potential change in sales levels or any offsetting
gains on currency forward contracts.
45
Interest
Rate Risk
As
described in Note 13, “Long-Term Debt and Capital Lease
Obligations” to the Consolidated Financial Statements, our indebtedness
is both variable and fixed rate.
At
January 1, 2010, our variable rate total debt had a carrying value of $317.3
million. The fair value of the debt approximates the carrying value because the
variable rates approximate market rates. A 10% increase in the interest rate for
2009 would have resulted in a negative impact of approximately $1.2 million on
our results of operations for the year ended January 1, 2010.
The above
discussion of our procedures to monitor market risk and the estimated changes in
fair value resulting from our sensitivity analyses are forward-looking
statements of market risk assuming certain adverse market conditions
occur.
Actual
results in the future may differ materially from these estimated results due to
actual developments in the global financial markets. The analysis methods we
used to assess and mitigate risk discussed above should not be considered
projections of future events or losses.
46
|
Financial
Statements and Supplementary Data
|
Our
Consolidated Financial Statements and Schedule set forth in the accompanying
Index are filed as part of this Report.
Index
to Consolidated Financial Statements
|
Page
|
|
|
Internal
Control over Financial Reporting
|
|
|
48
|
|
|
49
|
|
|
Consolidated
Financial Statements
|
|
|
50
|
|
|
51
|
|
|
52
|
|
|
53
|
|
|
54
|
|
|
55
|
|
|
Supplemental
Financial Statement Schedule
|
|
|
107
|
47
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. The Company’s internal control over
financial reporting is designed under the supervision of our Chairman and Chief
Executive Officer and Senior Vice President and Chief Financial Officer to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Our internal control over
financial reporting includes those policies and procedures that:
|
(i)
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
(ii)
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made
only in accordance with authorizations of our management and directors;
and
|
|
(iii)
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Under the
supervision and with the participation of our management, including our Chairman
and Chief Executive Officer and Senior Vice President and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Based on
our evaluation under the framework in Internal Control-Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of January 1, 2010.
The
effectiveness of our internal control over financial reporting as of January 1,
2010 has been audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in their report that is included elsewhere
herein. That report expresses an unqualified opinion on the effectiveness of our
internal control over financial reporting.
Fresh Del
Monte Produce Inc.
48
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting
The Board
of Directors and Shareholders of
Fresh Del
Monte Produce Inc.
We have
audited Fresh Del Monte Produce Inc. and subsidiaries’ internal control over
financial reporting as of January 1, 2010, based on criteria established in
Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Fresh Del Monte Produce Inc. and
subsidiaries’ management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Fresh Del Monte Produce Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
January 1, 2010, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Fresh Del
Monte Produce Inc. and subsidiaries as of January 1, 2010 and December 26, 2008,
and the related consolidated statements of income, shareholders’ equity, and
cash flows for each of the three years in the period ended January 1, 2010 of
Fresh Del Monte Produce Inc., and our report dated March 2, 2010 expressed
an unqualified opinion thereon.
|
/s/
Ernst & Young LLP
|
|
|
Certified
Public Accountants
|
Miami,
Florida
March 2,
2010
49
The Board
of Directors and Shareholders of
Fresh Del
Monte Produce Inc.
We have
audited the accompanying consolidated balance sheets of Fresh Del Monte Produce
Inc. and subsidiaries as of January 1, 2010 and December 26, 2008, and the
related consolidated statements of income, shareholders’ equity, and cash flows
for each of the three years in the period ended January 1, 2010. Our
audits also included the financial statement schedule listed in the Index at
Item 15. These financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Fresh Del Monte
Produce Inc. and subsidiaries at January 1, 2010 and December 26, 2008, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 1, 2010, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As
discussed in Note 2 to the accompanying consolidated financial statements, in
2009 the Company changed its method of accounting for noncontrolling
interests. In addition, as discussed in Note 2 to the accompanying
consolidated financial statements, in 2008 the Company changed its method of
accounting and disclosures for fair value of assets and
liabilities.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Fresh Del Monte Produce Inc.’s internal
control over financial reporting as of January 1, 2010, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
2, 2010 expressed an unqualified opinion thereon.
|
/s/
Ernst & Young LLP
|
|
|
Certified
Public Accountants
|
Miami,
Florida
March 2,
2010
50
CONSOLIDATED
BALANCE SHEETS
(U.S.
dollars in millions, except share and per share data)
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008
|
|||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 34.5 | $ | 27.6 | ||||
|
Trade
accounts receivable, net of allowance of
|
||||||||
|
$11.9
and $15.8, respectively
|
309.8 | 348.0 | ||||||
|
Other
accounts receivable, net of allowance
|
||||||||
|
of
$14.1 and $14.0, respectively
|
65.2 | 62.0 | ||||||
|
Inventories
|
436.9 | 459.8 | ||||||
|
Deferred
income taxes
|
7.8 | 19.2 | ||||||
|
Prepaid
expenses and other current assets
|
46.2 | 58.0 | ||||||
|
Total
current assets
|
900.4 | 974.6 | ||||||
|
Investments
in and advances to unconsolidated companies
|
10.4 | 8.0 | ||||||
|
Property,
plant and equipment, net
|
1,068.5 | 1,085.2 | ||||||
|
Deferred
income taxes
|
68.9 | 43.6 | ||||||
|
Other
noncurrent assets
|
138.8 | 138.5 | ||||||
|
Goodwill
|
409.0 | 401.1 | ||||||
|
Total
assets
|
$ | 2,596.0 | $ | 2,651.0 | ||||
|
Liabilities
and shareholders' equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 316.9 | $ | 379.6 | ||||
|
Current
portion of long-term debt and capital lease obligations
|
4.9 | 358.0 | ||||||
|
Deferred
income taxes
|
25.8 | 26.0 | ||||||
|
Income
taxes and other taxes payable
|
9.7 | 10.8 | ||||||
|
Total
current liabilities
|
357.3 | 774.4 | ||||||
|
Long-term
debt and capital lease obligations
|
320.3 | 154.8 | ||||||
|
Retirement
benefits
|
78.0 | 61.4 | ||||||
|
Other
noncurrent liabilities
|
60.1 | 54.1 | ||||||
|
Deferred
income taxes
|
85.1 | 92.4 | ||||||
|
Total
liabilities
|
900.8 | 1,137.1 | ||||||
|
Commitments
and contingencies
|
- | - | ||||||
|
Shareholders'
equity:
|
||||||||
|
Preferred
shares, $0.01 par value; 50,000,000 shares
|
||||||||
|
authorized;
none issued or outstanding
|
- | - | ||||||
|
Ordinary
shares, $0.01 par value; 200,000,000 shares
|
||||||||
|
authorized;
63,615,411 issued and outstanding
|
||||||||
|
and
63,553,211 issued and outstanding, respectively
|
0.6 | 0.6 | ||||||
|
Paid-in
capital
|
561.2 | 549.8 | ||||||
|
Retained
earnings
|
1,108.5 | 964.6 | ||||||
|
Accumulated
other comprehensive income (loss)
|
2.8 | (18.1 | ) | |||||
|
Total
Fresh Del Monte Produce Inc. shareholders' equity
|
1,673.1 | 1,496.9 | ||||||
|
Noncontrolling
interests
|
22.1 | 17.0 | ||||||
|
Total
shareholders' equity
|
1,695.2 | 1,513.9 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 2,596.0 | $ | 2,651.0 | ||||
See
accompanying notes.
51
CONSOLIDATED
STATEMENTS OF INCOME
(U.S.
dollars in millions, except share and per share data)
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$ | 3,496.4 | $ | 3,531.0 | $ | 3,365.5 | ||||||
|
Cost
of products sold
|
3,185.6 | 3,187.0 | 3,000.6 | |||||||||
|
Gross
profit
|
310.8 | 344.0 | 364.9 | |||||||||
|
Selling,
general and administrative expenses
|
165.8 | 162.5 | 176.8 | |||||||||
|
Gain
on sales of property, plant and equipment
|
11.2 | 7.5 | 17.4 | |||||||||
|
Asset
impairment and other charges, net
|
8.0 | 18.4 | 12.5 | |||||||||
|
Operating
income
|
148.2 | 170.6 | 193.0 | |||||||||
|
Interest
expense
|
11.9 | 14.5 | 27.8 | |||||||||
|
Interest
income
|
0.7 | 1.4 | 1.9 | |||||||||
|
Other
income (expense), net
|
(5.2 | ) | 4.5 | 14.3 | ||||||||
|
Income
before income taxes
|
131.8 | 162.0 | 181.4 | |||||||||
|
Provision
for (benefit from) income taxes
|
(12.8 | ) | 4.8 | 1.4 | ||||||||
|
Net
income
|
$ | 144.6 | $ | 157.2 | $ | 180.0 | ||||||
|
Less:
net income (loss) attributable to
noncontrolling
interests
|
0.7 | (0.5 | ) | 0.2 | ||||||||
|
Net
income attributable to
Fresh
Del Monte Produce Inc.
|
$ | 143.9 | $ | 157.7 | $ | 179.8 | ||||||
|
Net
income per ordinary share attributable to
Fresh
Del Monte Produce Inc. - Basic
|
$ | 2.26 | $ | 2.49 | $ | 3.07 | ||||||
|
Net
income per ordinary share attributable to
Fresh
Del Monte Produce Inc. - Diluted
|
$ | 2.26 | $ | 2.48 | $ | 3.06 | ||||||
|
Weighted average number of ordinary shares:
|
||||||||||||
|
Basic
|
63,570,999 | 63,344,941 | 58,490,281 | |||||||||
|
Diluted
|
63,668,352 | 63,607,786 | 58,772,718 | |||||||||
See
accompanying notes.
52
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(U.S.
dollars in millions)
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Operating
activities:
|
||||||||||||
|
Net
income
|
$ | 144.6 | $ | 157.2 | $ | 180.0 | ||||||
|
Adjustments
to reconcile net income to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
83.7 | 83.5 | 79.7 | |||||||||
|
Amortization
of debt issuance costs
|
3.3 | 1.8 | 1.2 | |||||||||
|
Gain
on pension liability
|
(3.2 | ) | (2.8 | ) | (5.6 | ) | ||||||
|
Stock-based
compensation expense
|
10.4 | 9.7 | 5.6 | |||||||||
|
Asset
impairment charges
|
15.3 | 15.7 | 15.5 | |||||||||
|
Change
in uncertain tax positions
|
(2.9 | ) | 0.4 | (4.5 | ) | |||||||
|
Gain
on sales of property, plant and equipment
|
(11.2 | ) | (7.3 | ) | (17.4 | ) | ||||||
|
Equity
in (income) loss of unconsolidated companies
|
(0.8 | ) | 2.6 | 3.1 | ||||||||
|
Deferred
income taxes
|
(18.1 | ) | (0.8 | ) | 4.9 | |||||||
|
Foreign
currency translation adjustment
|
8.0 | 8.3 | 7.7 | |||||||||
|
Other
changes
|
(0.5 | ) | - | - | ||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Receivables
|
45.8 | 0.1 | (78.9 | ) | ||||||||
|
Inventories
|
19.8 | (38.8 | ) | (1.9 | ) | |||||||
|
Prepaid
expenses and other current assets
|
5.5 | (10.6 | ) | 1.0 | ||||||||
|
Accounts
payable and accrued expenses
|
(40.1 | ) | 8.0 | (3.8 | ) | |||||||
|
Other
noncurrent assets and liabilities
|
(3.5 | ) | (22.0 | ) | (39.3 | ) | ||||||
|
Net
cash provided by operating activities
|
256.1 | 205.0 | 147.3 | |||||||||
|
Investing
activities:
|
||||||||||||
|
Capital
expenditures
|
(84.5 | ) | (101.5 | ) | (81.4 | ) | ||||||
|
Proceeds
from sales of property, plant and equipment
|
17.6 | 16.5 | 32.2 | |||||||||
|
Purchase
of subsidiaries, net of cash acquired
|
- | (414.5 | ) | - | ||||||||
|
Investments
and advances to unconsolidated companies
|
- | - | (2.0 | ) | ||||||||
|
Other
investing activities, net
|
- | - | 0.4 | |||||||||
|
Net
cash used in investing activities
|
(66.9 | ) | (499.5 | ) | (50.8 | ) | ||||||
|
Financing
activities:
|
||||||||||||
|
Proceeds
from long-term debt
|
314.1 | 985.6 | 527.2 | |||||||||
|
Payments
on long-term debt
|
(512.1 | ) | (713.8 | ) | (769.5 | ) | ||||||
|
Proceeds
from the issuance of ordinary shares, net
|
- | - | 117.5 | |||||||||
|
Contributions
from noncontrolling interests
|
14.8 | 10.6 | 5.2 | |||||||||
|
Proceeds
from stock options exercised
|
1.0 | 22.1 | 13.3 | |||||||||
|
Net
cash (used in) provided by financing activities
|
(182.2 | ) | 304.5 | (106.3 | ) | |||||||
|
Effect
of exchange rate changes on cash
|
(0.1 | ) | (12.6 | ) | 0.2 | |||||||
|
Net
increase (decrease) in cash and cash equivalents
|
6.9 | (2.6 | ) | (9.6 | ) | |||||||
|
Cash
and cash equivalents, beginning
|
27.6 | 30.2 | 39.8 | |||||||||
|
Cash
and cash equivalents, ending
|
$ | 34.5 | $ | 27.6 | $ | 30.2 | ||||||
|
Supplemental
cash flow information:
|
||||||||||||
|
Cash
paid for interest
|
$ | 8.8 | $ | 12.6 | $ | 28.1 | ||||||
|
Cash
paid for income taxes
|
$ | 5.9 | $ | 1.1 | $ | 2.0 | ||||||
|
Non-cash
financing and investing activities:
|
||||||||||||
|
Purchase
of subsidiaries
|
$ | 1.2 | $ | - | $ | - | ||||||
|
Retirement
of treasury stock
|
$ | - | $ | - | $ | 5.8 | ||||||
|
Purchases
of assets under capital lease obligations
|
$ | 0.3 | $ | 1.0 | $ | 10.4 | ||||||
See
accompanying notes.
53
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
(U.S.
dollars in millions, except share data)
|
Ordinary
Shares
Outstanding
|
Ordinary Shares |
Paid-in
Capital
|
Retained
Earnings
|
Treasury
Shares
|
Accumulated
Other
Comprehensive Income (Loss)
|
Total
Shareholders'
Equity
|
Non-
Controlling
Interests
|
Total
Equity
|
|||||||||||||||||||
|
Balance
at December 29, 2006
|
57,697,834
|
$ |
0.6
|
$ |
387.4
|
$ |
627.1
|
$ |
(5.8
|
) | $ |
17.0
|
$ |
1,026.3
|
$ |
12.2
|
$ |
1,038.5
|
|||||||||
|
Exercises
of stock options
|
783,082
|
-
|
13.3
|
-
|
-
|
-
|
13.3
|
-
|
13.3
|
||||||||||||||||||
|
Share-based payment expense
|
-
|
-
|
5.6
|
-
|
-
|
-
|
5.6
|
-
|
5.6
|
||||||||||||||||||
|
Offering of shares
|
4,222,000
|
-
|
117.5
|
-
|
-
|
-
|
117.5
|
-
|
117.5
|
||||||||||||||||||
|
Treasury
shares cancelled
|
-
|
-
|
(5.8
|
) |
-
|
5.8
|
-
|
-
|
-
|
-
|
|||||||||||||||||
|
Capital contribution from non-
controlling interest
|
0.8 | 0.8 | |||||||||||||||||||||||||
|
Comprehensive
loss:
|
|
||||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
179.8
|
-
|
-
|
179.8
|
0.2
|
180.0
|
||||||||||||||||||
|
Unrealized
loss on derivatives
|
-
|
-
|
-
|
-
|
-
|
(7.0
|
) |
(7.0
|
) |
-
|
(7.0
|
) | |||||||||||||||
|
Net
foreign currency translation
adjustment |
-
|
-
|
-
|
-
|
-
|
17.9
|
17.9
|
1.6
|
19.5
|
||||||||||||||||||
|
Retirement
benefit
|
|||||||||||||||||||||||||||
|
adjustment,
net of tax
|
-
|
-
|
-
|
-
|
-
|
11.4
|
11.4
|
-
|
11.4
|
||||||||||||||||||
| Comprehensive income | 202.1 | 1.8 | 203.9 | ||||||||||||||||||||||||
|
Balance
at December 28, 2007
|
62,702,916
|
$ |
0.6
|
$ |
518.0
|
$ |
806.9
|
$ |
-
|
$ |
39.3
|
$ |
1,364.8
|
$ |
14.8
|
$ |
1,379.6
|
||||||||||
|
Exercises
of stock options
|
850,295
|
-
|
22.1
|
-
|
-
|
-
|
22.1
|
-
|
22.1
|
||||||||||||||||||
|
Share-based payment expense
|
-
|
-
|
9.7
|
-
|
-
|
-
|
9.7
|
-
|
9.7
|
||||||||||||||||||
|
Capital contribution from non-
controlling interest
|
4.3 | 4.3 | |||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
157.7
|
-
|
-
|
157.7
|
(0.5
|
) |
157.2
|
|||||||||||||||||
|
Unrealized
gain on derivatives
|
-
|
-
|
-
|
-
|
-
|
13.4
|
13.4
|
-
|
13.4
|
||||||||||||||||||
|
Net
foreign currency translation
adjustment |
-
|
-
|
-
|
-
|
-
|
(51.6
|
) |
(51.6
|
) |
(1.6
|
) |
(53.2
|
) | ||||||||||||||
|
Change
in retirement benefit
adjustment
|
-
|
-
|
-
|
-
|
-
|
(19.2
|
) |
(19.2
|
) |
-
|
(19.2
|
) | |||||||||||||||
|
Comprehensive
income
|
100.3 | (2.1 | ) | 98.2 | |||||||||||||||||||||||
|
Balance
at December 26, 2008
|
63,553,211
|
$ |
0.6
|
$ |
549.8
|
$ |
964.6
|
$ |
-
|
$ |
(18.1
|
) | $ |
1,496.9
|
$ |
17.0
|
$ |
1,513.9
|
|||||||||
|
Exercises
of stock options
|
62,200
|
-
|
1.0
|
-
|
-
|
-
|
1.0
|
-
|
1.0
|
||||||||||||||||||
|
Share-based payment expense
|
-
|
-
|
10.4
|
-
|
-
|
-
|
10.4
|
-
|
10.4
|
||||||||||||||||||
|
Capital contribution from non-
controlling interest
|
3.7 | 3.7 | |||||||||||||||||||||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
143.9
|
-
|
-
|
143.9
|
0.7
|
144.6
|
||||||||||||||||||
|
Unrealized
loss on derivatives
|
-
|
-
|
-
|
-
|
-
|
13.4
|
13.4
|
-
|
13.4
|
||||||||||||||||||
|
Net foreign currency translation
adjustment |
-
|
-
|
-
|
-
|
-
|
20.5
|
20.5
|
0.7
|
21.2
|
||||||||||||||||||
|
Change
in retirement benefit
adjustment
|
-
|
-
|
-
|
-
|
-
|
(13.0
|
) |
(13.0
|
) |
-
|
(13.0
|
) | |||||||||||||||
|
Comprehensive
income
|
164.8 | 1.4 | 166.2 | ||||||||||||||||||||||||
|
Balance
at January 1, 2010
|
63,615,411
|
$ |
0.6
|
$ |
561.2
|
$ |
1,108.5
|
$ |
-
|
$ |
2.8
|
$ |
1,673.1
|
$ |
22.1
|
$ |
1,695.2
|
||||||||||
See
accompanying notes.
54
1.
General
Reference
in this Report to Fresh Del Monte, “we”, “our” and “us” and the “Company” refer
to Fresh Del Monte Produce Inc. and its subsidiaries, unless the context
indicates otherwise.
We were
incorporated under the laws of the Cayman Islands on August 29, 1996. Prior
to March 31, 2008, we qualified as a “foreign private issuer” for purposes
of filing and disclosure requirements under the United States securities laws.
As a “foreign private issuer” under the Securities and Exchange Act of 1934, as
amended (the “Exchange Act”), we filed our annual report with the United States
Securities and Exchange Commission (“SEC”) on Form 20-F. Effective
March 31, 2008, we no longer satisfied the definition of a “foreign private
issuer” under the Exchange Act and we are now required to file our annual
reports on Form 10-K and our quarterly reports on Form 10-Q.
We are
engaged primarily in the worldwide production, transportation and marketing of
fresh produce. We source our products, which include bananas, pineapples, melons
and non-tropical fruit (including grapes, apples, pears, peaches, plums,
nectarines, apricots, avocados and kiwis), plantains and tomatoes, primarily
from Central America, South America, Africa and the Philippines. We also source
products from North America and Europe and distribute our products in North
America, Europe, Asia, South America, Africa and the Middle East. Products are
sourced from our company-owned farms, through joint venture arrangements and
through supply contracts with independent growers. We have the exclusive right
to use the DEL MONTE® brand
for fresh fruit, fresh vegetables and other fresh and fresh-cut produce and
certain other specified products on a royalty-free basis under a worldwide,
perpetual license from Del Monte Corporation, an unaffiliated company that owns
the DEL MONTE®
trademark. Del Monte Corporation and several other unaffiliated companies
manufacture, distribute and sell under the DEL MONTE® brand
canned or processed fruit, vegetables and other produce, as well as dried fruit,
snacks and other products.
We are a
vertically integrated producer, marketer and distributor of prepared fruit and
vegetables, juices and snacks and we hold a perpetual, royalty-free license to
use the DEL MONTE® brand
for prepared foods throughout Europe, Africa and the Middle East.
Certain
amounts from 2008 and 2007 have been reclassified to conform to the 2009
presentation. Included in the reclassifications is a correction of an
immaterial error of classifying gain on sales of property, plant and equipment
in other income (expense), net on the Consolidated Statements of Income for 2008
and 2007. Accordingly, we have reclassified these amounts for 2008
and 2007 to gain on sales of property, plant and equipment, a component of
operating income.
We are
required to evaluate events occurring after January 1, 2010, our fiscal year
end, for recognition and disclosure in the Consolidated Financial Statements for
the year ended January 1, 2010. Events are evaluated based on whether
they represent information existing as of January 1, 2010, which require
recognition in the Consolidated Financial Statements or new events occurring
after January 1, 2010, which do not require recognition but require disclosure
if the event is significant to the Consolidated Financial
Statements. We evaluated events occurring subsequent to January 1,
2010 through the date of issuance of these Consolidated Financial
Statements.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
Our
Consolidated Financial Statements include the accounts of our majority owned
subsidiaries, which we control, and consolidated variable interest entities
(“VIE”). Our fiscal year end is the last Friday of the calendar year or the
first Friday subsequent to the end of the calendar year, whichever is closest to
the end of the calendar year. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The
Accounting Standards CodificationTM (the
“Codification” or “ASC”) on “Consolidation” was amended to
require classification of noncontrolling interests as a component of
consolidated shareholders’ equity and the elimination of “minority interest”
accounting in results of operations. Earnings attributable to
noncontrolling interests are required to be reported as part of consolidated
earnings and not as a separate component of income or expense and are required
to be disclosed on the face of our Consolidated Statements of Income. We adopted
this additional guidance on December 27, 2008, the first day of our 2009 fiscal
year.
55
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary
of Significant Accounting Policies (continued)
The
adoption resulted in the reclassification of $17.0 million of noncontrolling
interests from minority interests to shareholders’ equity on the December 26,
2008 Consolidated Balance Sheet and the presentation of a net loss of $0.5
million and net income of $0.2 million attributable to the noncontrolling
interests in the Consolidated Statements of Income for the years ended December
26, 2008 and December 28, 2007, respectively. Prior to the adoption
of the additional guidance on noncontrolling interests, income attributable to
noncontrolling interests was reported in other income (loss) in the Consolidated
Statements of Income.
Use
of Estimates
The
preparation of our Consolidated Financial Statements in accordance with U.S.
generally accepted accounting principles requires us to make estimates and
assumptions that affect the amounts reported in our Consolidated Financial
Statements and accompanying notes. Actual results could differ from these
estimates.
Accounting
for Planned Major Maintenance Activities
We
account for planned major maintenance activities, such as vessel dry-dock
activities, consistent with the ASC guidance related to “Other Assets and Deferred
Costs”. We utilize the deferral method of accounting for vessel dry-dock
activities whereby actual costs incurred are deferred and amortized on a
straight-line basis over the period until the next scheduled dry-dock
activity.
Cash
and Cash Equivalents
We
classify as cash equivalents all highly liquid investments with a maturity of
three months or less at the time of purchase. Also included in cash and cash
equivalents are certificates of deposits for which the aggregate amount are
foreign deposits.
Trade
Receivables and Concentrations of Credit Risk
Trade
receivables are recognized on our accompanying consolidated balance sheets at
fair value. We perform ongoing credit evaluations of our customers and adjust
credit limits based upon payment history and customers’ credit worthiness, as
determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience, specific customer
collection issues that we have identified and reviews of the aging of trade
receivables based on contractual terms. We generally do not require collateral
on trade accounts receivable. No single customer’s receivable balance is
considered to be large enough to pose a significant credit risk to us, except
trade accounts receivable from one customer, which represents 11% of trade
accounts receivable, net of allowance. This customer is current with its
payments.
Inventories
Inventories
are valued at the lower of cost or market. Cost is computed using the weighted
average cost method for finished goods, which includes fresh produce and
prepared food and the first-in first-out, actual cost or average cost methods
for raw materials and packaging supplies. Raw materials and packaging supplies
inventory consists primarily of agricultural supplies, containerboard, packaging
materials and spare parts.
Growing
Crops
Expenditures
on pineapple, melon and non-tropical fruit growing crops are valued at the lower
of cost or market and are deferred and charged to cost of products sold when the
related crop is harvested and sold. The deferred growing costs included in
inventories in our Consolidated Balance Sheets consist primarily of land
preparation, cultivation, irrigation and fertilization costs. Expenditures
related to banana crops are expensed in the year incurred due to the continuous
nature of the crop.
Investments
in Unconsolidated Companies
Investments
in unconsolidated companies are accounted for under the equity method of
accounting for investments of 20% or more in companies over which we do not have
control, except for one VIE. See Note 6, “Investments in Unconsolidated
Companies” and Note 7, “Variable Interest
Entities”.
56
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
Summary of Significant Accounting Policies (continued)
Property,
Plant and Equipment and Other Definite-Lived or Long-Lived Assets
Property,
plant and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, which range
from 10 to 40 years for buildings, five to 20 years for ships and containers,
three to 20 years for machinery and equipment, three to seven years for
furniture, fixtures and office equipment and five to 10 years for automotive
equipment. Leasehold improvements are amortized over the term of the lease, or
the estimated useful life of the related asset, whichever is shorter.
Definite-lived intangibles are amortized over their useful lives with a weighted
average amortization period of 15.2 years. When assets are retired or disposed
of, the costs and accumulated depreciation or amortization are removed from the
respective accounts and any related gain or loss is recognized. Maintenance and
repairs are charged to expense as incurred. Significant expenditures, which
extend the useful lives of assets, are capitalized. Interest is capitalized as
part of the cost of construction.
We review
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
carrying amount of an asset exceeds the asset’s fair value, we measure and
record an impairment loss for the excess. An asset’s fair value is calculated by
either determining the expected future discounted cash flow of the asset or by
independent appraisal. For long-lived assets held for sale, we record impairment
losses when the carrying amount is greater than the fair value less the cost to
sell. We discontinue depreciation of long-lived assets when these assets are
classified as held for sale and include the net book value of these assets in
prepaid expenses and other current assets. Our long-lived assets are primarily
composed of property, plant and equipment and definite-lived intangible assets.
See Note 8, “Property, Plant
and Equipment” and Note 9, “Goodwill and Other Intangible
Assets”.
We
recorded charges related to impairment of long-lived assets in 2009, 2008 and
2007 of $11.9 million, $14.7 million and $15.5 million, respectively. These
charges were net of insurance recoveries in 2009 and 2008. Such
charges are included under the caption “Asset impairment and other charges” in
the accompanying Consolidated Statements of Income for the years ended January
1, 2010, December 26, 2008 and December 28, 2007, respectively, and as described
further in Note 4, “Asset
Impairment and Other Charges”.
There are
numerous uncertainties and inherent risks in conducting business, such as but
not limited to general economic conditions, actions of competitors, ability to
manage growth, actions of regulatory authorities, pending investigations and/or
litigation, customer demand and risk relating to international operations.
Adverse effects from these risks may result in adjustments to the carrying value
of our assets and liabilities in the future, including, but not necessarily
limited to, long-lived assets.
57
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
Summary of Significant Accounting Policies (continued)
Goodwill
and Indefinite-Lived Intangible Assets
Our
goodwill represents the excess of the purchase price of business combinations
over the fair value of the net assets acquired. We assess goodwill and
indefinite-lived intangible assets for impairment on an annual basis as of
October 1, or sooner if events indicate such a review is necessary.
Potential impairment exists if the fair value of a reporting unit to which
goodwill has been allocated, or the fair value of indefinite-lived intangible
assets, is less than their respective carrying values. The amount of the
impairment to recognize, if any, is calculated as the amount by which the
carrying value of goodwill exceeds its implied value or the amount of the
carrying value of the intangible asset exceeds its fair value. Future changes in
the estimates used to conduct the impairment review, including revenue
projections, market values and changes in the discount rate used could cause the
analysis to indicate that our goodwill or indefinite-lived intangible assets are
impaired in subsequent periods and result in a write-off of a portion or all of
goodwill. The discount rate used is based on independently calculated risks, our
capital mix and an estimated market premium.
Revenue
Recognition
Revenue
is recognized on sales of products when the customer agrees to the terms of the
sale and receives title to the goods, generally upon delivery and when
collectability is reasonably assured.
We follow the guidance of the ASC
on “Revenue Recognition” with
regards to recording revenue gross as a principal versus net as an agent, in its
presentation of net sales. This guidance requires us to assess whether we act as
a principal in the transaction. Where we are the principal in the transaction
and have the risks and rewards of ownership, the transactions are recorded gross
in the Consolidated Statements of Income. If we do not act as a principal in the
transaction, the transactions are recorded on a net basis in the Consolidated
Statements of Income.
Cost
of Products Sold
Cost of
products sold includes the cost of produce, packaging materials, labor,
depreciation, overhead, transportation and other distribution costs, including
handling costs incurred to deliver fresh produce or prepared products to
customers.
During
2009, we made the decision to cease pineapple operations in Brazil due to lower
than optimal crop quality and higher than expected costs. As a result, we
recorded $17.2 million in cost of products sold related to the write-off of
growing crop inventory. In addition, in 2009, we recorded a credit of $2.1
million in cost of products sold related to insurance proceeds received as a
result of the flood damage experienced during 2008 in our Brazil banana
operations, which is included in operating cash flows in our Consolidated
Statements of Cash Flows.
During
2008, we experienced extensive flooding in our Brazil banana operation. As a
result of the flooding and subsequent decision not to re-plant on certain Brazil
banana farms, we recorded $1.7 million in cost of products sold in relation to
idled worker cost, salaries and termination and $0.4 million of packaging
material write-offs and other costs. In addition, in 2008, we recorded $0.9
million in cost of products sold related to inventory write-offs and other clean
up costs as a result of flooding in our Costa Rican banana
operation. In 2009, we collected $0.8 million in insurance proceeds
related to the Costa Rica flood.
58
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DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
Summary of Significant Accounting Policies (continued)
During
2007, as a result of the product withdrawal and disposal program launched in
2006 with respect to our Kenya canned pineapple prepared food products, we
incurred an additional $1.1 million in sales claims related to product returns
and $0.2 million in additional restructuring costs. We maintain product
contamination insurance for these purposes and during the fourth quarter of
2007, we recorded a credit of $3.0 million included in cost of products sold
related to insurance proceeds received. Insurance proceeds are included in
operating cash flows in our Consolidated Statements of Cash Flows.
Advertising
and Promotional Costs
We
expense advertising and promotional costs as incurred. Advertising and
promotional costs, which are included in selling, general and administrative
expenses, were $17.5 million, $16.7 million, and $23.7 million for 2009, 2008
and 2007, respectively.
Debt
Issuance Costs
Debt
issuance costs relating to long-term debt are amortized over the term of the
related debt instrument using the straight-line method as the costs are
primarily related to our revolving credit facility and are included in other
noncurrent assets. Debt issuance cost amortization, which is included in
interest expense, was $3.3 million, $1.8 million and $1.2 million, for
2009, 2008 and 2007, respectively. These amounts are included in the
amortization of debt issuance costs caption in the Consolidated Statements of
Cash Flows.
Income
Taxes
Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year end, based on enacted tax laws and statutory tax
rates applicable to the year in which the differences are expected to affect
taxable income. Valuation allowances are established when it is deemed more
likely than not that some portion or all of the deferred tax assets will not be
realized.
We
account for income tax uncertainties consistent with the ASC guidance included
in “Income Taxes”,
which clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The ASC also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. At January
1, 2010, we had $16.5 million of uncertain tax positions.
See Note
12, “Income
Taxes”.
Environmental
Remediation Liabilities
Losses
associated with environmental remediation obligations are accrued when such
losses are probable and can be reasonably estimated. See Note 18, “Litigation”.
59
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DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
Summary of Significant Accounting Policies (continued)
Currency
Translation
For our
operations in countries where the functional currency is other than the U.S.
dollar, balance sheet amounts are translated using the exchange rate in effect
at the balance sheet date. Income statement amounts are translated monthly using
the average exchange rate for the respective month. The gains and losses
resulting from the changes in exchange rates from year-to-year and the effect of
exchange rate changes on intercompany transactions of long-term investment
nature are recorded as a component of accumulated other comprehensive income or
loss as currency translation adjustments.
For our
operations where the functional currency is the U.S. dollar, non-monetary
balance sheet amounts are translated at historical exchange rates. Other balance
sheet amounts are translated at the exchange rates in effect at the balance
sheet date. Income statement accounts, excluding those items of income and
expenses that relate to non-monetary assets and liabilities, are translated at
the average exchange rate for the month. These remeasurement adjustments are
included in the determination of net income and are included in other income
(expense), net.
Other
income (expense), net, in the accompanying Consolidated Statements of Income
includes a net loss of $6.4 million for 2009 and net gains of $6.5 million and
$14.9 million for 2008 and 2007, respectively, on foreign exchange. These
amounts include the effect of foreign currency remeasurement, realized foreign
currency transaction gains and losses and changes in the value of foreign
currency denominated accounts receivable and accounts payable.
Other
Income (Expense), net
In
addition to foreign currency gains and losses described above, other income
(expense), net, also consists of equity gains (losses) of unconsolidated
companies, and other items of non-operating income and expenses.
Fair
Value Measurements
Fair
value is measured in accordance with the ASC on “Fair Value Measurements and
Disclosures” that defines fair value, establishes a framework for
measuring fair value and enhances disclosures about fair value measures required
under other accounting pronouncements, but does not change existing guidance as
to whether or not an instrument is carried at fair value. We measure fair value
for financial instruments, such as derivatives on an ongoing
basis. We measure fair value for non-financial assets, when a
valuation is necessary, such as for impairment of long-lived and
indefinite-lived assets when indicators of impairment exist. We
adopted the provisions of “Fair Value Measurements and
Disclosures” for financial instruments effective December 29, 2007, the
first day of our 2008 fiscal year and for non-financial assets effective
December 27, 2008, the first day of our 2009 fiscal year. We adopted
the additional fair value disclosure provisions for our pension assets effective
January 1, 2010.
Stock-Based
Compensation
We
account for stock-based compensation expense consistent with ASC guidance on
“Compensation – Stock
Compensation”. Our share-based payments are composed entirely of
stock-based compensation expense as all equity awards granted to employees and
members of our Board of Directors, each of whom meets the definition of an
employee under the provisions of the ASC, are stock options. We use the
Black-Scholes option pricing model to estimate the fair value of stock options
granted.
See Note
16, “Stock-Based
Compensation” for more information.
60
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DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
Summary of Significant Accounting Policies (continued)
Derivative
Financial Instruments
We
account for derivative financial instruments in accordance with the ASC guidance
on “Derivatives and
Hedging”. The ASC on “Derivatives and Hedging”
requires us to recognize the value of derivative instruments as either assets or
liabilities in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e., gains or losses) of a derivative
instrument depends on whether it has been designated as a hedge and qualifies as
part of a hedging relationship. The accounting also depends on the
type of hedging relationship, whether a cash flow hedge, a fair value hedge, or
hedge of a net investment in a foreign operation. A fair value hedge
requires that the effective portion of the change in the fair value of a
derivative financial instrument be offset against the change in the fair value
of the underlying asset, liability, or firm commitment being hedged through
earnings. A cash flow hedge requires that the effective portion of the change in
the fair value of a derivative instrument be recognized in other comprehensive
income, a component of shareholders’ equity, and reclassified into earnings in
the same period or periods during which the hedged transaction affects
earnings. The ineffective portion of the change in fair value of a
derivative instrument is to be recognized in earnings in the same line in which
the hedge transaction affects earnings.
We use
derivative financial instruments primarily to reduce our exposure to adverse
fluctuations in foreign exchange rates and bunker fuel prices. When entered
into, we formally designate and document the financial instrument as a hedge of
a specific underlying exposure, as well as the risk management objectives and
strategies for undertaking the hedge transaction. Derivatives are recorded in
the Consolidated Balance Sheets at fair value in either prepaid expenses and
other current assets, other noncurrent assets, accounts payable and accrued
expenses or other noncurrent liabilities, depending on whether the amount is an
asset or liability and is of a short-term or long-term nature. Derivatives are
recorded in the Consolidated Statements of Cash Flows in net cash provided by
operating activities in either prepaid expenses and other current assets,
accounts payable and accrued expenses or other noncurrent assets and
liabilities, depending on the classification in the Consolidated Balance Sheets.
The fair values of derivatives used to hedge or modify our risks fluctuate over
time. These fair value amounts should not be viewed in isolation, but rather in
relation to the cash flows or fair value of the underlying hedged transactions
or assets and other exposures and to the overall reduction in our risk relating
to adverse fluctuations in foreign exchange rates and bunker fuel
prices.
See Note
19, “Derivative Financial
Instruments” for more information.
Retirement
and Other Employee Benefits
Using
appropriate actuarial methods and assumptions, we account for defined benefit
pension plans in accordance with ASC guidance on “Compensation – Retirement
Benefits”.
Effective
December 26, 2008, we adopted the measurement date provisions of the ASC,
which required us to measure defined benefit pension plans and other
post-retirement benefit plans as of the date of our fiscal year end. We elected
to adopt the change in measurement date using the alternative method. The
alternative method requires only one actuarial valuation during the transition
period. The valuation provides a projection of net periodic benefit cost
for a 13-month period that resulted in an immaterial impact to retained earnings
in the fourth quarter of 2008. See Note 15, “Retirement and Other Employee
Benefits” for more information.
Effective
on January 1, 2010, we adopted new ASC guidance included in “Compensation – Retirement
Benefits”, which amends existing guidance, to require more detailed
disclosures about our plan assets, including investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and
valuation techniques used to measure the fair value of plan assets consistent
with the fair value hierarchy model described in the ASC on “Fair Value Measurements and
Disclosures”, as described in Note 20, “Fair Value
Measurements”.
61
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
Summary of Significant Accounting Policies (continued)
New
Accounting Pronouncements
On
December 23, 2009, the Financial Accounting Standards Board (“FASB”) issued an
Accounting Standards Update (“ASU”) on accounting for transfers of financial
assets, which codifies Statement of Financial Accounting Standard (“SFAS”) No.
166, “Accounting for Transfers
of Financial Assets – an amendment of FASB Statement No.
140”. ASC guidance on “Transfers and Servicing”
provides accounting and financial reporting rules for sales, securitizations,
and servicing of receivables and other financial assets, and for secured
borrowing and collateral transactions. Furthermore, existing guidance
on “Transfers and
Servicing” defines the criteria for determining whether a transfer of
financial assets represents a sale of the assets or a collateralized borrowing
arrangement. This ASU amends the guidance on “Transfers and Servicing” to
(a) eliminate the concept of Qualified Special Purpose Entities (“QSPEs”); (b)
clarify many of the requirements to account for a transfer of financial assets
as a sale; and (c) include additional disclosure requirements. We are
required to comply with the requirements of this ASU commencing on the first day
of our 2010 fiscal year and we expect an immaterial impact, if any, on our
Consolidated Financial Statements.
On
December 23, 2009, the FASB issued an ASU on variable interest entities, which
codifies SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”, which amends the consolidation guidance that applies to
Variable Interest Entities (“VIEs”). The ASU amends many important
provisions of the existing guidance on “Consolidation”. The
key changes include (a) the requirement that QSPEs be considered under the
consolidation guidance, whereas QSPEs were previously exempted from the existing
consolidation guidance; (b) the requirement that the reconsideration of an
entity’s status as the primary beneficiary be assessed qualitatively on an
on-going basis and not only when a triggering event occurs; (c) the
consideration of “kick-out” rights in determining if an entity is a VIE, which
may cause additional entities to now be considered VIEs; and (d) amendment to
the events that trigger a reassessment of whether an entity is a
VIE. We are required to comply with the requirements of this ASU
commencing on the first day of our 2010 fiscal year and we expect an immaterial
impact, if any, on our Consolidated Financial Statements.
On
January 21, 2010, the FASB issued an ASU on improving disclosures about fair
value measurements, which amends the ASC on “Fair Value Measurements and
Disclosures” to add new requirements for disclosures about transfers into
and out of Levels 1 and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. The ASU
also clarifies existing fair value disclosures about the level of disaggregation
and about inputs and valuation techniques used to measure fair
value. Further, the ASU amends guidance on employers’ disclosures
about postretirement benefit plan assets under the ASC guidance on “Compensation – Retirement
Benefits” to require that disclosures be provided by classes of assets
instead of by major categories of assets. We are required to comply
with the requirements of this ASU commencing the first day of our 2010 fiscal
year. This ASU will not have an impact to our Consolidated Financial
Statements other than require us to provide increased disclosure.
3.
Acquisitions
Caribana
acquisition
On
June 6, 2008, we completed the acquisition for 100% of the shares of
Desarollo Agroindustrial de Frutales, S.A., a producer of high-quality bananas
in Costa Rica; Frutas de Exportacion, S.A., a major provider of gold pineapples
in Costa Rica; and an affiliated sales and marketing company, collectively known
as “Caribana”, for a purchase price of $405.9 million, which includes $2.9
million in acquisition-related expenses. The acquisition was funded with $88.5
million in cash on hand and drawings under the Credit Facility (as defined in
Note 13, “Long-Term Debt and
Capital Lease Obligations”).
As a
result of the acquisition, our current land holdings in Costa Rica increased by
approximately 13,000 hectares of quality farm land. In addition to farm land, we
acquired plantations and farming and packing infrastructure for the production
of bananas and pineapples. This acquisition is accounted for as a purchase of a
business under the ASC guidance on “Business
Combinations”.
62
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.
Acquisitions (continued)
The
following is an unaudited condensed balance sheet of Caribana at June 6,
2008, based on the assessment of fair value, and including the major captions of
assets acquired (U.S. dollars in millions):
|
Cash
acquired
|
$ | 1.6 | ||
|
Property,
Plant and Equipment
|
232.7 | |||
|
Other
assets, net
|
2.7 | |||
|
Inventories
|
20.8 | |||
|
Non-compete
agreements (intangibles)
|
10.3 | |||
|
Current
and deferred taxes
|
(26.7 | ) | ||
|
Estimated
fair market value of net assets acquired
|
241.4 | |||
|
Purchase
price
|
405.9 | |||
|
Goodwill
|
$ | 164.5 |
An
increase in property, plant and equipment of $57.2 million and an increase in
current and deferred tax liabilities of $26.4 million with a corresponding net
decrease in goodwill were included in the purchase price allocation based on
valuations concluded when compared to the preliminary values disclosed during
the second quarter of 2008. The non-compete agreements obtained as part of the
Caribana acquisition are being amortized over a period of 10 years. Goodwill
represents the excess purchase price above the fair market value of the net
assets acquired. Based on the purchase price allocation, $143.0 million and
$21.5 million in goodwill was allocated to the other fresh produce and banana
segments, respectively, none of which is tax deductible.
We have
included the operations of Caribana in our Consolidated Statements of Income
beginning with the June 6, 2008 acquisition date.
The
following unaudited pro-forma information presents a summary of our consolidated
results of operations as if the Caribana acquisition had occurred as of
December 30, 2006, the first day of our 2007 fiscal year (U.S. dollars in
millions):
|
Quarter
ended
|
Year
Ended
|
|||||||||||||||
|
December
26,
|
December
28,
|
December
26,
|
December
28,
|
|||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Net
sales
|
$ | 831.0 | $ | 888.1 | $ | 3,605.4 | $ | 3,538.6 | ||||||||
|
Net
income
|
$ | 22.9 | $ | 37.1 | $ | 164.6 | $ | 194.0 | ||||||||
|
Net
income per ordinary share:
|
||||||||||||||||
|
Basic
|
$ | 0.36 | $ | 0.61 | $ | 2.60 | $ | 3.32 | ||||||||
|
Diluted
|
$ | 0.36 | $ | 0.61 | $ | 2.59 | $ | 3.30 | ||||||||
|
Weighted
average number of ordinary shares:
|
||||||||||||||||
|
Basic
|
63,540,689 | 60,496,584 | 63,344,941 | 58,490,281 | ||||||||||||
|
Diluted
|
63,602,862 | 60,933,690 | 63,607,786 | 58,772,718 | ||||||||||||
Other
acquisitions and asset purchases
On
June 27, 2008, we acquired certain assets, excluding land, of Melones de
Costa Rica, S.A. (“MCR”). MCR is a 50% owned unconsolidated subsidiary that
produced melons for us in Costa Rica. MCR will continue to own the land which
will be leased to us on a long-term basis. The total area under production is
approximately 2,300 hectares with an estimated annual production of
3 million boxes. The purchase price was $8.0 million of which $3.8 million
was paid using operating cash flows and available borrowings under the Credit
Facility and the remaining $4.2 million is expected to be paid in
2010.
63
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.
Acquisitions (continued)
During
the third quarter of 2008, we completed the acquisitions of two melon operations
in Guatemala. The purchase price was $13.9 million of which $13.5 million was
paid using operating cash flows and available borrowings under the Credit
Facility and the remaining $0.4 million will be paid in 2010. During
the fourth quarter of 2008, goodwill decreased by $1.6 million primarily due to
the completion of the appraisal of fixed assets, which resulted in an increase
to property, plant & equipment of $2.0 million and an increase to
deferred tax liabilities of $0.6 million. The following is an unaudited
condensed balance sheet as of the acquisition date, based on the assessment of
fair value including the major captions of assets acquired (U.S. dollars in
millions):
|
Property,
Plant and Equipment
|
$ | 9.8 | ||
|
Inventories
|
1.8 | |||
|
Deferred
Taxes
|
(0.6 | ) | ||
|
Estimated
fair market value of net assets acquired
|
11.0 | |||
|
Purchase
price
|
13.9 | |||
|
Goodwill
|
$ | 2.9 |
Goodwill
represents the excess purchase price above the fair market value of the net
assets acquired. Based on the purchase price allocation, $2.9 million in
goodwill was allocated to the other fresh produce segment, which is tax
deductible. The acquisition of the two melon operations in Guatemala were
accounted for as a purchase of a business under the ASC on “Business
Combinations”.
See Note
9, “Goodwill and Other
Intangible Assets” for further
information.
64
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
Asset Impairment and Other Charges
We
recorded net asset impairment and other charges totaling $8.0 million, $18.4
million and $12.5 million for the years 2009, 2008 and 2007, respectively, which
were the result of exit activities and asset impairments.
The
following represents a summary of asset impairment and other charges, net for
the years ended 2009, 2008 and 2007 (U.S. dollars in millions):
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Charges
related to asset impairments, net
|
$ | 1.4 | $ | 11.6 | $ | 0.2 | ||||||
|
Asset
Impairment and Other charges related to exit activities,
net
|
6.6 | 6.8 | 12.3 | |||||||||
|
Total
asset impairment and other charges, net
|
$ | 8.0 | $ | 18.4 | $ | 12.5 | ||||||
The
following represents the detail of asset impairment and exit activity charges
(credits) for the year ended January 1, 2010 by reporting segment and geographic
region (U.S. dollars in millions):
| Banana Segment |
Other
Fresh
Produce
Segment
|
Prepared
Foods Segment
|
Other
Products
&
Services
|
|||||||||||||||||||||||||||||
|
Central
|
South
|
North
|
South
|
|||||||||||||||||||||||||||||
|
Europe
|
America
|
America
|
America
|
America
|
Europe
|
Europe
|
Totals
|
|||||||||||||||||||||||||
|
Impairment
of long-lived and other assets
|
$ | - | $ | 2.8 | $ | (3.4 | ) | $ | - | $ | 10.5 | $ | 2.0 | $ | - | $ | 11.9 | |||||||||||||||
|
Total
asset impairment charges (credits)
|
- | 2.8 | (3.4 | ) | - | 10.5 | 2.0 | - | 11.9 | |||||||||||||||||||||||
|
One-time
termination benefits, contract
|
||||||||||||||||||||||||||||||||
|
termination
costs and other exit
|
||||||||||||||||||||||||||||||||
|
activity
charges (credits)
|
(0.8 | ) | - | - | (4.7 | ) | 0.4 | - | 1.2 | (3.9 | ) | |||||||||||||||||||||
|
Total
asset impairment and other charges, net
|
$ | (0.8 | ) | $ | 2.8 | $ | (3.4 | ) | $ | (4.7 | ) | $ | 10.9 | $ | 2.0 | $ | 1.2 | $ | 8.0 | |||||||||||||
Asset
impairment and other charges (credits) of $8.0 million for the year ended
January 1, 2010 related to the following:
|
·
|
$10.9
million in asset impairment and other charges as a result of our decision
to discontinue pineapple planting in Brazil and our decision to not use
certain property, plant and equipment as originally intended for other
crop production related to the other fresh produce
segment.
|
|
·
|
$1.2
million in one-time termination benefits and contract termination costs
resulting from our decision to discontinue our commercial cargo service in
Germany related to the other products and services
segment.
|
|
·
|
$2.0
million charge for impairment of the DEL MONTE® perpetual, royalty-free
brand name license for beverage products in the United Kingdom due to
lower than expected sales volume and pricing related to the prepared food
segment.
|
|
·
|
$2.8
million impairment charge related to an intangible asset for a non-compete
agreement as a result of the Caribana acquisition related to the banana
segment.
|
65
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
Asset Impairment and Other Charges (continued)
|
·
|
$(0.8)
million in reversals of contract termination costs previously recorded
related to the closure of an under-utilized distribution center in the
United Kingdom related to the banana
segment.
|
|
·
|
$(4.7)
million principally due to a gain from the discontinuance of the retiree
medical plan and the reversal of certain contract termination costs
related to the previously announced closing of our Hawaii pineapple
operations related to the other fresh produce
segment.
|
|
·
|
$(3.4)
million gain due to insurance recoveries related to the 2008 Brazil floods
related to the banana segment. Insurance recoveries are
included in operating cash flows in the Consolidated Statements of Cash
Flows.
|
The
following represents the detail of asset impairment and exit activity charges
(credits) for the year ended December 26, 2008 by reporting segment and
geographic region (U.S. dollars in millions):
| Banana Segment |
Other
Fresh
Produce
Segment
|
Prepared
Foods
Segment
|
||||||||||||||||||||||
|
Central
|
South
|
North
|
||||||||||||||||||||||
|
Europe
|
America
|
America
|
America
|
Europe
|
Totals
|
|||||||||||||||||||
|
Impairment
of long-lived and other assets
|
$ | 3.1 | $ | 2.8 | $ | 8.5 | $ | 0.3 | $ | - | $ | 14.7 | ||||||||||||
|
Total
asset impairment charges
|
3.1 | 2.8 | 8.5 | 0.3 | - | 14.7 | ||||||||||||||||||
|
One-time
termination benefits, contract
|
||||||||||||||||||||||||
|
termination
costs and other exit
|
||||||||||||||||||||||||
|
activity
charges (credits)
|
4.7 | - | - | (2.9 | ) | 1.9 | 3.7 | |||||||||||||||||
|
Total
asset impairment and other charges, net
|
$ | 7.8 | $ | 2.8 | $ | 8.5 | $ | (2.6 | ) | $ | 1.9 | $ | 18.4 | |||||||||||
Asset
impairment and other charges (credits) of $18.4 million for the year ended
December 26, 2008 related to the following:
|
·
|
$11.3
million in asset impairment charges, net of an insurance reimbursement, as
a result of extensive flood damage at our banana farms in Brazil and Costa
Rica related to the banana segment.
|
|
·
|
$10.0
million in asset impairment and contract termination costs principally due
to the closure of under-utilized distribution centers and the previously
announced closure of our beverage production operation in the United
Kingdom related to the banana and prepared food
segments.
|
|
·
|
$(2.9)
million net gain primarily due to unrecognized prior service costs as a
result of the previously announced closing of our Hawaii pineapple
operations related to the other fresh produce
segment.
|
66
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
Asset Impairment and Other Charges (continued)
The
following represents the detail of asset impairment and exit activity charges
(credits) for the year ended December 28, 2007 by reporting segment and
geographic region (U.S. dollars in millions):
|
Other
Fresh Produce Segment
|
Prepared
Foods
Segment
|
|||||||||||||||||||
|
North
|
South
|
Middle
|
||||||||||||||||||
|
America
|
America
|
East
|
Europe
|
Totals
|
||||||||||||||||
|
Impairment
of long-lived and other assets
|
$ | 0.4 | $ | 1.6 | $ | 0.2 | $ | 13.3 | $ | 15.5 | ||||||||||
|
Total
asset impairment charges
|
0.4 | 1.6 | 0.2 | 13.3 | 15.5 | |||||||||||||||
|
One
time termination benefits, contract termination
|
||||||||||||||||||||
|
costs
and other exit activity charges (credits)
|
(4.4 | ) | - | - | 1.4 | (3.0 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total
asset impairment and other charges (credits), net
|
$ | (4.0 | ) | $ | 1.6 | $ | 0.2 | $ | 14.7 | $ | 12.5 | |||||||||
Asset
impairment and other charges (credits) of $12.5 million for the year ended
December 28, 2007 related to the following:
|
·
|
$14.7
million in asset impairment and other charges primarily as a result of the
closure of production facilities in Italy and the United Kingdom as a
result of our move to outsource the production and distribution in these
countries in the prepared foods
segment.
|
|
·
|
$2.2
million in asset impairment charges primarily as a result of the sale of
farms in South America related to the other fresh produce
segment.
|
|
·
|
$(4.4)
million net gain primarily due to unrecognized prior service costs as a
result of the previously announced closing of our Hawaii pineapple
operations related to the other fresh produce
segment.
|
67
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.
Asset Impairment and Other Charges (continued)
The
following represents the roll forward of exit activity reserves for the year
ended January 1, 2010 (U.S. dollars in millions):
|
Exit
activity reserve balance at December 26, 2008
|
Impact
to
Earnings
|
Cash
Paid
|
Exit
activity reserve balance at January 1, 2010
|
|||||||||||||
|
One-time
termination benefits
|
$ | 1.7 | $ | 1.0 | $ | (1.0 | ) | 1.7 | ||||||||
|
Contract
termination and other
|
||||||||||||||||
|
exit activity charges
|
4.5 | (1.8 | ) | (1.3 | ) | 1.4 | ||||||||||
| $ | 6.2 | $ | (0.8 | ) | $ | (2.3 | ) | $ | 3.1 | |||||||
Included
in the exit activity reserve balance at January 1, 2010 are one-time termination
benefits, contract termination costs and other exit activity charges related
primarily to (1) our decision to discontinue our commercial cargo service in
Europe in the other products and services segment, (2) the previously
announced decision to exit the Hawaiian production operations in the other fresh
produce segment, and (3) the closure of under-utilized distribution centers
in the United Kingdom in the banana segment. We do not expect
additional charges related to the exit activities mentioned above that would
significantly impact our results of operations and financial
condition.
Exit
activity reserves are recorded in the Consolidated Balance Sheets in accounts
payable and accrued expenses, for the current portion and other noncurrent
liabilities for the noncurrent portion.
5.
Inventories
Inventories
consisted of the following (U.S. dollars in millions):
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008
|
|||||||
|
Finished
goods
|
$ | 178.0 | $ | 175.7 | ||||
|
Raw
materials and packaging supplies
|
120.5 | 131.5 | ||||||
|
Growing
crops
|
138.4 | 152.6 | ||||||
|
Total
inventories
|
$ | 436.9 | $ | 459.8 | ||||
During
2009, we made the decision to cease pineapple operations in Brazil due to lower
than optimal crop quality and higher than expected costs. As a result, we
recorded $17.2 million in cost of products sold related to the write-off of
growing crop inventory. In addition, in 2009, we recorded a credit of $2.1
million in cost of products sold related to insurance proceeds received as a
result of the flood damage experienced during 2008 in our Brazil banana
operations.
6.
Investments in Unconsolidated Companies
Investments
in unconsolidated companies accounted for under the equity method amounted to
$8.5 million and $7.7 million at January 1, 2010 and December 26, 2008,
respectively.
68
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.
Investments in Unconsolidated Companies (continued)
Investments
in unconsolidated companies consisted of the following at January 1,
2010:
|
Company
|
Business
|
Ownership
Interest
|
|
Melones
De Costa Rica, S.A.
|
Melon
production
|
50%
|
|
Hacienda
Filadelfia, S.A.
|
Melon
production
|
50%
|
|
Frutas
de Parrita, S.A.
|
Melon
production
|
50%
|
|
Texas
Specialty Produce Investors, LLC, Texas
|
Supplier
of specialty produce and herbs
|
50%
|
|
Cartorama
S.A.
|
Carton
box corrugators
|
10%
|
Purchases
from unconsolidated companies were $42.8 million, $43.4 million and $60.3
million for 2009, 2008 and 2007, respectively. At January 1, 2010 and December
26, 2008 there were $4.4 million and $0.5 million, respectively, of payables to
unconsolidated companies. Our portion of income (losses) in
unconsolidated companies amounted to $0.9 million, $(2.6) million and $(3.2)
million in 2009, 2008 and 2007, respectively, and is included in other income
(expense), net. There were no dividends received from unconsolidated
subsidiaries in 2009, 2008 and 2007.
7.
Variable Interest Entities
One of
our Del Monte Gold® Extra Sweet pineapple
producers meets the definition of a VIE pursuant to the ASC on “Consolidation” and is
consolidated. Our variable interest in this entity includes an equity
investment and certain debt guarantees.
Based on
the criteria of the ASC on “Consolidation”, we are the
primary beneficiary of this entity’s expected residual returns or losses.
Although we are the primary beneficiary, the VIE’s creditors do not have
recourse against our general credit.
At
January 1, 2010, the VIE had total assets of $39.6 million and total liabilities
of $13.1 million, including total debt of $7.7 million. At December
26, 2008, the VIEs had total assets of $34.6 million and total liabilities of
$14.6 million, including total debt of $9.3 million. For the year
ended January 1, 2010, the VIE had total revenues, including sales to us, of
$22.1 million and for the year ended December 26, 2008, the VIEs had total
revenues, including sales to us, of $20.2 million. We have provided
funding for capital investments in the VIE in proportion to our voting
interest. We may from time to time in the future provide additional
funding for capital investments in the VIE.
8.
Property, Plant and Equipment, Net
Property,
plant and equipment consisted of the following (U.S. dollars in
millions):
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008
|
|||||||
|
Land
and land improvements
|
$ | 506.3 | $ | 531.3 | ||||
|
Buildings
and leasehold improvements
|
377.2 | 358.5 | ||||||
|
Machinery
and equipment
|
386.3 | 340.0 | ||||||
|
Maritime
equipment (including containers)
|
221.5 | 251.6 | ||||||
|
Furniture,
fixtures and office equipment
|
99.3 | 96.0 | ||||||
|
Automotive
equipment
|
44.5 | 41.3 | ||||||
|
Construction-in-progress
|
78.2 | 71.4 | ||||||
| 1,713.3 | 1,690.1 | |||||||
|
Less: accumulated
depreciation and amortization
|
(644.8 | ) | (604.9 | ) | ||||
|
Property,
plant and equipment, net
|
$ | 1,068.5 | $ | 1,085.2 | ||||
69
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
Property, Plant and Equipment (continued)
Depreciation
and amortization expense on property, plant and equipment, including assets
under capital leases, amounted to $81.8 million, $82.0 million and $78.6 million
for 2009, 2008 and 2007, respectively.
Containers,
machinery and equipment and automotive equipment under capital leases totaled
$17.4 million and $25.0 million at January 1, 2010 and December 26, 2008,
respectively. Accumulated amortization for assets under capital leases was $6.6
million and $7.7 million at January 1, 2010 and December 26, 2008,
respectively.
For the
years 2009, 2008 and 2007, the gain on sales of property, plant and equipment
included gains of $11.2 million, $7.5 million and $17.4 million, respectively.
Included in the $11.2 million are gains primarily related to the sale of five
refrigerated vessels and properties in South America and Africa. In
2008, the gain on sales of property, plant and equipment of $7.5 million
resulted primarily from the sale of land and equipment in South
America. In 2007, the gain on sales of property, plant and equipment
of $17.4 million was primarily due to our disposal of non-performing assets,
combined with the sale of a refrigerated vessel and the insurance proceeds
related to the accidental loss of another vessel.
9.
Goodwill and Other Intangible Assets
The
following table reflects our indefinite-lived intangible assets, including
goodwill and our definite-lived intangible assets along with related accumulated
amortization by major category (U.S. dollars in millions):
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008
|
|||||||
|
Goodwill
|
$ | 409.0 | $ | 401.1 | ||||
|
Indefinite-lived
intangible assets:
|
||||||||
|
Trademarks
|
70.3 | 71.7 | ||||||
|
Definite-lived
intangible assets:
|
||||||||
|
Definite-lived
intangible assets
|
12.7 | 16.9 | ||||||
|
Accumulated
amortization
|
(3.8 | ) | (2.8 | ) | ||||
|
Definite-lived
intangible assets, net
|
8.9 | 14.1 | ||||||
|
Goodwill
and other intangible assets, net
|
$ | 488.2 | $ | 486.9 | ||||
Indefinite-lived
and definite-lived intangible assets are included in other noncurrent assets in
the Consolidated Balance Sheets.
70
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
Goodwill and Other Intangible Assets (continued)
The
following table reflects the changes in the carrying amount of goodwill by
operating segment (U.S. dollars in millions):
|
Bananas
|
Other
fresh produce
|
Prepared
food
|
Totals
|
|||||||||||||
|
Goodwill
|
$ | 44.6 | $ | 140.4 | $ | 86.9 | $ | 271.9 | ||||||||
|
Accumulated
impairment losses
|
- | (18.7 | ) | - | (18.7 | ) | ||||||||||
|
Balance
as of December 29, 2007
|
$ | 44.6 | $ | 121.7 | $ | 86.9 | $ | 253.2 | ||||||||
|
Acquired
during the year
|
20.4 | 146.0 | - | 166.4 | ||||||||||||
|
Adjustment
resulting from the subsequent
recognition
of deferred taxes
|
- | - | 6.3 | 6.3 | ||||||||||||
|
Foreign
exchange and other
|
(0.7 | ) | (1.9 | ) | (22.2 | ) | (24.8 | ) | ||||||||
|
Goodwill
|
$ | 64.3 | $ | 284.5 | $ | 71.0 | $ | 419.8 | ||||||||
|
Accumulated
impairment losses
|
- | (18.7 | ) | - | (18.7 | ) | ||||||||||
|
Balance
as of December 26, 2008
|
$ | 64.3 | $ | 265.8 | $ | 71.0 | $ | 401.1 | ||||||||
|
Adjustment
resulting from the subsequent
recognition
of deferred taxes
|
1.0 | - | - | 1.0 | ||||||||||||
|
Foreign
exchange and other
|
0.1 | 0.5 | 6.3 | 6.9 | ||||||||||||
|
Goodwill
|
$ | 65.4 | $ | 285.0 | $ | 77.3 | $ | 427.7 | ||||||||
|
Accumulated
impairment losses
|
- | (18.7 | ) | - | (18.7 | ) | ||||||||||
|
Balance
as of January 1, 2010
|
$ | 65.4 | $ | 266.3 | $ | 77.3 | $ | 409.0 | ||||||||
71
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
Goodwill and Other Intangible Assets (continued)
Results
of Impairment Tests
In
accordance with the ASC guidance on “Goodwill and Other Intangible
Assets”, we review goodwill for impairment on an annual basis or earlier
if indicators of impairment arise. Based on the valuation of goodwill performed
as of October 1, 2009 and October 1, 2008, the fair value of goodwill
exceeded its carrying value and thus there was no impairment to be
recorded. As of January 1, 2010, we are not aware of any items or
events that would cause a further adjustment to the carrying value of
goodwill.
The fair
value of the prepared and melon reporting units’ goodwill is highly sensitive to
differences between estimated and actual cash flows and changes in the related
discount rate used to evaluate the fair value of these assets. We estimate that
a one-percentage point increase in the discount rate and a five percent decrease
in expected future cash flows used would result in the carrying values exceeding
the fair values by $30.9 and $1.8 million related to the prepared and melon
reporting units, respectively. This would then trigger a fair
valuation of the reporting unit to determine the amount of the
impairment.
As a
result of lower than expected sales volume and pricing in the United Kingdom, we
recorded an impairment charge of $2.0 million during the first quarter of 2009
related to the DEL MONTE®
indefinite-lived perpetual, royalty-free brand name license for U.K. beverage
products. Based on the valuation of the trademarks performed as of
October 1, 2009, the fair value of the trademarks exceeded their carrying
value and thus there was no impairment to be recorded. As of January 1, 2010, we
are not aware of any items or events that would cause a further adjustment to
the carrying value of the trademarks.
The
trademarks are highly sensitive to differences between estimated and actual cash
flows and changes in the related discount rate used to evaluate the fair value
of this asset. We estimate that a five percent decrease in the expected future
cash flows from the products that utilize the trademarks and a one-percentage
point increase in the discount rate used would result in an impairment loss of
approximately $0.6 million related to this asset.
See Note
4, “Asset Impairment and Other
Charges” for further discussion related to impairments of intangible
assets occurring during 2009.
Impact
to Goodwill and Intangibles as a result of Acquisitions
On
June 6, 2008, we completed the acquisition of Caribana. As a result of the
purchase price allocation finalized during the first quarter of 2009, $143.0
million and $21.5 million in goodwill was allocated to the other fresh produce
and banana segments, respectively. Non-compete agreements with a fair value of
$10.3 million were obtained as part of the Caribana acquisition and are being
amortized over a period of 10 years. For the year ended January 1, 2010, we
recorded $1.0 million in amortization expense related to the non-compete
agreement intangible asset. Due to the untimely death of the holder
of one of the non-compete agreements related to the Caribana acquisition, we
impaired $2.8 million in intangible assets in the banana segment.
During
the third quarter of 2008, we completed the acquisitions of two melon operations
in Guatemala. As a result of the purchase price allocation finalized during the
fourth quarter of 2008, $2.9 million in goodwill was allocated to the other
fresh produce segment.
See Note
3, “Acquisitions” for
further information regarding the acquisitions described above.
Amortization
expense related to definite-lived intangible assets totaled $1.8 million, $1.4
million and $0.9 million for 2009, 2008 and 2007, respectively, and is included
in cost of products sold.
72
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
Goodwill and Other Intangible Assets (continued)
The
estimated amortization expense related to definite-lived intangible assets for
the five succeeding years is as follows (U.S. dollars in millions):
|
2010
|
$ 1.6 |
|
2011
|
1.0 |
|
2012
|
0.8 |
|
2013
|
0.8 |
|
2014
|
0.8 |
10.
Accumulated Other Comprehensive Income (Loss)
Accumulated
other comprehensive income (loss) consisted of the following (U.S. dollars in
millions):
|
Unrealized
Gain
(Loss)
on
Derivatives
|
Currency
Translation Adjustment
|
Retirement
Benefit
Adjustment,
Net
of Tax
|
Total
|
|||||||||||||
|
Balance
at December 29, 2006
|
$ | 0.7 | $ | 8.8 | $ | 7.5 | $ | 17.0 | ||||||||
|
Current
year net change in other
|
||||||||||||||||
|
comprehensive
income (loss)
|
(7.0 | ) | 17.9 | 11.4 | 22.3 | |||||||||||
|
Balance
at December 28, 2007
|
(6.3 | ) | 26.7 | 18.9 | 39.3 | |||||||||||
|
Current
year net change in other
|
||||||||||||||||
|
comprehensive
income (loss)
|
13.4 | (51.6 | ) | (19.2 | ) | (57.4 | ) | |||||||||
|
Balance
at December 26, 2008
|
7.1 | (24.9 | ) | (0.3 | ) | (18.1 | ) | |||||||||
|
Current
year net change in other
|
||||||||||||||||
|
comprehensive
income (loss)
|
13.4 | 20.5 | (13.0 | ) | 20.9 | |||||||||||
|
Balance
at January 1, 2010
|
$ | 20.5 | $ | (4.4 | ) | $ | (13.3 | ) | $ | 2.8 | ||||||
Fluctuations
in unrealized gains (losses) on derivatives are primarily driven by the
strengthening or weakening of the U.S. dollar compared to the euro, British
pound and Japanese yen currencies being hedged relative to the contracted
exchange rates. In each of the years 2009, 2008 and 2007, we
predominately entered into derivative contracts to hedge the British pound, euro
and Japanese yen. In 2009, the net unrealized gain on derivatives
related primarily to the strengthening of the U.S. dollar compared to the
Japanese yen relative to the contracted hedge position. In 2009, we
also entered into bunker fuel hedges. Fluctuations in bunker fuel
hedges are driven by the increase or decrease in bunker fuel prices relative to
the contracted bunker fuel price. Also in 2009, we entered into
bunker fuel derivatives of which the fair valuation resulted in a net unrealized
gain of $4.3 million.
In 2008,
the net unrealized gain on derivatives related primarily to the strengthening of
the U.S. dollar compared to the British pound and euro, offset by the weakening
of the U.S. dollar compared to the Japanese yen. In 2007, the
unrealized net loss on derivatives related primarily to the weakening of the
U.S. dollar compared to the euro. Refer to Note 19, “Derivative Financial
Instruments”.
73
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.
Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consisted of the following (U.S. dollars in
millions):
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008
|
|||||||
|
Trade
and other payables
|
$ | 142.8 | $ | 172.5 | ||||
|
Accrued
fruit purchases
|
20.3 | 19.5 | ||||||
|
Vessel
and port operating expenses
|
20.5 | 22.8 | ||||||
|
Payroll
and employee benefits
|
28.6 | 26.4 | ||||||
|
Accrued
promotions
|
10.7 | 12.0 | ||||||
|
Other
accrued expenses
|
94.0 | 126.4 | ||||||
|
Accounts
payable and accrued expenses
|
$ | 316.9 | $ | 379.6 | ||||
Other
accrued expenses is primarily composed of accruals for inland freight costs
incurred, purchases received but not invoiced and other accruals, none of which
individually exceeds 5% of current liabilities.
12.
Income Taxes
The
provision for (benefit from) income taxes consisted of the following (U.S.
dollars in millions):
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
U.S.
federal income tax
|
$ | 1.0 | $ | 0.3 | $ | (0.3 | ) | |||||
|
State
|
1.1 | 0.2 | - | |||||||||
|
Non-U.S.
|
2.4 | 6.5 | (0.6 | ) | ||||||||
| 4.5 | 7.0 | (0.9 | ) | |||||||||
|
Deferred:
|
||||||||||||
|
U.S.
federal income tax
|
(18.4 | ) | (0.5 | ) | 0.9 | |||||||
|
State
|
(1.8 | ) | (0.1 | ) | 0.1 | |||||||
|
Non-U.S.
|
2.9 | (1.6 | ) | 1.3 | ||||||||
| (17.3 | ) | (2.2 | ) | 2.3 | ||||||||
| $ | (12.8 | ) | $ | 4.8 | $ | 1.4 | ||||||
Income
before income taxes consisted of the following (U.S. dollars in
millions):
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
U.S.
|
$ | 59.0 | $ | 24.4 | $ | 14.2 | ||||||
|
Non-U.S.
|
72.8 | 137.6 | 167.2 | |||||||||
| $ | 131.8 | $ | 162.0 | $ | 181.4 | |||||||
74
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.
Income Taxes (continued)
The
differences between the reported provision for (benefit from) income taxes and
income taxes computed at the U.S. statutory federal income tax rate are
explained in the following reconciliation (U.S. dollars in
millions):
|
Year
ended
(a)
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Income
tax provision computed at the
|
||||||||||||
|
U.S.
statutory federal rate
|
$ | 46.1 | $ | 56.7 | $ | 63.5 | ||||||
|
Effect
of tax rates on non-U.S. operations
|
(66.5 | ) | (68.8 | ) | (61.8 | ) | ||||||
|
Provision
for (reversal of) tax
|
||||||||||||
|
contingencies/uncertain
tax positions
|
(2.9 | ) | 0.4 | (3.5 | ) | |||||||
|
Non-deductible/(taxable)
interest
|
17.4 | (3.5 | ) | - | ||||||||
|
Foreign
exchange
|
15.1 | (13.5 | ) | 1.8 | ||||||||
|
Non-deductible
intercompany charges
|
(0.2 | ) | 2.4 | 2.4 | ||||||||
|
Non-deductible
differences
|
2.7 | (0.7 | ) | 3.6 | ||||||||
|
Non-taxable
income/loss
|
(1.7 | ) | - | - | ||||||||
|
Net
operating loss re-established due to
|
(4.5 | ) | - | - | ||||||||
|
settlement
of audit
|
||||||||||||
|
Other
|
4.1 | (1.0 | ) | 5.2 | ||||||||
|
Change
in deferred rate
|
0.4 | 0.2 | 7.1 | |||||||||
|
(Decrease)/increase
in valuation allowance (b)
|
(22.8 | ) | 32.6 | (16.9 | ) | |||||||
|
Provision
for (benefit from) income taxes
|
$ | (12.8 | ) | $ | 4.8 | $ | 1.4 | |||||
|
_________
|
||||||||||||
|
(a) Certain
amounts in prior years have been reclassified to conform to current year
presentation.
|
||||||||||||
|
(b) The
(decrease)/increase in valuation allowance includes effects of foreign
exchange and adjustments to
deferred tax balances which were fully offset by valuation
allowance.
|
||||||||||||
75
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.
Income Taxes (continued)
Deferred
income tax assets and liabilities consisted of the following (U.S. dollars in
millions):
|
Year
ended
|
||||||||
|
January
1,
|
December
26,
|
|||||||
|
Deferred
tax liabilities
|
2010
|
2008
|
||||||
|
Current:
|
||||||||
|
Allowances
and other accrued liabilities
|
$ | (3.3 | ) | $ | (3.5 | ) | ||
|
Inventories
|
(22.5 | ) | (22.5 | ) | ||||
|
|
||||||||
|
Total
current deferred tax liabilities
|
(25.8 | ) | (26.0 | ) | ||||
|
Noncurrent:
|
||||||||
|
Property,
plant and equipment
|
(77.9 | ) | (84.7 | ) | ||||
|
Equity
in earnings of unconsolidated companies
|
(0.9 | ) | (0.6 | ) | ||||
|
Pension
|
(0.8 | ) | (2.8 | ) | ||||
|
Other
noncurrent liabilities
|
(5.5 | ) | (4.3 | ) | ||||
|
Total
noncurrent deferred tax liabilities
|
(85.1 | ) | (92.4 | ) | ||||
|
Total
deferred tax liabilities
|
$ | (110.9 | ) | $ | (118.4 | ) | ||
|
Deferred
tax assets:
|
||||||||
|
Current:
|
||||||||
|
Allowances
and other assets
|
$ | 18.2 | $ | 26.6 | ||||
|
Inventories
|
4.9 | 2.6 | ||||||
|
Total
current deferred tax assets
|
23.1 | 29.2 | ||||||
|
Valuation
allowance
|
(15.3 | ) | (10.0 | ) | ||||
|
Total
net current deferred tax assets
|
7.8 | 19.2 | ||||||
|
Noncurrent:
|
||||||||
|
Pension
liability
|
19.9 | 17.3 | ||||||
|
Property,
plant and equipment
|
4.3 | 3.6 | ||||||
|
Post-retirement
benefits other than pension
|
1.0 | 2.1 | ||||||
|
Net
operating loss carryforwards
|
156.3 | 168.8 | ||||||
|
Capital
loss carryover
|
8.2 | 7.4 | ||||||
|
Other
noncurrent assets
|
37.9 | 42.8 | ||||||
|
Total
noncurrent deferred tax assets
|
227.6 | 242.0 | ||||||
|
Valuation
allowance
|
(158.7 | ) | (198.4 | ) | ||||
|
Total
net noncurrent deferred tax assets
|
68.9 | 43.6 | ||||||
|
Total
deferred tax assets, net
|
$ | 76.7 | $ | 62.8 | ||||
|
Net
deferred tax liabilities
|
$ | (34.2 | ) | $ | (55.6 | ) | ||
76
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.
Income Taxes (continued)
The
valuation allowance established with respect to the deferred tax assets related
primarily to the net operating losses. During 2009 and 2008, the
valuation allowance decreased by $34.4 million and increased by $13.5 million,
respectively. The decrease in the valuation allowance in 2009
primarily related to deferred tax assets in tax jurisdictions where, due to our
current and foreseeable operations, there was a change in judgment about our
ability to realize the deferred tax assets in future years. The
increase in 2008 related to valuation allowances on deferred tax assets in tax
jurisdictions where it was deemed more likely than not that future taxable
income would not be sufficient to realize the related income tax
benefits.
Except
for earnings that are currently distributed, no additional provision has been
made for U.S. or non-U.S. income taxes on the undistributed earnings of
subsidiaries; as such earnings are expected to be permanently reinvested. A
liability could arise if amounts are distributed by such subsidiaries or if such
subsidiaries are ultimately disposed. It is not practicable to estimate the
additional income taxes related to permanently reinvested earnings or the basis
differences related to investments in subsidiaries.
At
January 1, 2010, we had approximately $610.0 million of federal and foreign tax
operating loss carry-forwards expiring as follows (U.S. dollars in
millions):
|
Expires
|
Amount
|
|||
|
2010
|
$ | 12.4 | ||
|
2011
|
20.2 | |||
|
2012
|
17.0 | |||
|
2013
and beyond
|
106.6 | |||
|
No
expiration
|
453.8 | |||
|
Total
|
$ | 610.0 | ||
Included
in the total tax operating loss carry-forwards at January 1, 2010, we had
$19.6 million of
loss carry-forwards for U.S. tax purposes resulting from stock option exercises
from 2003 to 2008, which have expiration dates beginning in 2023.
At
January 1, 2010, we had state tax operating loss carry-forwards ranging up to
$15.9 million, which have various expiration dates within the years
2010–2027.
A
reconciliation of the beginning and ending amount of uncertain tax positions
excluding interest and penalties is as follows (U.S. dollars in
millions):
|
Uncertain
tax positions at December 26, 2008
|
$ | 20.4 | ||
|
Gross
decreases - tax position in prior period
|
(0.8 | ) | ||
|
Gross
increases - current-period tax positions
|
1.2 | |||
|
Settlements
|
(3.3 | ) | ||
|
Lapse
of statute of limitations
|
(0.3 | ) | ||
|
Foreign
Exchange
|
(0.7 | ) | ||
|
Uncertain
tax positions at January 1, 2010
|
$ | 16.5 |
For the
year ended January 1, 2010, $3.3 million of uncertain tax positions was reversed
primarily as a result of a settlement of a tax audit.
77
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.
Income Taxes (continued)
As of
January 1, 2010, we had $7.4 million of uncertain tax positions, that, if
recognized would affect the effective income tax rate. Included
in the $7.4 million are $1.6 million of uncertain tax positions expected to
reverse within the next 12 months.
The tax
years 2003-2008 remain subject to examination by taxing authorities throughout
the world in major jurisdictions, such as Costa Rica, Hong Kong, Netherlands,
Netherlands Antilles and the United States.
We
classify interest and penalties on uncertain tax positions as a component of
income tax expense in the Consolidated Statements of Income. We
recognized a net benefit related to interest and penalties of $0.5 million for
the year ended January 1, 2010. Accrued interest and penalties
related to uncertain tax positions as of January 1, 2010 is $2.0 million and is
included in accounts payable and accrued expenses and other noncurrent
liabilities.
13.
Long-Term Debt and Capital Lease Obligations
The
following is a summary of long term-debt and capital lease obligations (U.S.
dollars in millions):
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008
|
|||||||
|
$600.0
million five year syndicated bank loan (see
|
||||||||
|
Credit
Facility below) due November 2009
|
$ | - | $ | 349.7 | ||||
|
$150.0
million Tranche No. 1 incremental term loan
|
||||||||
|
amortizing
quarterly (see Term Loan below)
|
- | 139.7 | ||||||
|
$500.0
million 3.5 year syndicated bank loan (see New
|
||||||||
|
Credit
Facility below) due January 2013
|
309.7 | - | ||||||
|
Various
other notes payable
|
9.5 | 12.6 | ||||||
|
Capital
lease obligations
|
6.0 | 10.8 | ||||||
|
Total
long-term debt and capital lease obligations
|
325.2 | 512.8 | ||||||
|
Less: Current
portion
|
(4.9 | ) | (358.0 | ) | ||||
|
Long-term
debt and capital lease obligations
|
$ | 320.3 | $ | 154.8 | ||||
Credit
Facility
During
the first six months of 2009, we financed our working capital and other
liquidity requirements primarily through cash from operations and borrowings
under a credit facility administered by Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland,” New York Branch, which we
refer to as Rabobank (the “Credit Facility”). The Credit Facility included a
revolving commitment of $600.0 million expiring November 10, 2009 and a term
loan commitment (the “Term Loan”).
On July
17, 2009, we replaced and refinanced the Credit Facility (including the Term
Loan) by entering into a 3.5-year, $500 million senior secured revolving credit
facility maturing on January 17, 2013 (the “New Credit Facility”) with Rabobank
Nederland, New York Branch, as administrative agent and lead arranger. The New
Credit Facility includes a swing line facility and a letter of credit facility
with a $100 million sublimit. Borrowings under the New Credit Facility will bear
interest at a spread over the London Interbank Offer Rate (“LIBOR”) that varies
with our leverage ratio. The New Credit Facility is collateralized directly or
indirectly by substantially all of our assets and is guaranteed by certain of
our subsidiaries.
78
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13.
Long-Term Debt and Capital Lease Obligations (continued)
The New
Credit Facility requires us to be in compliance with financial and other
covenants, including limitations on capital expenditures, the amount of
dividends that can be paid in the future, the amount and types of liens and
indebtedness, material asset sales and mergers. As of January 1, 2010, we were
in compliance with all of the covenants contained in the New Credit
Facility. The New Credit Facility permits borrowings under the
revolving commitment with an interest rate (3.26% at January 1, 2010),
determined based on our leverage ratio and a spread over LIBOR. In
addition, we pay a fee on unused commitments.
At
January 1, 2010 we had $184.7 million available under committed working capital
facilities, primarily under the New Credit Facility. At January 1, 2010 we
applied $17.9 million to the letter of credit facility, comprised primarily of
certain contingent obligations and other governmental agency guarantees combined
with guarantees for purchases of raw materials and equipment. We also had $7.8
million in other letters of credit and bank guarantees not included in the
letter of credit facility.
At
January 1, 2010, we had $325.2 million of long-term debt and capital lease
obligations, including the current portion, consisting of $309.7 million
outstanding under the New Credit Facility, $6.0 million of capital lease
obligations and $9.5 million of other long-term debt and notes
payable.
Maturities
of long-term debt and capital lease obligations during the next five years are
(U.S. dollars in millions):
|
Long-Term
Debt
|
Capital
Leases
|
Totals
|
||||||||||
|
2010
|
$ | 2.0 | $ | 3.2 | $ | 5.2 | ||||||
|
2011
|
3.2 | 2.6 | 5.8 | |||||||||
|
2012
|
313.9 | 0.6 | 314.5 | |||||||||
|
2013
|
0.1 | 0.1 | 0.2 | |||||||||
|
2014
|
- | - | - | |||||||||
|
Thereafter
|
- | - | - | |||||||||
| 319.2 | 6.5 | 325.7 | ||||||||||
|
Less: Amounts
representing interest
|
- | (0.5 | ) | (0.5 | ) | |||||||
| 319.2 | 6.0 | 325.2 | ||||||||||
|
Less: Current
portion
|
$ | (2.0 | ) | $ | (2.9 | ) | $ | (4.9 | ) | |||
|
Totals,
net of current portion of long-term debt and capital lease
obligations
|
$ | 317.2 | $ | 3.1 | $ | 320.3 | ||||||
Cash
payments of interest on long-term debt, net of amounts capitalized, were $8.8
million, $12.6 million and $28.1 million for 2009, 2008 and 2007, respectively.
Capitalized interest expense was $2.2 million for 2009 and 2008, respectively,
and $3.5 million for 2007.
79
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14.
Net Income Per Ordinary Share
Basic and
diluted net income per ordinary share is calculated as follows (U.S. dollars in
millions, except share and per share data):
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Numerator:
|
||||||||||||
|
Net
income attributable to Fresh Del Monte Produce Inc.
|
$ | 143.9 | $ | 157.7 | $ | 179.8 | ||||||
|
Denominator:
|
||||||||||||
|
Weighted
average number of ordinary shares - Basic
|
63,570,999 | 63,344,941 | 58,490,281 | |||||||||
|
Effect
of dilutive securities - employee stock options
|
97,353 | 262,845 | 282,437 | |||||||||
|
Weighted
average number of ordinary shares - Diluted
|
63,668,352 | 63,607,786 | 58,772,718 | |||||||||
|
Net
income per ordinary share attributable to
|
||||||||||||
|
Fresh
Del Monte Produce Inc.:
|
||||||||||||
|
Basic
|
$ | 2.26 | $ | 2.49 | $ | 3.07 | ||||||
|
Diluted
|
$ | 2.26 | $ | 2.48 | $ | 3.06 | ||||||
There
were no anti-dilutive options during 2009, 2008 and 2007.
15.
Retirement and Other Employee Benefits
U.S.-Based
Defined Benefit Pension Plans
We
sponsor two non-contributory defined benefit pension plans, which cover a
portion of our U.S.-based employees under a collective bargaining agreement.
These plans provide benefits based on the employees’ years of service and
qualifying compensation. Our funding policy for these plans is to contribute
amounts sufficient to meet the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, as amended, or such additional amounts
as determined appropriate to assure that assets of the plans would be adequate
to provide benefits. Substantially all of the plans’ assets are invested in
fixed income and equity funds. As a result of the accelerated closing
of the Hawaii production facility announced in 2006, the ILWU Local 42
collective bargaining agreement (the “CBA”) was not re-negotiated and expired in
2009 and as such the U.S.- based defined benefit pension plans have ceased
accruing benefits.
Plan
Assets
The
Company’s overall investment strategy is to achieve a mix of between 50%-70%
equity securities for long-term growth and 30%-50% fixed income securities for
near-term benefit payments. Asset allocation targets promote optimal
expected return and volatility characteristics given the long-term time horizon
for fulfilling the obligations of the pension plans. Selection of the targeted
asset allocation for U.S. plan assets was based upon a review of the expected
return and risk characteristics of each asset class, as well as the correlation
of returns among asset classes.
80
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.
Retirement and Other Employee Benefits (continued)
The fair
values of the Company’s U.S. plan assets at January 1, 2010 by asset category
are as follows:
|
Fair
Value Measurements at
|
||||||||||||||||
|
January
1, 2010 (U.S. dollars in millions)
|
||||||||||||||||
|
Quoted
Prices in
|
Significant
|
Significant
|
||||||||||||||
| Active Markets for | Observable | Unobservable | ||||||||||||||
|
Identical
Assets
|
Inputs
|
Inputs
|
||||||||||||||
|
Asset
Category
|
Total
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||||
|
Common/collective
trust funds
|
$ | 1.2 | $ | - | $ | 1.2 | $ | - | ||||||||
|
Mutual
Funds:
|
||||||||||||||||
|
Equity
securities
|
7.0 | 7.0 | - | - | ||||||||||||
|
Fixed
income securities
|
3.5 | 3.5 | - | - | ||||||||||||
|
Total
|
$ | 11.7 | $ | 10.5 | $ | 1.2 | $ | - | ||||||||
Common/Collective Trusts –
This category includes public investment vehicles valued using the Net Asset
Value (NAV) provided by the administrator of the trust. The NAV is based on the
value of the underlying assets owned by the trust, minus its liabilities, and
then divided by the number of shares outstanding. The NAV of the trust is
classified within Level 2 of the fair value hierarchy.
Mutual Funds – This category
includes investments in mutual funds that encompass both equity and fixed income
securities that are designed to provide a diverse portfolio. The
plan’s mutual funds are designed to track exchange indices, and invest in
diverse industries. Some mutual funds are classified as regulated
investment companies. Investment managers have the ability to shift
investments from value to growth strategies, from small to large capitalization
funds, and from U.S. to international investments. These investments
are valued at the closing price reported on the active market on which the
individual securities are traded. These investments are
classified within Level 1 of the fair value hierarchy.
Investment
guidelines are established with each investment manager. These guidelines
provide the parameters within which the investment managers agree to operate,
including criteria that determine eligible and ineligible securities,
diversification requirements and credit quality standards, where applicable.
Unless exceptions have been approved, investment managers are prohibited from
buying or selling commodities, futures or option contracts, as well as from
short selling of securities. Furthermore, investment managers agree to obtain
written approval for deviations from stated investment style or guidelines. The
Company considered historical returns and the future expectations for returns
for each asset class as well as the target asset allocation of plan assets to
develop the expected long-term rate of return on assets assumption,
The
expected long-term rate of return assumption for U.S. plan assets is based upon
the target asset allocation and is determined using forward-looking assumptions
in the context of historical returns and volatilities for each asset class, as
well as correlations among asset classes. We evaluate the rate of return
assumption on an annual basis. The actual returns on plan assets for 2009 and
2008 were a positive 5.5% and a negative 15.2%, respectively.
81
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Retirement and Other Employee
Benefits (continued)
Assumptions
The
assumptions used in the calculation of the actuarial present value of the
projected benefit obligation, the net periodic pension cost and expected
long-term rate of return on plan assets for our defined benefit pension plans
consisted of the following:
|
January 1,
|
December 26,
|
December 28,
|
|||
|
2010
|
2008
|
2007
|
|||
|
Weighted
average discount rate
|
5.85%
- 6.25%
|
6.25%
- 6.47%
|
5.75%
- 6.47%
|
||
|
Rate
of increase in compensation levels
|
0%
|
0%
- 3.50%
|
3.50%
|
||
|
Expected
long-term rate of return on assets
|
7.50%
|
4.75%
|
7.50%
|
Cash
Flows
We fund
all pension plans in amounts consistent with applicable laws and regulations. We
expect to contribute approximately $0.2 million to our U.S.-based defined
benefit pension plans in 2010. Benefit payments under the pension plans over the
next 10 years are expected to total $11.7 million and average approximately $1.2
million per year.
The
accumulated benefit obligation for the U.S.-based defined benefit pension plans
is $18.4 million and $18.1 million at January 1, 2010 and December 26, 2008,
respectively.
U.S.-Based
Post-Retirement Healthcare Plan
The
expiration of the CBA resulted in the cessation of any benefits provided to
retirees by retiree medical and life insurance plans. The U.S.-based
post-retirement healthcare plan provided contributory healthcare benefits to
certain of our U.S. retirees and their dependents. We funded claims under the
plan as they were incurred, and accordingly, the plan had no
assets.
The
following deferred pension gains included in Accumulated Other Comprehensive
Income were recognized as reductions to asset impairment and other charges, net
in the Consolidated Statements of Income (U.S. dollars in
millions):
| Year ended | |||||||||
| January
1,
2010
|
December
26,
2008
|
December
28,
2007
|
|||||||
|
Amortizations:
|
|||||||||
|
Prior
Service Credit
|
$ |
(0.4
|
) | $ |
(1.6)
|
$ |
(2.0)
|
||
|
Net
Actuarial Losses
|
-
|
(1.5)
|
(0.6)
|
||||||
|
Settlement
Gain
|
(0.4
|
) |
-
|
-
|
|||||
|
Curtailment
Gain
|
-
|
-
|
(3.4)
|
||||||
| $ |
(0.8
|
) | $ |
(3.1)
|
$ |
(6.0)
|
|||
In
accordance with the ASC guidance related to “Compensation – Retirement
Benefits”, during 2009, we recognized a settlement gain of $3.2 million
of which $0.4 million related to actuarial gains as a result of the expiration
of the CBA, which is included as a reduction to asset impairment and other
charges in the Consolidated Statements of Income.
82
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.
Retirement and Other Employee Benefits (continued)
On
February 28, 2007, the turnover of the remaining eligible active employees
triggered a curtailment gain of $3.4 million, which reduced the prior service
credit and was recognized in earnings.
For the
years ended January 1, 2010, December 26, 2008 and December 28, 2007, gains of
$3.4 million, $2.9 million and $5.8 million, respectively, were recognized
in earnings as a reduction to asset impairment and other charges primarily as a
result of the previously announced decision to exit all production activities in
Hawaii in 2006 related to the retiree medical and life insurance
plans.
Assumptions
The
assumptions used in determining the APBO are the same as the expected
post-retirement benefit obligation due to the accelerated closing of Hawaii.
Since only eligible employees are accounted for in determining the APBO as of
December 26, 2008 for our U.S.-based post-retirement healthcare plans the
assumptions used consisted of the following:
|
December
26,
|
||
|
2008
|
||
|
Weighted
average discount rate
|
6.25%
|
|
|
Health
care cost trend rate assumed for
|
||
|
next
year
|
8.00%
|
|
|
Rate
to which the cost trend rate is assumed
|
||
|
to
decline (the ultimate trend rate)
|
5%
|
|
|
Year
that the rate reaches the ultimate
|
||
|
trend
rate
|
2017
|
U.S.-Based
Plans Benefit Obligations, Plan Assets and Funded Status
The
benefit obligation is the projected benefit obligation for defined benefit
pension plans and the accumulated post-retirement benefit obligation for
post-retirement benefit plans other than pensions.
The
following table sets forth a reconciliation of benefit obligations, plan assets
and funded status for our U.S.-based defined benefit pension plans and
post-retirement healthcare plans as of January 1, 2010 and December 26, 2008,
which are also their measurement dates (U.S. dollars in
millions):
83
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Retirement and Other Employee
Benefits (continued)
| Pension plans | Post-retirement plans | |||||||||||||||
|
January
1,
|
December
26,
|
January
1,
|
December
26,
|
|||||||||||||
|
2010
|
2008(1)
|
2010
|
2008(1)
|
|||||||||||||
|
Change
in Benefit Obligation:
|
||||||||||||||||
|
Beginning
benefit obligation
|
$ | 18.1 | $ | 18.0 | $ | 2.6 | $ | 2.8 | ||||||||
|
Interest
cost
|
1.1 | 1.2 | 0.2 | 0.2 | ||||||||||||
|
Actuarial
loss (gain)
|
0.8 | 1.1 | (0.2 | ) | ||||||||||||
|
Benefits
paid
|
(1.6 | ) | (2.1 | ) | (0.1 | ) | (0.2 | ) | ||||||||
|
Settlement
gain
|
- | - | (2.7 | ) | - | |||||||||||
|
Amendments
and other
|
- | (0.1 | ) | - | - | |||||||||||
|
Ending
benefit obligation
|
18.4 | 18.1 | - | 2.6 | ||||||||||||
|
Change
in Plan Assets:
|
||||||||||||||||
|
Beginning
fair value
|
12.3 | 15.8 | - | - | ||||||||||||
|
Actual
return on plan assets
|
0.6 | (2.2 | ) | - | - | |||||||||||
|
Company
contributions
|
0.4 | 0.8 | 0.1 | 0.2 | ||||||||||||
|
Benefits
paid
|
(1.6 | ) | (2.1 | ) | (0.1 | ) | (0.2 | ) | ||||||||
|
Ending
fair value
|
11.7 | 12.3 | - | - | ||||||||||||
|
Reconciliation
of Accruals:
|
||||||||||||||||
|
Funded
status
|
(6.7 | ) | (5.8 | ) | - | (2.6 | ) | |||||||||
|
Prior
service benefit
|
- | - | - | 0.4 | ||||||||||||
|
Net
actuarial (loss) gain
|
(5.8 | ) | (4.9 | ) | - | 0.4 | ||||||||||
|
Accrued
benefit costs
|
$ | (0.9 | ) | $ | (0.9 | ) | $ | - | $ | (3.4 | ) | |||||
|
Amounts
recognized in the
|
||||||||||||||||
|
Consolidated
Balance Sheets :
|
||||||||||||||||
|
Accounts
payable and accrued
|
||||||||||||||||
|
expenses
|
- | - | 0.2 | |||||||||||||
|
Retirement
benefits liability
|
6.7 | 5.8 | - | 2.4 | ||||||||||||
|
Net
amount recognized in the
|
||||||||||||||||
|
Consolidated
Balance Sheets
|
$ | 6.7 | $ | 5.8 | $ | - | $ | 2.6 | ||||||||
|
Amounts
recognized in
|
||||||||||||||||
|
Accumulated
other
|
||||||||||||||||
|
comprehensive
income (loss):
|
||||||||||||||||
|
Prior
service benefit
|
- | - | - | 0.4 | ||||||||||||
|
Net
actuarial (loss) gain
|
(5.8 | ) | (4.9 | ) | - | 0.4 | ||||||||||
|
Net
amount recognized in
|
||||||||||||||||
|
Accumulated
other comprehensive
|
||||||||||||||||
|
income
(loss)
|
$ | (5.8 | ) | $ | (4.9 | ) | $ | - | $ | 0.8 | ||||||
|
(1)
|
Includes
the adjustment to retained earnings of an increase of $0.3 million to
shareholders’ equity as a result of the adoption of the measurement date
provisions of the ASC guidance on “Compensation – Retirement
Benefits” effective December 26,
2008.
|
84
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Retirement and Other Employee
Benefits (continued)
The
following table sets forth the net periodic pension cost of our defined benefit
pension and post-retirement benefit plans (U.S. dollars in
millions):
| Pension Plans | Postretirement Plans | |||||||||||||||||
|
Year
ended
|
Year
ended
|
|||||||||||||||||
|
January
1,
2010
|
December
26,
2008
|
December
28,
2007
|
January
1,
2010
|
December
26,
2008
|
December
28,
2007
|
|||||||||||||
|
Interest
cost
|
$ |
0.9
|
$ |
1.0
|
$ |
1.0
|
$ |
0.2
|
$ |
0.2
|
$ |
0.2
|
||||||
|
Expected
return on assets
|
(0.7
|
) |
(1.1
|
) |
(1.1
|
) |
-
|
-
|
-
|
|||||||||
|
Curtailment
gain
|
-
|
-
|
-
|
-
|
-
|
(3.4
|
) | |||||||||||
|
Settlement
(gain) loss
|
-
|
-
|
0.3
|
(3.2
|
) |
-
|
-
|
|||||||||||
|
Net
amortization
|
0.1
|
-
|
-
|
(0.4
|
) |
(3.1
|
) | (2.6 | ) | |||||||||
|
Net
periodic cost (income)
|
$ |
0.3
|
$ |
(0.1
|
) | $ |
0.2
|
$ |
(3.4
|
) | $ |
(2.9
|
) | $ | (5.8 | ) | ||
United
Kingdom Defined Benefit Pension Plan
We
sponsor a contributory defined benefit pension plan, which covers a portion of
our employees in the United Kingdom (the “UK plan”). The UK plan provides
benefits based on the employees’ years of service and qualifying compensation
and has ceased accruing benefits. Benefit payments are based on a final pay
scheme as of November 30, 2005 and are adjusted for inflation
annually. Our funding policy for the UK plan is to contribute amounts
into the plan in accordance with a recovery plan agreed by the Trustees and the
Company in order to meet the statutory funding objectives of occupational
trust-based arrangements of the United Kingdom or such additional amounts as
determined appropriate to assure that assets of the UK plan would be adequate to
provide benefits. Substantially all of the UK plan’s assets are primarily
invested in fixed income and equity funds. The UK plan is accounted for pursuant
to the ASC guidance related to “Compensation – Retirement
Benefits”.
The fair
values of the Company’s U.S. plan assets at January 1, 2010 by asset category
are as follows:
|
Fair
Value Measurements at
|
||||||||||||||||
|
January
1, 2010 (U.S. dollars in millions)
|
||||||||||||||||
|
Asset
Category
|
Total
Fair
Value
at
January
1,
2010
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
Significant
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
||||||||||||
|
Cash
|
$ | 0.4 | $ | 0.4 | $ | - | $ | - | ||||||||
|
Equity
securities:
|
||||||||||||||||
|
United
Kingdom companies
|
15.2 | 15.2 | - | - | ||||||||||||
|
United
States companies
|
4.6 | 4.6 | - | - | ||||||||||||
|
Other
international companies
|
9.3 | 9.3 | - | - | ||||||||||||
|
Fixed
income securities
|
||||||||||||||||
|
United
Kingdom government bonds
|
6.1 | 6.1 | - | - | ||||||||||||
|
Total
|
$ | 35.6 | $ | 35.6 | $ | - | $ | - | ||||||||
85
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Retirement and Other Employee
Benefits (continued)
Equity securities – This
category includes stocks in various U.S., U.K. and other international companies
over diverse industries. The portfolio of stocks is invested in
diverse industries and includes a concentration of 23% in financial
institutions, 16% in oil and gas, 13% in basic materials, 12% in consumer goods,
11% in industrial and the remaining 25% in various other
industries. The expected return on equities is determined by the
yield on U.K. government bonds based on the Financial Times Stock Exchange
(“FTSE”) U.K.
20-year index (“Gilts”) plus an allowance for an equity risk
premium.
These
investments are valued at the closing price reported on the active market on
which the individual securities are traded. These investments are
classified within Level 1 of the fair value hierarchy.
Fixed income securities –This
category includes investment in U.K. government bonds. These
investments are valued at the closing price reported on the active market on
which the individual securities are traded. These investments
are classified within Level 1 of the fair value hierarchy. The
expected return on U.K. government bonds is as measured by the FTSE U.K. 20-year
index.
According
to the plan’s investment policy, approximately 40% of the UK plan’s assets are
invested in equity securities of companies of the United Kingdom, 28% in U.S.
and European equities and 12% are invested in other international equities.
Approximately 20% of the UK plan’s assets are invested in high-grade,
fixed-income securities with maturities of up to 15 years. Fund managers have no
discretion to make asset allocation decisions, but are required to rebalance the
portfolios back to the above benchmarks. Performance benchmarks for each asset
class are based on various FTSE indices. Investment performance is evaluated
annually. The actual return on plan assets for the UK plan years ended January
1, 2010 and December 26, 2008 was a positive return of approximately 18% and a
negative return of 27%, respectively.
Assumptions
The
assumptions used in the calculation of the actuarial present value of the
projected benefit obligation, the net periodic pension cost and expected
long-term rate of return on plan assets for the UK plan consisted of the
following:
|
January
1,
|
December 26,
|
December 28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Weighted
average discount rate
|
5.7% - 6.5% | 6.00% - 6.50% | 5.10% - 6.00% | |||||||||
|
Rate
of increase in compensation levels
|
3.60% | 3.20% | 2.90% | |||||||||
|
Expected
long-term rate of return on assets
|
7.20% | 5.80% | 7.00% | |||||||||
Cash
Flows
We expect
to contribute approximately $2.8 million to the UK plan in 2009, estimated using
the British pound to U.S. dollar exchange rate as of January 1, 2010. Benefit
payments under the UK plan over the next 10 years are expected to total $28.2
million and average approximately $2.8 million per year.
86
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Benefit
Obligations, Plan Assets and Funded Status
The
following table sets forth a reconciliation of benefit obligation, plan assets
and funded status for the UK plan as of January 1, 2010 and December 26, 2008,
which are also the plan’s measurement dates (U.S. dollars in
millions):
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008(1)
|
|||||||
|
Change
in Benefit Obligation (2):
|
||||||||
|
Beginning
benefit obligation
|
$ | 42.6 | $ | 59.8 | ||||
|
Service
cost
|
0.1 | 0.1 | ||||||
|
Interest
cost
|
3.0 | 2.6 | ||||||
|
Actuarial
(gain) loss
|
9.7 | (1.9 | ) | |||||
|
Benefits
paid
|
(1.5 | ) | (2.1 | ) | ||||
|
Exchange
rate changes (3)
|
4.4 | (15.9 | ) | |||||
|
Ending
benefit obligation
|
58.3 | 42.6 | ||||||
|
Change
in Plan Assets:
|
||||||||
|
Beginning
fair value
|
26.0 | 45.8 | ||||||
|
Actual
return on plan assets
|
5.5 | (8.1 | ) | |||||
|
Company
contributions
|
2.9 | 2.4 | ||||||
|
Benefits
paid
|
(1.5 | ) | (2.1 | ) | ||||
|
Exchange
rate changes (3)
|
2.7 | (12.0 | ) | |||||
|
Ending
fair value
|
35.6 | 26.0 | ||||||
|
Reconciliation
of Accruals:
|
||||||||
|
Funded
status
|
(22.7 | ) | (16.6 | ) | ||||
|
Net
actuarial gain
|
1.3 | 6.6 | ||||||
|
Accrued
benefit costs
|
$ | (24.0 | ) | $ | (23.2 | ) | ||
|
Amounts
recognized in the
|
||||||||
|
Consolidated
Balance
|
||||||||
|
Sheets(2):
|
||||||||
|
Retirement
benefits liability
|
22.7 | 16.6 | ||||||
|
Net
amount recognized in the
|
||||||||
|
Consolidated
Balance
|
||||||||
|
Sheets
|
$ | 22.7 | $ | 16.6 | ||||
|
Amounts
recognized in Accumulated
|
||||||||
|
other
comprehensive income (loss) (2):
|
||||||||
|
Net
actuarial gain
|
1.3 | 6.6 | ||||||
|
Net
amount recognized in
|
||||||||
|
Accumulated
other comprehensive
|
||||||||
|
income
(loss)
|
$ | 1.3 | $ | 6.6 | ||||
|
(1)
|
Effective
December 26, 2008, we adopted the measurement date provisions of the
ASC on “Compensation –
Retirement Benefits”, which resulted in an immaterial adjustment to
retained earnings.
|
|
(2)
|
The
accumulated benefit obligation is the same as the projected benefit
obligation.
|
|
(3)
|
The
exchange rate difference included in the reconciliation of the change in
benefit obligation and the change in plan assets above results from the
weakening of the U.S. dollar relative to the British pound as of January
1, 2010 when compared to December 26, 2008 for the year ended January 1,
2010. The exchange rate difference at December 26, 2009
resulted from the strengthening of the U.S. dollar relative to the British
pound.
|
87
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.
Retirement and Other Employee Benefits (continued)
The
following table sets forth the net periodic pension cost of the UK plan (U.S.
dollars in millions):
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Service
cost
|
$ | 0.1 | $ | 0.1 | $ | 0.3 | ||||||
|
Interest
cost
|
3.0 | 2.6 | 3.7 | |||||||||
|
Expected
return on assets
|
(1.7 | ) | (2.4 | ) | (2.9 | ) | ||||||
|
Amortization
of actuarial gains
|
(0.1 | ) | (0.4 | ) | - | |||||||
|
Net
periodic cost
|
$ | 1.3 | $ | (0.1 | ) | $ | 1.1 | |||||
There is
no amortization of actuarial pension gains expected to be recognized in the
Consolidated Statements of Income during 2010.
Central
American Plans
We
provide retirement benefits to employees of certain Costa Rican and Guatemalan
subsidiaries (“Central American plans”). Generally, benefits under these
programs are based on an employee’s length of service and level of compensation.
These programs are commonly referred to as termination indemnities, which
provide retirement benefits in accordance with programs mandated by the Costa
Rican and Guatemalan governments. Funding generally occurs when employees cease
active service. The Central American plans are accounted for pursuant to ASC
guidance related to “Compensation – Retirement
Benefits”.
Assumptions
The
assumptions used in the calculation of the actuarial present value of the
projected benefit obligation and the net periodic pension cost for the Central
American plans consisted of the following:
|
January
1,
|
December 26,
|
December 28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Weighted
average discount rate
|
10.90% - 14.64% | 6.47% - 14.64% | 6.47% | |||||||||
|
Rate
of increase in compensation levels
|
8.19% - 8.86% | 3.50% - 8.86% | 3.50% | |||||||||
The
decrease in the weighted average discount rate assumption for the benefit
obligation from 14.64% in 2008 to 10.90% in 2009 for the Central American plans
was due to the fact that country-specific investments dropped significantly in
2009. The increase in the weighted average discount rate assumption
used in the calculation of net periodic cost from 6.47% in 2008 to 14.64% in
2009 related to the change in method of calculating the discount rate described
in the following paragraph.
Effective
December 26, 2008, we changed the method of calculating the discount rate
and rate of increase in compensation levels for the Central American plans in
order to align the expected return on country-specific investments with the
expected benefit payment stream. The impact to the ending benefit obligation as
a result of this change was $0.9 million, which resulted in a decrease in the
retirement benefits liability and an increase in amounts recognized in
accumulated other comprehensive income of $0.9 million in our Consolidated
Balance Sheets. The change in discount rate is treated as a change in
assumption, which affects the net actuarial (loss) gain and is amortized over
the remaining service period of the plan participants consistent with the ASC
guidance on “Compensation –
Retirement Benefits”. The annual amortization began to impact net
periodic cost in 2009.
88
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Retirement and
Other Employee Benefits (continued)
Cash
Flows
We do not
expect to contribute to the Central American plans in 2010. Benefit payments
under the Central American plans over the next 10 years are expected to total
$34.8 million and average $3.5 million per year.
Benefit
Obligations, Plan Assets and Funded Status
The
following table sets forth a reconciliation of benefit obligation, plan assets
and funded status for the Central American plans as of January 1, 2010 and
December 26, 2008, which are also the plan measurement dates (U.S. dollars in
millions):
|
January
1,
|
December
26,
|
|||||||
|
2010
|
2008(1)
|
|||||||
|
Change
in Benefit Obligation:
|
||||||||
|
Beginning
benefit obligation
|
$ | 21.9 | $ | 25.0 | ||||
|
Service
cost
|
1.6 | 1.2 | ||||||
|
Interest
cost
|
2.8 | 1.5 | ||||||
|
Actuarial
loss (gain)
|
10.6 | (2.5 | ) | |||||
|
Benefits
paid
|
(1.4 | ) | (1.3 | ) | ||||
|
Settlement
|
(1.2 | ) | (1.2 | ) | ||||
|
Exchange
rate changes
|
(1.4 | ) | (0.8 | ) | ||||
|
Ending
benefit obligation
|
32.9 | 21.9 | ||||||
|
Reconciliation
of Accruals:
|
||||||||
|
Funded
status
|
(32.9 | ) | (21.9 | ) | ||||
|
Unrecognized
loss
|
(14.5 | ) | (5.1 | ) | ||||
|
Accrued
benefit costs
|
$ | (18.4 | ) | $ | (16.8 | ) | ||
|
Amounts
recognized in the
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
Accounts
payable and accrued expenses
|
3.2 | 3.0 | ||||||
|
Retirement
benefits liability
|
29.7 | 18.9 | ||||||
|
Net
amount recognized in the Consolidated Balance Sheets
|
$ | 32.9 | $ | 21.9 | ||||
|
Amounts
recognized in accumulated other comprehensive income
(loss)
|
||||||||
|
Actuarial
loss
|
(14.5 | ) | (5.1 | ) | ||||
|
Net
amount recognized in accumulated other comprehensive loss
|
$ | (14.5 | ) | $ | (5.1 | ) | ||
|
(1)
|
Includes
the adjustment to retained earnings of a decrease of $0.3 million to
shareholders’ equity as a result of the adoption of the measurement date
provisions of the ASC on “Compensation-Retirement
Benefits” effective December 26,
2008.
|
The
following table sets forth the net periodic pension cost of the Central American
plans for 2009, 2008 and 2007 (U.S. dollars in millions):
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Service
cost
|
$ | 1.6 | $ | 1.0 | $ | 1.2 | ||||||
|
Interest
cost
|
2.8 | 1.5 | 1.3 | |||||||||
|
Amortization
of actuarial losses
|
0.4 | 0.7 | 0.8 | |||||||||
|
Settlement
loss
|
1.0 | 1.0 | - | |||||||||
|
Net
periodic cost
|
$ | 5.8 | $ | 4.2 | $ | 3.3 | ||||||
A loss of
$0.9 million is expected to be recognized in the Consolidated Statements of
Income during 2010 related to unamortized actuarial pension losses.
89
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Retirement and
Other Employee Benefits (continued)
Other
Employee Benefits
We also
sponsor a defined contribution plan established pursuant to Section 401(k)
of the Internal Revenue Code. Subject to certain dollar limits, employees may
contribute a percentage of their salaries to the plan, and we will match a
portion of each employee’s contribution. This plan is in effect for U.S.-based
employees only. The expense pertaining to this plan was $0.9 million for 2009
and 2008, respectively and $0.8 million for 2007.
As of
August 31, 1997, one of our subsidiaries ceased accruing benefits under our
salary continuation plan covering Central American management personnel. At
January 1, 2010 and December 26, 2008, we had $7.0 million and $6.9 million,
respectively, accrued for this plan. At January 1, 2010 and December 26, 2008,
we recorded $1.1 million and $1.2 million, respectively, in accumulated other
comprehensive income (loss) related to unamortized pension gains. A gain of $0.1
million is expected to be recognized in the Consolidated Statements of Income
during 2010 related to unamortized actuarial pension gains related to this plan.
Net periodic pension costs were $0.3 million for each of the years ended January
1, 2010 and December 26, 2008 and $0.4 million for the year ended December 28,
2007. We expect to contribute approximately $0.7 million to the
salary continuation plan in 2010. Benefit payments under the plan over the next
10 years are expected to total $7.2 million and average $0.7 million over the
next 10 years.
We
provide retirement benefits to certain employees who are not U.S.-based.
Generally, benefits under these programs are based on an employee’s length of
service and level of compensation and are insignificant. The unamortized pension
losses related to other non-U.S.-based plans included in accumulated other
comprehensive income (loss), a component of shareholders’ equity were $0.8
million as of January 1, 2010. We recognized $0.3 million and $0.5 million of
unamortized pension losses as of January 1, 2010 and December 26, 2008,
respectively, related to other non-U.S.-based plans.
As of
January 1, 2010 and December 26, 2008, we had accumulated other comprehensive
income of $5.0 million and $0.3 million, related to tax effect of unamortized
pension gains.
16.
Stock-Based Compensation
Effective
upon the completion of our initial public offering in October 1997, we
established a share option plan pursuant to which options to purchase Ordinary
Shares may be granted to certain directors, officers and key employees chosen by
the Board of Directors (the “1997 Plan”). Under the 1997 Plan, the Board of
Directors is authorized to grant options to purchase an aggregate of 2,380,030
Ordinary Shares. Under this plan, options have been granted to directors,
officers and other key employees to purchase our Ordinary Shares at the fair
market value of the Ordinary Shares at the date of grant.
On
May 11, 1999, our shareholders approved and ratified the 1999 Share
Incentive Plan (the “1999 Plan”). Under the 1999 Plan, as amended on
April 30, 2008, the Board of Directors is authorized to grant options to
purchase an aggregate of 9,000,000 Ordinary Shares. The aggregate number of
options that may be granted to a single participant under the 1999 Plan is
2,000,000. Under this plan, options have been granted to directors, officers and
other key employees to purchase our Ordinary Shares at the fair market value of
the Ordinary Shares at the date of grant.
Under
both the 1997 Plan and the 1999 Plan, 20% of the options usually vest
immediately, and the remaining options vest in equal installments over the next
four years. Options under the 1997 Plan and the 1999 Plan may be exercised over
a period not in excess of 10 years from the date of the grant,
respectively.
Stock-based
compensation expense related to stock options for the years ended January 1,
2010, December 26, 2008 and December 28, 2007, included in the determination of
income before income taxes and net income, totaled $10.4 million, $9.7 million
and $5.6 million on the straight-line, single award basis, or $0.16, $0.15 and
$0.10 per diluted share, respectively, and are included in the Consolidated
Statements of Income in selling, general and administrative expenses. We are in
a net operating loss carryforward position in the relevant jurisdictions for the
years ended 2008 and 2009, therefore there was no reduction in taxes currently
payable or related effect on cash flows as the result of excess tax benefits
from stock options exercised in these periods. The amount of cash received from
the exercise of stock options was $1.0 million, $22.1 million and $13.3 million
for the years ended January 1, 2010, December 26, 2008 and December 28, 2007,
respectively.
90
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
Stock-Based Compensation (continued)
The
following table summarizes stock option activity for the years ended January 1,
2010, December 26, 2008 and December 28, 2007:
|
Number
of
Shares
|
Weighted
Average
Exercise Price
|
Weighted
Average
Fair
Value
|
||||||||||
|
Options
outstanding at December 29, 2006
|
3,334,950 | $ | 22.29 | $ | 8.27 | |||||||
|
Granted
|
228,500 | 23.75 | 8.34 | |||||||||
|
Exercised
|
(783,082 | ) | 16.97 | 6.27 | ||||||||
|
Canceled
|
(110,000 | ) | 23.65 | 8.72 | ||||||||
|
Options
outstanding at December 28, 2007
|
2,670,368 | 23.92 | 8.85 | |||||||||
|
Granted
|
1,814,750 | 23.51 | 8.76 | |||||||||
|
Exercised
|
(850,295 | ) | 26.03 | 10.17 | ||||||||
|
Canceled
|
(101,000 | ) | 22.66 | 7.77 | ||||||||
|
Options
outstanding at December 26, 2008
|
3,533,823 | 23.24 | 8.51 | |||||||||
|
Granted
|
1,529,750 | 21.33 | 8.03 | |||||||||
|
Exercised
|
(62,200 | ) | 16.19 | 5.74 | ||||||||
|
Canceled
|
(57,000 | ) | 21.40 | 7.99 | ||||||||
|
Options
outstanding at January 1, 2010
|
4,944,373 | $ | 22.76 | $ | 8.40 | |||||||
|
Exercisable
at December 28, 2007
|
1,159,368 | $ | 26.86 | $ | 10.03 | |||||||
|
Exercisable
at December 26, 2008
|
1,298,823 | $ | 26.45 | $ | 9.01 | |||||||
|
Exercisable
at January 1, 2010
|
2,425,373 | $ | 23.79 | $ | 8.75 | |||||||
On
July 31, 2009, we granted 1,295,000 stock options from our 1999 Plan to
employees with a grant date fair value of $8.08 per option and an exercise price
of $21.72 per option. There were no stock option grants to our
Chairman and Chief Executive Officer in the July 31, 2009 stock option
grant. These options vested 20% on the grant date and then will vest
20% on each of the next four anniversary dates.
On May 1,
2009, we granted 30,000 stock options from our 1999 Plan to a non-management
member of our Board of Directors with a grant date fair value of $6.22 per
option and an exercise price of $14.77 per option. These options
vested 20% on the grant date and then will vest 20% on each of the next four
anniversary dates.
On
February 25, 2009, we granted 161,000 stock options from our 1999 Plan to
our Chairman and Chief Executive Officer with a grant date fair value of $8.11
per option and an exercise price of $19.83 per option. These options
vested 20% on the grant date and then will vest 20% on each of the next four
anniversary dates.
On
February 25, 2009, we granted, in equal amounts, stock options from our
1999 Plan totaling 43,750 options to seven non-management members of our Board
of Directors with a grant date fair value of $7.33 per option and an exercise
price of $19.83 per option. These options vested 100% on the grant
date.
On July
30, 2008, we granted 1,570,000 stock options from our 1999 Plan to employees
with a grant date fair value of $8.28 per option and an exercise price of $22.25
per option. There were no stock option grants to our Chairman and
Chief Executive Officer in the July 30, 2008 stock option
grant. These options vested 20% on the grant date and then will vest
20% on each of the next four anniversary dates. These options may be
exercised over a period not in excess of 10 years.
91
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
Stock-Based Compensation (continued)
In
connection with the retirement of a former executive on May 2, 2008, we
modified his existing grants to accelerate vesting of 40,000 unvested options.
The original granted options were cancelled and new modified options were
granted with accelerated vesting terms. These options became fully vested on the
date of his retirement with modified grant date fair values of $18.28 and
$5.54.
On
February 27, 2008, we granted 161,000 stock options from our 1999 Plan to
our Chairman and Chief Executive Officer with a grant date fair value of $11.71
per option and an exercise price of $33.97 per option. These options
vested 20% on the grant date and then will vest 20% on each of the next four
anniversary dates.
On
February 27, 2008, we granted, in equal amounts, stock options from our
1999 Plan totaling 43,750 options to seven non-management members of our Board
of Directors with a grant date fair value of $9.25 per option and an exercise
price of $33.97 per option. These options vested 100% on the grant
date.
The fair
value for stock options was estimated at the date of grant using the
Black-Scholes option pricing model, which requires us to make certain
assumptions. Volatility is estimated based on the historical volatility of our
stock over the past five years. The risk-free interest rate is based on U.S.
Treasury zero-coupon issues with a remaining term equal to the expected term of
grant. The expected term of grant was based on the contractual term of the stock
option and expected employee exercise and post-vesting employment termination
trends. Forfeitures are estimated based on historical experience.
The
following are the weighted average assumptions used in the Black-Scholes option
pricing model for the periods indicated:
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
2010
|
2008
|
2007
|
||||||||||
|
Volatility
|
39.16 | % | 35.99 | % | 32.41 | % | ||||||
|
Risk-free
rate
|
2.50 | % | 3.31 | % | 4.17 | % | ||||||
|
Expected
term of grant
|
4.9
years
|
4.9
years
|
4.7
years
|
|||||||||
92
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
Stock-Based Compensation (continued)
|
Exercise
Price
|
Remaining
Contractual
Life
|
Outstanding
|
Outstanding
Intrinsic Value
|
Exercisable
|
Exercisable
Intrinsic Value
|
||||||||||||||
| $ | 5.95 |
1.3
Years
|
6,000 | $ | 0.1 | 6,000 | $ | 0.1 | |||||||||||
| $ | 14.77 |
9.3
Years
|
30,000 | 0.2 | 6,000 | - | |||||||||||||
| $ | 15.78 |
6.6
Years
|
605,472 | 3.8 | 389,472 | 2.5 | |||||||||||||
| $ | 17.35 |
7.2
Years
|
12,500 | 0.1 | 12,500 | - | |||||||||||||
| $ | 18.31 |
6.3
Years
|
114,600 | 0.4 | 76,400 | 0.3 | |||||||||||||
| $ | 19.76 |
3.1
Years
|
24,500 | 0.1 | 24,500 | 0.1 | |||||||||||||
| $ | 19.76 |
6.2
Years
|
12,500 | - | 12,500 | - | |||||||||||||
| $ | 19.83 |
9.2
Years
|
161,000 | 0.4 | 32,200 | 0.1 | |||||||||||||
| $ | 19.83 |
9.2
Years
|
43,750 | 0.1 | 43,750 | 0.1 | |||||||||||||
| $ | 21.72 |
9.6
Years
|
1,280,000 | 0.5 | 256,000 | 0.1 | |||||||||||||
| $ | 22.25 |
8.6
Years
|
1,527,000 | - | 612,000 | - | |||||||||||||
| $ | 23.82 |
4.3
Years
|
32,200 | - | 32,200 | - | |||||||||||||
| $ | 23.97 |
7.3
Years
|
128,800 | - | 64,400 | - | |||||||||||||
| $ | 25.83 |
4.1
Years
|
4,000 | - | 4,000 | - | |||||||||||||
| $ | 29.84 |
5.3
Years
|
702,051 | - | 702,051 | - | |||||||||||||
| $ | 30.59 |
7.9
Years
|
24,000 | - | 12,000 | - | |||||||||||||
| $ | 32.28 |
5.2
Years
|
31,250 | - | 31,250 | - | |||||||||||||
| $ | 33.97 |
8.2
Years
|
161,000 | - | 64,400 | - | |||||||||||||
| $ | 33.97 |
8.2
Years
|
43,750 | - | 43,750 | - | |||||||||||||
| 4,944,373 | $ | 5.7 | 2,425,373 | $ | 3.3 | ||||||||||||||
The total
intrinsic value of options exercised during the years ended January 1, 2010 and
December 26, 2008 was $0.4 million and $7.4 million, respectively. The total
fair value of options granted for years ended January 1, 2010 and December 26,
2008 was $12.3 million and $15.9 million, respectively. The total fair value of
options vesting during the years ended January 1, 2010 and December 26, 2008 was
$10.1 million and $5.8 million, respectively, with a weighted-average fair value
of $8.30 and $8.66 per option, respectively. As of January 1, 2010, the total
remaining unrecognized compensation cost related to non-vested stock options
amounted to $16.2 million, which will be amortized over the weighted-average
remaining requisite service period of 2.1 years.
93
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17.
Commitments and Contingencies
We lease
agricultural land and certain property, plant and equipment, including office
facilities and refrigerated containers, under operating leases. The aggregate
minimum payments under all operating leases and vessel charter agreements with
initial terms of one year or more at January 1, 2010 are as follows (U.S.
dollars in millions):
|
2010
|
$ | 102.6 | ||
|
2011
|
79.1 | |||
|
2012
|
41.4 | |||
|
2013
|
39.2 | |||
|
2014
|
38.1 | |||
|
Thereafter
|
176.7 | |||
| $ | 477.1 |
Total
expense for all operating leases and vessel charter agreements, including leases
with initial terms of less than one year, amounted to $102.2 million, $71.9
million and $54.5 million for 2009, 2008 and 2007, respectively.
We also
have agreements to purchase substantially all of the production of certain
independent growers in Costa Rica, Guatemala, Ecuador, Cameroon, Colombia,
Chile, Brazil, South Africa and the Philippines. Total purchases under these
agreements amounted to $670 million, $690.3 million and $580.8 million for 2009,
2008 and 2007, respectively.
During
2009, we entered into time charter agreements to charter four refrigerated
vessels for a 10-year period.
94
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18.
Litigation
DBCP
Litigation
Beginning
in December 1993, certain of our U.S. subsidiaries were named among the
defendants in a number of actions in courts in Texas, Louisiana, Hawaii,
California and the Philippines involving claims by numerous non-U.S. plaintiffs
alleging that they were injured as a result of exposure to a nematocide
containing the chemical dibromochloropropane (“DBCP”) during the period 1965 to
1990. As a result of a settlement entered into in December 1998, the remaining
unresolved DBCP claims against our U.S. subsidiaries are pending in Hawaii,
Louisiana and California.
In 1997,
plaintiffs from Costa Rica and Guatemala named certain of our U.S. subsidiaries
in a purported class action in Hawaii. The action was dismissed by a federal
district court on grounds of forum non
conveniens in favor of the courts of the plaintiffs’ home countries and
the plaintiffs appealed this decision. On April 22, 2003, the U.S. Supreme
Court affirmed the plaintiffs’ appeal of the dismissal, thereby remanding the
action to the Hawaiian state court. On April 27, 2007, our U.S.
subsidiaries named in the action, which do not have ties to Hawaii, filed a
motion to dismiss for lack of personal jurisdiction, and plaintiffs voluntarily
dismissed these subsidiaries from the action on June 28, 2007. On
February 19, 2008, plaintiffs moved to certify a worldwide class of farm
workers allegedly injured from exposure to DBCP, which motion was denied on
July 15, 2008. At a hearing held on June 9, 2009, the court granted
summary judgment in favor of our remaining U.S. subsidiaries with ties to
Hawaii, holding that the claims of the remaining plaintiffs are
time-barred.
On
November 15, 1999, one of our subsidiaries was served in two actions
entitled Godoy Rodriguez, et
al. v. AMVAC Chemical Corp., et al. and Martinez Puerto, et al. v. AMVAC
Chemical Corp., et al., in the 29th Judicial
District Court for the Parish of St. Charles, Louisiana. These actions were
removed to federal court, where they have been consolidated. As a result of the
Supreme Court’s decision in the Hawaiian action, the district court remanded
these actions to state court in Louisiana. At this time, it is not known how
many of the approximately 315 remaining Godoy Rodriguez and Martinez Puerto plaintiffs
are making claims against our subsidiary.
On
October 14, 2004, two of our subsidiaries were served with a complaint in
an action styled Angel Abarca,
et al. v. Dole Food Co., et al. filed in the Superior Court of the
State of California for the County of Los Angeles on behalf of more than 2,600
Costa Rican banana workers who claim injury from exposure to DBCP. An initial
review of the plaintiffs in the Abarca action
found that a substantial number of the plaintiffs were claimants in prior DBCP
actions in Texas and may have participated in the settlement of those actions.
On June 27, 2008, the court dismissed the claims of 1,329 plaintiffs who
were parties to prior DBCP actions. On June 30, 2008, our subsidiaries
moved to dismiss the claims of the remaining Abarca plaintiffs
on grounds of forum non
conveniens in favor of the courts of Costa Rica. Hearings on
the motion to dismiss were held on February 24, 2009, May 19,
2009 and September 17, 2009. On September 22, 2009, the court granted
the motion conditionally dismissing the claims of those remaining plaintiffs who
allege employment on farms in Costa Rica affiliated with our
subsidiaries.
95
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Litigation
(continued)
On
April 25, 2005, two of our subsidiaries were served with a complaint
styled Juan Jose Abrego, et
al. v. Dole Food Company, et al. filed in the Superior Court of the State
of California for the County of Los Angeles on behalf of 955 Guatemalan
residents who claim injury from exposure to DBCP. An initial review of the
plaintiffs in the Abarca action
found that a substantial number of the plaintiffs were claimants in prior DBCP
actions and may have participated in the settlement of those actions. On
June 27, 2008, the court dismissed the claims of 206 plaintiffs who were
parties to prior DBCP actions. On October 1, 2009, our subsidiaries joined
a motion to dismiss the claims of the remaining Abrego plaintiffs on grounds
of forum non conveniens
in favor of the courts of Michigan. On December 15, 2009, the court granted the
joint motion.
On
January 2, 2009, three of our subsidiaries were served with multiple
complaints in related actions styled Jorge Acosta Cortes, et al. v. Dole
Food Company, et al. filed in the Superior Court of the State of
California for the County of Los Angeles on behalf of 461 Costa Rican residents,
389 Guatemalan residents, 962 Panamanian residents and 673 Honduran residents
who claim injury from exposure to DBCP. We and our subsidiaries have never
owned, managed or otherwise been involved with any banana growing operations in
Panama or Honduras. Accordingly, the Panamanian and Honduran plaintiffs
filed requests to dismiss our subsidiaries without prejudice on March 26,
2009. The claims of the new Costa Rican plaintiffs were consolidated with those
of the Costa Rican plaintiffs in Abarca and consequently the
claims of those plaintiffs who allege employment on farms in Costa Rica
affiliated with our subsidiaries have also been conditionally dismissed. On
December 15, 2009, the claims of the new Guatemalan plaintiffs were dismissed
based on the joint motion to dismiss on grounds of forum non conveniens granted
by the court in the
Abrego action.
Pineapple
Class Action Litigation
On
August 2, 2004, a consolidated complaint was filed against two of our
subsidiaries in the U.S. District Court for the Southern District of New York.
This consolidated action was brought as a putative class action on behalf of all
direct and indirect purchasers of Del Monte Gold ® Extra Sweet pineapples from
March 1, 1996 through the present and merges four actions brought by fruit
wholesalers and two actions brought by individual consumers. The consolidated
complaint alleges claims for: (i) monopolization and attempted
monopolization; (ii) restraint of trade; (iii) unfair and deceptive
trade practices; and (iv) unjust enrichment. On May 27, 2005, our
subsidiaries filed a motion to dismiss the indirect and direct purchasers’
claims for unjust enrichment. On June 29, 2005, plaintiffs filed a joint
motion for class certification. On February 20, 2008, the court denied
plaintiffs’ motion for class certification of the indirect purchasers and only
granted class certification of the direct purchasers’ claims for monopolization
and attempted monopolization, which was uncontested by our subsidiaries. Also on
February 20, 2008, the court granted the motion of our subsidiaries to
dismiss the direct purchasers’ claims for unjust enrichment and denied as moot
the motion to dismiss the indirect purchasers’ state law claims on the basis of
the court’s denial of plaintiffs’ motion for class certification of the indirect
purchasers. On August 13, 2008, our subsidiaries filed a motion for summary
judgment on plaintiffs’ remaining claims. Plaintiffs filed an opposition to the
motion on October 6, 2008, which our subsidiaries replied to on
December 8, 2008. On September 30, 2009, the court granted the motion
for summary judgment in favor of our subsidiaries. On October 29,
2009, plaintiffs filed a notice of appeal.
On
March 5, 2004, an alleged individual consumer filed a putative class action
complaint against our subsidiaries in the state court of Tennessee on behalf of
consumers who purchased (other than for resale) Del Monte Gold ® Extra Sweet pineapples in
Tennessee from March 1, 1996 to May 6, 2003. The complaint alleges
violations of the Tennessee Trade Practices Act and the Tennessee Consumer
Protection Act. On February 18, 2005, our subsidiaries filed a motion to
dismiss the complaint. On May 15, 2006, the court granted the motion in
part, dismissing plaintiffs’ claim under the Tennessee Consumer Protection
Act.
96
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18.
Litigation (continued)
Between
March 17, 2004 and March 18, 2004, three alleged individual consumers
separately filed putative class action complaints against us and our
subsidiaries in the state court of California on behalf of residents of
California who purchased (other than for re-sale) Del Monte Gold ® Extra Sweet pineapples
between March 1, 1996 and May 6, 2003. On November 9, 2005, the
three actions were consolidated under one amended complaint with a single claim
for unfair competition in violation of the California Business and Professional
Code. On September 26, 2008, plaintiffs filed a motion to certify a class
action. We and our subsidiaries filed an opposition on February 13, 2009,
to which plaintiffs filed a reply on May 11, 2009. At the hearing held on
May 20, 2009, the court issued a tentative opinion granting certification
based on a California Supreme Court decision issued on May 19, 2009, but
requested further briefing. We and plaintiffs have served supplemental briefs in
response. On August 20, 2009, the court reversed its tentative opinion of
May 20, 2009 and denied class certification. At the rescheduled case
management conference held on September 23, 2009, the court denied
plaintiffs’ request seeking withdrawal of the court’s class certification
denial. On October 19, 2009, plaintiffs filed a notice of appeal of the
court’s order denying class certification.
On
April 19, 2004, an alleged individual consumer filed a putative class
action complaint against our subsidiaries in the state court of Florida on
behalf of Florida residents who purchased (other than for re-sale) Del Monte Gold ® Extra Sweet pineapples
between March 1, 1996 and May 6, 2003. The only surviving claim under
the amended complaint alleges violations of the Florida Deceptive and Unfair
Trade Practices Act relating only to pineapples purchased since April 19,
2000. Our subsidiaries filed an answer to the remaining claim of the amended
complaint on October 12, 2006. On August 5, 2008, plaintiffs filed a
motion to certify a class action. Our subsidiaries filed an opposition on
January 22, 2009 to which plaintiffs filed a reply on May 11,
2009.
European
Union Antitrust Investigation
On
June 2, 2005, one of our German subsidiaries was visited by the antitrust
authority of the European Union (“EU”) as part of its investigation of certain
of our overseas subsidiaries as well as other produce companies for possible
violations of the EU’s competition laws. Our subsidiaries cooperated fully with
the investigation. On October 17, 2008, the European Commission concluded
its investigation without finding any infringement of EU competition rules by,
or imposing any fines on, our subsidiaries.
The
European Commission did, however, find that Internationale Fruchtimport
Gesellschaft Weichert & Co KG (“Weichert”), an entity in which one of
our subsidiaries formerly held an indirect 80% noncontrolling interest,
infringed EU competition rules and imposed upon it a €14.7 million ($20.7
million using exchange rates as of December 26, 2008) fine. The European
Commission has asserted that we controlled Weichert during the period by virtue
of our subsidiary’s former, indirect noncontrolling interest and has therefore
held that we are jointly and severally liable for Weichert’s payment of the
fine. On December 31, 2008, we filed an appeal of this determination on
grounds, among others, that Weichert did not violate EU competition rules and
that, in any event, we cannot be held jointly and severally liable for
Weichert’s acts under applicable German law.
97
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18.
Litigation (continued)
Breach
of Contract Litigation
On July
31, 2003, Net Results, Inc., a consulting company, filed a complaint alleging
breach of contract against one of our subsidiaries in an action styled Net Results, Inc. v. Del Monte Fresh
Produce Company in the Eleventh Judicial Circuit of Florida (Miami-Dade
County, Florida). On April 15, 2008, the plaintiff amended its
complaint to include an additional claim of anticipatory repudiation and sought
a significant amount of damages. Our subsidiary denied liability and
brought a counterclaim against the plaintiff. In November 2009, the
plaintiff prevailed on its claims; however, the court has not yet ruled on our
subsidiary’s counterclaim and post-trial motions.
Kunia
Well Site
In 1980,
elevated levels of certain chemicals were detected in the soil and ground-water
at a plantation leased by one of our U.S. subsidiaries in Honolulu, Hawaii (the
“Kunia Well Site”). Shortly thereafter, our subsidiary discontinued the use of
the Kunia Well Site and provided an alternate water source to area well users
and the subsidiary commenced its own voluntary cleanup operation. In 1993, the
Environmental Protection Agency (“EPA”) identified the Kunia Well Site for
potential listing on the National Priorities List (“NPL”) under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended. On December 16, 1994, the EPA issued a final rule adding the Kunia
Well Site to the NPL.
On
September 28, 1995, our subsidiary entered into an order (the “Order”) with
the EPA to conduct the remedial investigation and the feasibility study of the
Kunia Well Site. Under the terms of the Order, our subsidiary submitted a
remedial investigation report in November 1998 and a final draft feasibility
study in December 1999 (which was updated from time to time) for review by the
EPA. The EPA approved the remedial investigation report in February 1999 and the
feasibility study on April 22, 2003.
As a
result of communications with the EPA in 2001, we recorded a charge of $15.0
million in the third quarter of 2001 to increase the recorded liability to the
estimated expected future cleanup cost for the Kunia Well Site to $19.1 million.
Based on conversations with the EPA in the third quarter of 2002 and
consultation with our legal counsel and other experts, we recorded a charge of
$7.0 million during the third quarter of 2002 to increase the accrual for the
expected future clean-up costs for the Kunia Well Site to $26.1
million.
On
September 25, 2003, the EPA issued the Record of Decision (“ROD”). The EPA
estimates in the ROD that the remediation costs associated with the cleanup of
the Kunia Well Site will range from $12.9 million to $25.4 million and will last
approximately 10 years. The undiscounted estimates are between $14.8 million and
$28.7 million. The undiscounted estimate on which our accrual is based totals
$20.2 million and is discounted using a 5.0% rate. As of January 1, 2010, there
is $19.4 million included in other noncurrent liabilities and $0.5 million
included in accounts payable and accrued expenses in the Consolidated Balance
Sheets for the Kunia Well Site clean-up. We expect to expend approximately $0.5
million in cash per year for the next five years. Certain portions of the EPA’s
estimates have been discounted using a 5% interest rate.
On
January 13, 2004, the EPA deleted a portion of the Kunia Well Site
(Northeast section) from the NPL. On May 2, 2005, our subsidiary signed a
Consent Decree with the EPA for the performance of the clean-up work for the
Kunia Well Site. On September 27, 2005, the U.S. District Court for Hawaii
approved and entered the Consent Decree. Based on findings from remedial
investigations at the Kunia Well Site, our subsidiary continues to evaluate with
the EPA the clean-up work currently in progress in accordance with the Consent
Decree.
Other
In
addition to the foregoing, we are involved from time to time in various claims
and legal actions incident to our operations, both as plaintiff and defendant.
In the opinion of management, after consulting with legal counsel, none of these
other claims is currently expected to have a material adverse effect on the
results of operations, financial position or our cash flows. We intend to
vigorously defend ourselves in all of the above matters. At this time,
management is not able to evaluate the likelihood of a favorable or unfavorable
outcome in any of the above-described matters. Accordingly, management is not
able to estimate the range or amount of loss, if any, from any of the
above-described matters and no accruals or expenses have been recorded for these
matters as of January 1, 2010, except as related to the Kunia Well
Site.
98
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Derivative
Financial Instruments
Our
derivative financial instruments reduce our exposure to fluctuations in foreign
exchange rates and bunker fuel prices. We predominantly designate our derivative
financial instruments as cash flow hedges.
Counterparty
credit risk exposes us to loss in the event of non-performance on currency
forward contracts and bunker fuel contracts. We monitor our exposure
to counterparty non-performance risk both at inception of the hedge and at least
quarterly thereafter. However, because the contracts are entered into
with highly rated financial institutions, we do not anticipate non-performance
by any of these counterparties. The exposure is usually the amount of
the unrealized gains, if any, in such contracts.
Because
of the high degree of effectiveness between the hedging instrument and the
underlying exposure being hedged, fluctuations in the value of the derivative
instruments are generally offset by changes in the cash flows or fair value of
the underlying exposures being hedged. In addition, we perform an
assessment of hedge effectiveness, both at inception and at least quarterly
thereafter, whether the financial instruments that are used in hedging
transactions are effective at offsetting changes in the cash flows or fair value
of the related underlying exposures. Any ineffective portion of a financial
instrument’s change in fair value is immediately recognized in
earnings.
Certain
of our derivative instruments contain provisions that require the current credit
relationship between the Company and its counterparty to be maintained
throughout the term of the derivative instruments. If that credit
relationship changes, certain provisions could be triggered, and the
counterparty could request immediate collateralization of derivative
instruments. As of January 1, 2010, we did not have any derivative
instruments with a credit-risk-related contingent feature that were in a
liability position.
Foreign
Currency Hedges
We are
exposed to fluctuations in currency exchange rates against the U.S. dollar on
our results of operations and financial condition and we mitigate that exposure
by entering into foreign currency forward contracts. Certain of our
subsidiaries periodically enter into foreign currency forward contracts in order
to hedge portions of forecasted sales or cost of sales denominated in foreign
currencies with forward contracts and options, which generally expire within one
year. Our foreign currency hedges expire at the end of 2010, with the
exception of one contract that will expire at the end of 2011.
We
designate our foreign currency forward contracts as single-purpose cash flow
hedges of forecasted cash flows. Based on our formal assessment of
hedge effectiveness of our foreign currency forward contracts, we determined
that the impact of hedge ineffectiveness was de minimis for the years
ended January 1, 2010, December 26, 2008 and December 28, 2007.
Bunker
Fuel Hedges
We are
exposed to fluctuations in bunker fuel prices on our results of operations and
financial condition and can mitigate that exposure by entering into bunker fuel
swap agreements, which permit us to lock in bunker fuel purchase
prices. One of our subsidiaries has entered into bunker fuel swap
agreements in order to hedge fuel costs incurred via our owned and chartered
vessels. We designate our bunker fuel swap agreements as cash flow
hedges.
Other
Derivative Instruments
During
2008, we entered into derivative instruments not designated as hedging
instruments, also referred to as economic hedges, in order to minimize the
impact of fluctuation in foreign exchange relative to the euro, British pound,
and Japanese yen on our balance sheet. We recognized a net gain of $2.5 million
related to these derivative instruments included in other income (expense), net
in our Consolidated Statements of Income. As of January 1, 2010 and December 26,
2008, we did not have any economic hedges outstanding.
99
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Derivative
Financial Instruments (continued)
We had
the following outstanding foreign currency forward contracts and bunker fuel
swap agreements that were entered into to hedge forecasted cash flows as of
January 1, 2010:
|
Foreign
Currency Hedges:
|
Notional
Amount
|
|||||
|
Euro
|
€ | 165.1 |
million
|
|||
|
British
pound
|
£ | 13.2 |
million
|
|||
|
Japanese
yen
|
JPY |
17,079.4
|
million
|
|||
|
Polish
zloty
|
PLN |
18.6
|
million
|
|||
|
Bunker
Fuel Hedges:
|
||||||
|
3%
U.S. Gulf Coast
|
168,910 |
barrels
|
||||
|
3.5%
Rotterdam Barge
|
29,000 |
metric
tons
|
||||
|
Singapore
|
16,300 |
metric
tons
|
||||
The following table reflects the fair values of derivative instruments as of January 1, 2010 (U.S. dollars in millions):
|
Asset
Derivatives
|
||||||
|
Derivatives
Designated as Hedging
Instruments
(1)(2)
|
Balance
Sheet Location
|
Fair
Value
|
||||
|
Foreign
exchange contracts
|
Prepaid
expenses and other current assets
|
$ | 12.0 | |||
|
Other
noncurrent assets
|
3.3 | |||||
|
Bunker
fuel swap agreements
|
Prepaid
expenses and other current assets
|
4.3 | ||||
|
Total
|
$ | 19.6 | ||||
|
(1)
We expect that $16.3 million and $3.3 million of the fair value of hedges
recognized as a gain in accumulated
other comprehensive income ("AOCI") will be transferred to earnings in
2010 and 2011, respectively.
|
||||||
|
(2)
See Note 17, "Fair Value
Measurements", for fair value disclosures.
|
||||||
100
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Derivative
Financial Instruments (continued)
The
following table reflects the effect of derivative instruments on the
Consolidated Statements of Income for the year ended January 1, 2010 (U.S.
dollars in millions):
|
Derivatives
in Cash Flow Hedging Relationships
|
Amount
of Gain
Recognized
in OCI on
Derivative
(Effective
Portion)
|
Location
of Gain
Reclassified
from
AOCI
into Income
(Effective
Portion)
|
Amount
of Gain
Reclassified
from
AOCI
into Income
(Effective
Portion)
|
||||||
|
Year
ended
|
Year
ended
|
||||||||
|
January
1, 2010
|
January
1, 2010
|
||||||||
|
Foreign
exchange contracts
|
$ | 6.9 |
Net
sales
|
$ | 15.1 | ||||
|
Foreign
exchange contracts
|
2.2 |
Cost
of products sold
|
3.5 | ||||||
|
Bunker
fuel swap agreements
(1)
|
4.3 |
Cost
of products sold
|
- | ||||||
|
Total
|
$ | 13.4 | $ | 18.6 | |||||
|
(1)
The ineffective portion of the gain reclassified from AOCI into income for
the bunker fuel swap agreements was less than
|
|
$0.1
million for the year ended January 1,
2010.
|
20.
Fair Value Measurements
Fair
Value of Derivative Instruments
We
mitigate the risk of fluctuations in currency exchange rates and bunker fuel
prices on our results of operations and financial condition by entering into
foreign currency cash flow hedges and bunker fuel hedges. We account
for the fair value of our derivative financial instruments as either an asset in
other current assets or noncurrent assets or a liability in accrued expenses or
other noncurrent liabilities. We use an income approach to value our
outstanding foreign currency and bunker fuel cash flow hedges. An
income approach consists of a discounted cash flow model that takes into account
the present value of future cash flows under the terms of the contracts using
current market information as of the measurement date such as foreign currency
and bunker fuel spot and forward rates. Additionally, an element of
default risk based on observable inputs was built into the fair value
calculation.
The
following table provides a summary of the fair values of our non-pension
financial assets and liabilities measured on a recurring basis under “Fair Value Measurements and
Disclosures” (U.S. dollars in millions):
|
Fair
Value Measurements at January 1, 2010
|
||||||||||||||||
|
Total
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
Significant
Other
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
|
Foreign
currency hedges, asset
|
$ | 15.3 | $ | - | $ | 15.3 | $ | - | ||||||||
|
Bunker
fuel hedges, asset
|
4.3 | - | 4.3 | - | ||||||||||||
| $ | 19.6 | $ | - | $ | 19.6 | $ | - | |||||||||
101
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
Fair
Value Measurements at December 26, 2008
|
||||||||||||||||
|
Total
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
Significant
Other
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
|
Foreign
currency hedges, asset
|
$ | 7.1 | $ | - | $ | 7.1 | $ | - | ||||||||
|
Bunker
fuel hedges, asset
|
- | - | - | - | ||||||||||||
| $ | 7.1 | $ | - | $ | 7.1 | $ | - | |||||||||
In
estimating our fair value disclosures for financial instruments, we use the
following methods and assumptions:
Cash and cash equivalents:
The carrying amount of these items approximates fair value due to their liquid
nature.
Trade accounts receivable and other
accounts receivable, net: The carrying value reported in the Consolidated
Balance Sheets for these items is net of allowances for doubtful accounts, which
includes a degree of counterparty non-performance risk.
Accounts payable and other current
liabilities: The carrying value reported in the Consolidated Balance
Sheets for these items approximates their fair value, which is the likely amount
for which the liability with short settlement periods would be transferred to a
market participant with a similar credit standing as the Company.
Capital lease obligations:
The carrying value of our capital lease obligations reported in the
Consolidated Balance Sheets approximates their fair value based on current
interest rates, which contain an element of default risk. Refer to
Note 13, “Long-Term Debt and
Capital Lease Obligations”.
Long-term debt: The carrying
value of our long-term debt reported in the Consolidated Balance Sheets
approximates their fair value since they bear interest at variable rates or
fixed rates which contain an element of default risk. Refer to Note
13, “Long-Term Debt and
Capital Lease Obligations”.
|
Fair
Value of Non-Financial Assets
|
|
The
following is a tabular presentation of the long-lived assets held and used
and the indefinite-lived intangible asset measured on a non-recurring
basis along with the level within the fair value hierarchy in which the
fair value measurement in its entirety falls (U.S. dollars in
millions):
|
|
Fair
Value Measurements
|
||||||||||||||||
|
Total
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
Significant
Other
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
|
Long-lived
assets held and used
|
$ | 6.9 | $ | - | $ | - | $ | 6.9 | ||||||||
|
Indefinite-lived
intangible asset
|
5.9 | - | - | 5.9 | ||||||||||||
| $ | 12.8 | $ | - | $ | - | $ | 12.8 | |||||||||
102
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Fair Value Measurements (continued)
|
During
the quarter ended March 27, 2009, we recognized an impairment charge of
$2.0 million related to the DEL MONTE®
indefinite-lived perpetual, royalty-free brand name license due to lower
than expected sales volumes and pricing in the United Kingdom in the
prepared foods segment specifically related to beverage
products. There was no further impairment of the U.K. beverage
licenses for the year ended January 1, 2010. An income-based
approach was used to value the trademark intangible, which measures the
fair value of an intangible asset by capitalizing the royalties saved due
to ownership of the intangible asset rather than paying a rent or royalty
for the use of the asset. This income-based approach referred
to as the royalty savings method utilizes internal unobservable inputs
such as a discounted net sales cash flow model with the application of a
royalty savings rate assumption corroborated by a mix of internal and
market inputs. Due to the weight of the unobservable inputs
used, we classify the fair value of this indefinite-lived intangible asset
within Level 3 of the fair value
hierarchy.
|
Our
trademarks are valued on the basis of prepared products, specifically beverage
produced and sold in the United Kingdom with a trademark carrying value at
January 1, 2010 of $6.7 million and all other prepared products with a trademark
carrying value at January 1, 2010 of $63.6 million.
We
recorded $10.5 million in asset impairment charges resulting from our decision
in May 2009 to discontinue pineapple planting in Brazil and our subsequent
decision, during the third quarter, to not use certain property, plant and
equipment as originally intended for other crop production. The
carrying value of these assets was $17.4 million and was written down to a fair
value of $6.9 million. We estimated the fair value of the underlying
assets by using a combination of the market approach and the cost
approach. The cost approach is based on the amount that currently
would be required to replace the service capacity of the assets. The
market approach uses prices and other relevant information generated by market
transactions involving comparable assets. We used a combination of
observable inputs primarily based on appraisals and unobservable inputs using
market participant assumptions to estimate the fair value of the underlying
assets. Due to the weight of the unobservable inputs used, we
classify the fair value of these long-lived assets within Level 3 of the fair
value hierarchy.
21.
Related Party Transactions
We
purchase goods and services from unconsolidated subsidiaries in the ordinary
course of business. See Note 6, “Investments in Unconsolidated
Companies.”
At
January 1, 2010 and December 26, 2008 there were $0.2 million and $0.1 million,
respectively, of receivables from related parties, which are included in trade
accounts receivable.
During
2009, 2008 and 2007, we received cash of $11.1 million, $6.3 million, and $3.5
million, respectively, from one of our noncontrolling interests for capital
expansion. We have reflected the cash in contributions from
noncontrolling interests under financing activities in the Consolidated
Statements of Cash Flows. We have $20.9 million and $9.8 million in
other noncurrent liabilities in our Consolidated Balance Sheets related to one
of our noncontrolling interests as of January 1, 2010 and December 26, 2008,
respectively.
Sales to
Ahmed Abu-Ghazaleh & Sons Company (“AAG”), a related party through common
ownership, were $8.0 million in 2007. On February 1, 2007, we ceased using
AAG as a distributor in Abu Dhabi and other locations in the UAE and began
direct distribution.
During
2009 and 2008, we incurred expenses of approximately $1.5 million and $2.0
million, respectively, for air transportation services for chartering of an
aircraft that was indirectly owned by our Chairman and Chief Executive Officer.
There were no expenses incurred during 2007 for air transportation services for
chartering this aircraft.
103
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22.
Unaudited Quarterly Financial Information
Our
fiscal quarter-ends correspond to the last Friday of the 13-week period,
beginning the day following our fiscal year end. Our fourth quarter ended
January 1, 2010, however, consisted of a 14-week period. The
following summarizes certain quarterly operating data (U.S. dollars in millions,
except per share data):
| Quarter ended | ||||||||||||||||
|
March
27,
2009
|
June
26,
2009
|
September
25,
2009
|
January
1,
2010
|
|||||||||||||
|
Net
sales
|
$ | 879.7 | $ | 978.4 | $ | 766.2 | $ | 872.1 | ||||||||
|
Gross
profit
|
83.8 | 91.0 | 69.0 | 67.0 | ||||||||||||
|
Net
income attributable to Fresh Del Monte
Produce
Inc.
|
34.9 | 52.2 | 28.6 | 28.2 | ||||||||||||
|
Net
income per share – basic (a)
|
$ | 0.55 | $ | 0.82 | $ | 0.45 | $ | 0.44 | ||||||||
|
Net
income per share – diluted (a)
|
$ | 0.55 | $ | 0.82 | $ | 0.45 | $ | 0.44 | ||||||||
|
March
28,
2008
|
June
27,
2008
|
September
26,
2008
|
December
26,
2008
|
|||||||||||||
|
Net
sales
|
$ | 894.9 | $ | 972.2 | $ | 832.9 | $ | 831.0 | ||||||||
|
Gross
profit
|
96.9 | 99.6 | 79.0 | 68.5 | ||||||||||||
|
Net
income attributable to Fresh Del Monte
Produce
Inc.
|
63.6 | 41.9 | 29.3 | 22.9 | ||||||||||||
|
Net
income per share – basic (a)
|
$ | 1.01 | $ | 0.66 | $ | 0.46 | $ | 0.36 | ||||||||
|
Net
income per share – diluted (a)
|
$ | 1.00 | $ | 0.66 | $ | 0.46 | $ | 0.36 | ||||||||
|
(a)
|
Basic
and diluted earnings per share for each of the quarters presented above is
based on the respective weighted average number of shares for the
quarters. The sum of the quarters may not necessarily be equal to the full
year basic and diluted earnings per share amounts due to the effects of
rounding.
|
23.
Business Segment Data
We are
principally engaged in one major line of business, the production, distribution
and marketing of bananas, other fresh produce and prepared food. Our products
are sold in markets throughout the world, with our major producing operations
located in North, Central and South America, Europe, Asia and
Africa.
Our
operations are aggregated on the basis of our products: bananas, other fresh
produce, prepared foods, and other products and services. Other fresh produce
includes pineapples, melons, non-tropical fruit (including grapes, apples,
pears, peaches, plums, nectarines, apricots, avocados, citrus and kiwis),
fresh-cut products, tomatoes, strawberries, and other fruit and vegetables.
Prepared foods include prepared fruit and vegetables, juices, beverages, snacks,
and a poultry and processed meat business. Other products and services include a
third-party ocean freight business, a plastic product business and grain
business. We reclassified our poultry and meat operations from the other
products and services segment to the prepared food segment for the year ending
December 28, 2007 to conform to the current presentation.
104
FRESH
DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23.
Business Segment Data (continued)
We
evaluate performance based on several factors of which gross profit by product
and net sales by geographic region are the primary financial measures (U.S.
dollars in millions):
|
Year
ended
|
||||||||||||||||||||||||
|
January 1, 2010
|
December 26, 2008
|
December 28, 2007
|
||||||||||||||||||||||
|
Net Sales
|
Gross Profit
|
Net Sales
|
Gross Profit
|
Net Sales
|
Gross Profit
|
|||||||||||||||||||
|
Banana
|
$ | 1,510.9 | $ | 108.7 | $ | 1,420.2 | $ | 117.7 | $ | 1,199.0 | $ | 61.0 | ||||||||||||
|
Other
fresh produce
|
1,551.5 | 148.7 | 1,559.8 | 171.1 | 1,614.9 | 240.5 | ||||||||||||||||||
|
Prepared
food
|
337.4 | 52.2 | 412.4 | 51.9 | 429.4 | 59.7 | ||||||||||||||||||
|
Other
products and services
|
96.6 | 1.2 | 138.6 | 3.3 | 122.2 | 3.7 | ||||||||||||||||||
|
Totals
|
$ | 3,496.4 | $ | 310.8 | $ | 3,531.0 | $ | 344.0 | $ | 3,365.5 | $ | 364.9 | ||||||||||||
|
Year
ended
|
||||||||||||
|
January
1,
|
December
26,
|
December
28,
|
||||||||||
|
Net
sales by geographic region:
|
2010
|
2008
|
2007
|
|||||||||
|
North
America
|
$ | 1,675.9 | $ | 1,633.1 | $ | 1,530.2 | ||||||
|
Europe
|
995.2 | 1,081.4 | 1,113.6 | |||||||||
|
Asia
|
420.2 | 408.1 | 374.8 | |||||||||
|
Middle
East
|
314.1 | 275.8 | 228.2 | |||||||||
|
Other
|
91.0 | 132.6 | 118.7 | |||||||||
|
Total
net sales
|
$ | 3,496.4 | $ | 3,531.0 | $ | 3,365.5 | ||||||
|
January
1,
|
December
26,
|
|||||||
|
Property,
plant and equipment, net:
|
2010
|
2008
|
||||||
|
North
America
|
$ | 79.6 | $ | 88.5 | ||||
|
Europe
|
86.9 | 97.8 | ||||||
|
Middle
East
|
156.1 | 132.7 | ||||||
|
Africa
|
38.6 | 40.3 | ||||||
|
Asia
|
43.9 | 47.2 | ||||||
|
Central
and South America
|
617.6 | 624.6 | ||||||
|
Maritime
equipment (including containers)
|
31.3 | 36.0 | ||||||
|
Corporate
|
14.6 | 18.1 | ||||||
|
Total
property, plant and equipment, net
|
$ | 1,068.5 | $ | 1,085.2 | ||||
105
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23.
Business Segment Data (continued)
|
January
1,
|
December
26,
|
|||||||
|
Identifiable
assets:
|
2010
|
2008
|
||||||
|
North
America
|
$ | 354.7 | $ | 354.4 | ||||
|
Europe
|
479.7 | 512.4 | ||||||
|
Middle
East
|
252.3 | 220.6 | ||||||
|
Africa
|
132.9 | 114.6 | ||||||
|
Asia
|
145.5 | 158.9 | ||||||
|
Central
and South America
|
1,064.6 | 1,112.8 | ||||||
|
Maritime
equipment (including containers)
|
65.1 | 96.5 | ||||||
|
Corporate
|
101.2 | 80.8 | ||||||
|
Total
identifiable assets
|
$ | 2,596.0 | $ | 2,651.0 | ||||
Our
earnings are heavily dependent on operations located worldwide. These operations
are a significant factor in the economies of some of the countries in which we
operate and are subject to the risks that are inherent in operating in such
countries, including government regulations, currency and ownership restrictions
and risk of expropriation. Management reviews assets on the basis of geographic
region, which more closely aligns our capital investment with demand for our
products.
One
customer accounted for approximately 13% of net sales in 2009 and 2008,
respectively, and 15% of net sales in 2007. These sales are reported in the
banana and other fresh produce segments. No other customer accounted for 10% or
more of our net sales. In 2009, the top 10 customers accounted for approximately
34% of net sales as compared with 36% of our net sales during 2008 and 2007,
respectively. Identifiable assets by geographic area represent those assets used
in the operations of each geographic area. Corporate assets consist of goodwill,
building, leasehold improvements and furniture and fixtures.
24.
Shareholders’ Equity
Our
shareholders have authorized 50,000,000 preferred shares at $0.01 par value of
which none has been issued or is outstanding. Our shareholders have authorized
200,000,000 Ordinary Shares of common stock of which 63,615,411 have been issued
and are outstanding.
On July
31, 2009, our Board of Directors approved a three-year stock repurchase program
of up to $150 million of our Ordinary Shares.
During
November 2007, we sold 4,222,000 of our Ordinary Shares. We used $117.1 million
of the total net proceeds of $117.5 million to repay indebtedness outstanding
under the Credit Facility.
25.
Subsequent Event
On
February 27, 2010, Chile experienced an earthquake of significant magnitude that
caused widespread damage in the central part of the country, including Santiago,
where our South American regional headquarters is located. Our
preliminary assessment revealed no significant damage to our
facilities. However, we are still assessing the earthquake’s effects
on our operations and our ability to export fruit from Chile. At this
time, we are not able to determine the effect on our financial condition or
results of operations due to this event.
106
|
Fresh
Del Monte Produce Inc. and Subsidiaries
|
||||||||||||||||||||
|
(U.S.
Dollars in millions)
|
||||||||||||||||||||
|
Col.
A
|
Col.
B
|
Col.
C
|
Col.
D
|
Col.
E
|
||||||||||||||||
|
Additions
|
||||||||||||||||||||
|
Description
|
Balance
at
Beginning
of
Period
|
Charged
to
Costs
and
Expenses
|
Charged
to
Other
Accounts
|
Deductions
|
Balance
at
End
of
Period
|
|||||||||||||||
|
Year
ended January 1, 2010:
|
||||||||||||||||||||
|
Deducted
from asset accounts:
|
||||||||||||||||||||
|
Valuation
accounts:
|
||||||||||||||||||||
|
Trade
accounts receivable
|
$ | 15.8 | $ | 2.8 | $ | - | $ | (6.7 | ) | $ | 11.9 | |||||||||
|
Advances
to growers and other receivables
|
14.0 | 0.8 | - | (0.7 | ) | 14.1 | ||||||||||||||
|
Deferred
tax asset valuation allowance
|
208.3 | - | - | (34.3 | ) | 174.0 | ||||||||||||||
|
Accrued
liabilities:
|
||||||||||||||||||||
|
Provision
for Kunia Well Site
|
20.1 | 0.6 | - | (0.9 | ) | 19.8 | ||||||||||||||
|
Total
|
$ | 258.2 | $ | 4.2 | $ | - | $ | (42.6 | ) | $ | 219.8 | |||||||||
|
Year
ended December 26, 2008:
|
||||||||||||||||||||
|
Deducted
from asset accounts:
|
||||||||||||||||||||
|
Valuation
accounts:
|
||||||||||||||||||||
|
Trade
accounts receivable
|
$ | 20.4 | $ | 1.9 | $ | (2.9 | ) | $ | (3.6 | ) | $ | 15.8 | ||||||||
|
Advances
to growers and other receivables
|
14.6 | 3.0 | (0.2 | ) | (3.4 | ) | 14.0 | |||||||||||||
|
Deferred
tax asset valuation allowance
|
194.9 | 2.0 | 12.4 | (1.0 | ) | 208.3 | ||||||||||||||
|
Accrued
liabilities:
|
||||||||||||||||||||
|
Provision
for Kunia Well Site
|
21.7 | 0.6 | - | (2.2 | ) | 20.1 | ||||||||||||||
|
Total
|
$ | 251.6 | $ | 7.5 | $ | 9.3 | $ | (10.2 | ) | $ | 258.2 | |||||||||
|
Year
ended December 28, 2007:
|
||||||||||||||||||||
|
Deducted
from asset accounts:
|
||||||||||||||||||||
|
Valuation
accounts:
|
||||||||||||||||||||
|
Trade
accounts receivable
|
$ | 25.4 | $ | (1.4 | ) | $ | (0.1 | ) | $ | (3.5 | ) | $ | 20.4 | |||||||
|
Advances
to growers and other receivables
|
23.2 | 4.7 | (0.3 | ) | (13.0 | ) | 14.6 | |||||||||||||
|
Deferred
tax asset valuation allowance
|
276.0 | (49.8 | ) | (3.4 | ) | (27.9 | ) | 194.9 | ||||||||||||
|
Accrued
liabilities:
|
||||||||||||||||||||
|
Provision
for Kunia Well Site
|
22.3 | 0.8 | - | (1.4 | ) | 21.7 | ||||||||||||||
|
Total
|
$ | 346.9 | $ | (45.7 | ) | $ | (3.8 | ) | $ | (45.8 | ) | $ | 251.6 | |||||||
107
|
Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure
|
None.
|
Controls
and Procedures
|
We
carried out an evaluation, under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures as of January 1, 2010. Based upon this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of such date to ensure that
information required to be disclosed in the reports the Company files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission rules and forms. Such officers also confirm that there was no change
in our internal control over financial reporting during the year ended January
1, 2010 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
See Management’s Annual Report on
Internal Control Over Financial Reporting included in Item
8. Financial
Statements and Supplementary Data.
|
Other
Information
|
None.
108
|
Directors,
Executive Officers and Corporate
Governance
|
Information
required by Item 10 of Part III of this Annual Report on Form 10-K will be
included in our definitive Proxy Statement relating to our 2010 Annual General
Meeting of Shareholders with respect to directors, executive officers, audit
committee financial experts of the Company and Section 16(a) beneficial
ownership reporting compliance, is incorporated herein by reference in response
to this item.
Code
of Ethics
We have
adopted a Code of Conduct and Business Ethics Policy (“Code of Conduct”) that
applies to our principal executive officer, principal financial officer and
principal accounting officer as well as all our directors, other officers and
employees. This Code of Conduct can be found on our Web site at www.freshdelmonte.com. We have not
waived the requirements of the Code of Conduct for any directors or executive
officers and there have been no amendments in 2009.
|
Executive
Compensation
|
Information
required by Item 11 of Part III of this Annual Report on Form 10-K will be
included in our definitive Proxy Statement relating to our 2010 Annual General
Meeting of Shareholders with respect to executive compensation, is incorporated
herein by reference in response to this item.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
Information
required by Item 12 of Part III of this Annual Report on Form 10-K will be
included in our definitive Proxy Statement relating to our 2010 Annual General
Meeting of Shareholders with respect to security ownership of certain beneficial
owners and management and securities authorized for issuance under equity
compensation plans, is incorporated herein by reference in response to this
item.
|
Certain
Relationships and Related
Transactions
|
Information
required by Item 13 of Part III of this Annual Report on Form 10-K will be
included in our definitive Proxy Statement relating to our 2010 Annual General
Meeting of Shareholders with respect to certain relationships and related
transactions and director independence, is incorporated herein by reference in
response to this item.
|
Principal
Accountant Fees and Services
|
Information
required by Item 14 of Part III of this Annual Report on Form 10-K will be
included in our definitive Proxy Statement relating to our 2010 Annual General
Meeting of Shareholders with respect to principal accountant fees and services,
is incorporated by reference in response to this item.
109
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
Consolidated
Statements and Other Financial Information
The
following financial statements and supplemental schedule of Fresh Del Monte
Produce Inc. and its subsidiaries are included in Item 8. Financial Statements and
Supplementary Data of this Report:
Consolidated
Financial Statements
|
Report
of Independent Registered Public Accounting Firm on Consolidated Financial
Statements
|
|
Consolidated
Balance Sheets at January 1, 2010 and December 26, 2008
|
|
Consolidated
Statements of Income for the years ended January 1, 2010, December 26,
2008 and December 28, 2007
|
|
Consolidated
Statements of Cash Flows for the years ended January 1, 2010, December 26,
2008 and December 28, 2007
|
|
Consolidated
Statements of Shareholders’ Equity for the years ended January 1, 2010,
December 26, 2008 and December 28, 2007
|
|
Notes
to Consolidated Financial
Statements
|
Supplemental
Financial Statement Schedule
Schedule
II - Valuation and Qualifying Accounts
Exhibits
The
exhibits listed below on pages 110 to 114 of this Report are incorporated in
this Report by reference, except for those indicated by “*” which are filed
herewith (see accompanying Exhibit Index)
|
Exhibit No.
|
Description
|
|
|
3.1
|
Amended
and Restated Memorandum of Association of Fresh Del Monte Produce Inc.
(incorporated by reference to Exhibit 3.6 to our Registration Statement on
Form F-1 (File No. 333-7708)).
|
|
|
3.2
|
Amended
and Restated Articles of Association of Fresh Del Monte Produce Inc.
(incorporated by reference to Exhibit 3.7 to our Registration Statement on
Form F-1 (File No. 333-7708)).
|
|
|
3.3
|
Specimen
Certificate of Ordinary Shares of Fresh Del Monte Produce Inc.
(incorporated by reference to Exhibit 4.1 to our Registration Statement on
Form F-1 (File No. 333-7708)).
|
|
|
4.1
|
$350,000,000
Revolving Credit Agreement, dated as of May 19, 1998, among Del Monte
Fresh Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce
International Inc., Del Monte Fresh Produce N.A., Inc., Fresh Del Monte
Produce Inc. and Global Reef Carriers Ltd. as Borrowers, the Initial
Lenders, Initial Issuing Bank and Swing Line Bank, as Initial Lenders,
Initial Issuing Bank and Swing Line Bank, and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland,” New York Branch, as
Administrative Agent and Collateral Agent (incorporated by reference to
Exhibit 2.1 to our 1998 Annual Report on Form 20-F).
|
|
|
4.2
|
Amendment
and Consent, dated as of December 15, 1998, to the Revolving Credit
Agreement, among Del Monte Fresh Produce (UK) Ltd., Wafer Limited, Del
Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A.,
Inc., Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., the
banks, financial institutions and other institutional lenders a party to
the Revolving Credit Agreement (incorporated by reference to Exhibit 2.2
to our 1998 Annual Report on Form 20-F).
|
|
|
4.3
|
Second
Amendment, dated as of January 5, 1999, to the Revolving Credit Agreement,
among Del Monte Fresh Produce (UK) Ltd., Wafer Limited, Del Monte Fresh
Produce International Inc., Del Monte Fresh Produce N.A., Inc., Fresh Del
Monte Produce Inc., Global Reefer Carriers, Ltd., and Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland,” New York
Branch, as agent for the other banks, financial institutions and other
institutional lenders party to the Revolving Credit Agreement
(incorporated by reference to Exhibit 2.3 to our 1998 Annual Report on
Form 20-F).
|
110
|
Exhibit No.
|
Description
|
|
|
4.4
|
Amendment
and Consent, dated as of January 8, 1999, to the Revolving Credit
Agreement, among Del Monte Fresh Produce (UK) Ltd., Wafer Limited, Del
Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A.,
Inc., Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., the
banks, financial institutions and other institutional lenders a party to
the Revolving Credit Agreement (incorporated by reference to Exhibit 2.4
to our 1998 Annual Report on Form 20-F).
|
|
|
4.5
|
Fourth
Amendment and Consent, dated as of May 1999, among Del Monte Fresh Produce
(UK) Ltd., Wafer Limited, Del Monte Fresh Produce International Inc., Del
Monte Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc., Global
Reefer Carriers, Ltd., the banks, financial institutions and other
institutional lenders a party to the Revolving Credit Agreement dated as
of May 19, 1998 (incorporated by reference to Exhibit 2.1 to our 1999
Annual Report on Form 20-F).
|
|
|
4.6
|
Fifth
Amendment and Consent, dated as of May 1999, among Del Monte Fresh Produce
(UK) Ltd., Wafer Limited, Del Monte Fresh Produce International Inc., Del
Monte Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc., Global
Reefer Carriers, Ltd., the Increasing Lenders therein and Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland,” New York
Branch, as agent for the other banks, financial institutions and other
institutional lenders a party to the Revolving Credit Agreement dated as
of May 19, 1998 (incorporated by reference to Exhibit 2.2 to our 1999
Annual Report on Form 20-F).
|
|
|
4.7
|
Sixth
Amendment and Consent, dated as of June 1999, among Del Monte Fresh
Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce International
Inc., Del Monte Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc.,
Global Reefer Carriers, Ltd., the Increasing Lenders therein and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank
Nederland,” New York Branch, as agent for the other banks, financial
institutions and other institutional lenders a party to the Revolving
Credit Agreement dated as of May 19, 1998 (incorporated by reference to
Exhibit 2.3 to our 1999 Annual Report on Form 20-F).
|
|
|
4.8
|
Seventh
Amendment and Consent, dated as of July 1999, among Del Monte Fresh
Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce International
Inc., Del Monte Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc.,
Global Reefer Carriers, Ltd., the Increasing Lenders therein and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank
Nederland,” New York Branch, as agent for the other banks, financial
institutions and other institutional lenders a party to the Revolving
Credit Agreement dated as of May 19, 1998 (incorporated by reference
to Exhibit 2.4 to our 1999 Annual Report on Form 20-F).
|
|
|
4.9
|
Eighth
Amendment, dated as of October 29, 1999, among Fresh Produce (UK)
Ltd., Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte
Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc., Global Reefer
Carriers, Ltd., the banks, financial institutions and other institutional
lenders a party to the Revolving Credit Agreement dated as of May 19,
1998 (incorporated by reference to Exhibit 4.17 to our 2000 Annual Report
on Form 20-F).
|
|
|
4.10
|
Ninth
Amendment and Consent, dated as of May 10, 2000, among Del Monte Fresh
Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce International
Inc., Del Monte Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc.,
Global Reefer Carriers, Ltd., the banks, financial institutions and other
institutional lenders a party to the Revolving Credit Agreement, dated as
of May 19, 1998 (incorporated by reference to Exhibit 4.18 to our 2000
Annual Report on Form 20-F).
|
|
|
4.11
|
Tenth
Amendment and Consent, dated as of September 25, 2000, among Del Monte
Fresh Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce
International Inc., Del Monte Fresh Produce N.A., Inc., Fresh Del Monte
Produce Inc., Global Reefer Carriers, Ltd., banks, financial institutions
and other institutional lenders a party to the Revolving Credit Agreement,
dated as of May 19, 1998 (incorporated by reference to Exhibit 4.19 to our
2000 Annual Report on Form 20-F).
|
|
|
4.12
|
Eleventh
Amendment and Consent, dated as of November 15, 2002, among Del Monte
Fresh Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce
International Inc., Del Monte Fresh Produce N.A., Inc., Fresh Del Monte
Produce Inc., Global Reefer Carriers, Ltd., banks, financial institutions
and other institutional lenders a party to the Revolving Credit Agreement,
dated as of May 19, 1998 (incorporated by reference to Exhibit 2.12 to our
2002 Annual Report on Form 20-F).
|
|
|
10.1
|
License
Agreement, dated as of December 5, 1989, between Del Monte Corporation and
Wafer Limited (the “DMC-Wafer License”) (incorporated by reference to
Exhibit 10.3 to our Registration Statement on Form F-1 (File No.
333-7708)).
|
111
|
10.2
|
License
Agreement, dated as of December 5, 1989, between Del Monte Corporation and
Del Monte Tropical Fruit Company, North America (the “NAJ License”)
(incorporated by reference to Exhibit 10.4 to our Registration Statement
on Form F-1 (File No. 333-7708)).
|
|
|
10.3
|
License
Agreement, dated as of December 5, 1989, between Del Monte
Corporation and Del Monte Fresh Fruit International, Inc. (incorporated by
reference to Exhibit 10.5 to our Registration Statement on Form F-1 (File
No. 333-7708)).
|
|
|
10.4
|
Amendment
No. 1 to DMC-Wafer License, dated as of October 12, 1992, between Del
Monte Corporation and Wafer Limited (incorporated by reference to Exhibit
10.6 to our Registration Statement on Form F-1 (File No.
333-7708)).
|
|
|
10.5
|
Amendment
No. 1 to NAJ License, dated as of October 12, 1992, between Del Monte
Corporation and Del Monte Fresh Produce N.A., Inc. (incorporated by
reference to Exhibit 10.7 to our Registration Statement on Form F-1 (File
No. 333-7708)).
|
|
|
10.6
|
Amendment
No. 1 to Direct DMC-DMFFI License, dated as of October 12, 1992, between
Del Monte Corporation and Del Monte Fresh Produce International, Inc.
(incorporated by reference to Exhibit 10.8 to our Registration Statement
on Form F-1 (File No. 333-7708)).
|
|
|
10.7
|
Registration
Rights Agreement, dated as of October 15, 1997, by and between Fresh Del
Monte and FG Holdings Limited (incorporated by reference to Exhibit 10.9
to our Registration Statement on Form F-1 (File No.
333-7708)).
|
|
|
10.8
|
Strategic
Alliance Agreement, dated as of August 29, 1997, by and between the
Registrant and IAT Group Inc. (incorporated by reference to Exhibit 10.10
to our Registration Statement on Form F-1 (File No. 333-7708)).
|
|
|
10.9
|
Fresh
Del Monte Produce Inc. 1997 Share Incentive Plan (incorporated by
reference to Exhibit 4.1 to the Company’s Registration Statement on Form
S-8 (File No. 333-7870)).**
|
|
|
10.10
|
Fresh
Del Monte Produce Inc. Post-Effective Amendment No. 1 to Form S-8 (File
No. 333-7870).**
|
|
|
10.11
|
Amended
and Restated Fresh Del Monte Produce Inc. 1999 Share Incentive Plan,
effective as of April 30, 2008 (reflects Amendment No. 1, dated
May 1, 2002, Amendments No. 2 through 5 dated April 27, 2005 and
Amendment No. 6 dated April 30, 2008) (incorporated by reference to
Exhibit 10.1 to our Second Quarter 2008 Report on Form
10-Q).**
|
|
|
10.12
|
Fresh
Del Monte Produce Inc. Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.1 to our First Quarter 2008 Report on Form
10-Q).**
|
|
|
10.13
|
2003
Performance Incentive Plan for Chairman & CEO (incorporated by
reference to Exhibit 10.2 to our First Quarter 2008 Report on Form
10-Q).**
|
|
|
10.14
|
2004
Performance Incentive Plan for Senior Executives (incorporated by
reference to Exhibit 10.3 to our First Quarter 2008 Report on Form
10-Q).**
|
|
|
10.15
|
Executive
Retention and Severance Agreement (Chairman & CEO) (incorporated by
reference to Exhibit 10.4 to our First Quarter 2008 Report on Form
10-Q).**
|
112
|
10.16
|
Executive
Retention and Severance Agreement (President & COO) (incorporated by
reference to Exhibit 10.5 to our First Quarter 2008 Report on Form
10-Q).**
|
|
|
10.17
|
Employment
Agreement for President & COO (incorporated by reference to Exhibit
10.6 to our First Quarter 2008 Report on Form 10-Q).**
|
|
|
10.18
|
Standard
Fruit and Vegetable Co., Inc. Stock Purchase Agreement, dated as of
January 27, 2003, between Del Monte Fresh Produce N.A., Inc and Standard
Fruit and Vegetable Co., Inc. et al. (incorporated by reference to Exhibit
4.13 to our 2002 Annual Report on Form 20-F).
|
|
|
10.19
|
Stock
purchase agreement, dated as of June 6, 2008, among Northsound
Corporation, Red Crown Development Inc. and JAS Investments Corp., as
Sellers and Del Monte (Pinabana) Corp. as Purchaser (incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on June 9, 2008).
|
|
|
10.20
|
Amended
and Restated Credit Agreement, dated as of March 21, 2003, by and among
Fresh Del Monte Produce Inc. and certain subsidiaries named herein, as
borrowers, the lenders named herein, as lenders, Harris Trust and Savings
Bank, as syndication agent, ING Capital LLC, as documentation agent and
Cooperatieve Centrale Raiffeisen-Bocrenleenbank B.A., “Rabobank Nederland”
New York Branch as administrative agent (incorporated by reference to
Exhibit 2.13 to our First Quarter 2003 Report on Form
6-K).
|
|
|
10.21
|
First
Amendment to Amended and Restated Credit Agreement, effective as of
January 27, 2004 (incorporated by reference to Exhibit 4.15 of our Annual
Report on Form 20-F for the year ended December 26,
2003).
|
|
|
10.22
|
Second
Amendment to Amended and Restated Credit Agreement, effective as of June
24, 2004 (incorporated by reference to Exhibit 4.16 of our Annual Report
on Form 20-F/A for the year ended December 31, 2004).
|
|
|
10.23
|
Third
Amendment to Amended and Restated Credit Agreement, dated as of November
9, 2004 (incorporated by reference to Exhibit 4.17 of our Annual Report on
Form 20-F/A for the year ended December 31,
2004).
|
|
|
10.24
|
Preliminary
Sale and Purchase Agreement, between Cirio Del Monte N.V., Cirio Del Monte
Italia S.p.A. and Fresh Del Monte Produce N.V., dated July 15, 2004
(incorporated by reference to Exhibit 4.18 of our Annual Report on Form
20-F/A for the year ended December 31, 2004).
|
|
|
10.25
|
Fourth
Amendment to Amended and Restated Credit Agreement, dated as of June 15,
2005 (incorporated by reference to Exhibit 4.19 of our Annual Report on
Form 20-F for the year ended December 30, 2005).
|
|
|
10.26
|
Fifth
Amendment to Amended and Restated Credit Agreement, dated as of February
14, 2006 (incorporated by reference to Exhibit 4.20 of our Annual Report
on Form 20-F for the year ended December 30, 2005).
|
|
|
10.27
|
Sixth
Amendment to Amended and Restated Credit Agreement, dated as of March 24,
2006 (incorporated by reference to Exhibit 4.21 of our Annual Report on
Form 20-F for the year ended December 29, 2006).
|
|
|
10.28
|
Seventh
Amendment to Amended and Restated Credit Agreement, dated as of May 10,
2006 (incorporated by reference to Exhibit 4.22 of our Annual Report on
Form 20-F for the year ended December 29, 2006).
|
|
|
10.29
|
Eighth
Amendment to Amended and Restated Credit Agreement, dated as of December
27, 2006 (incorporated by reference to Exhibit 4.23 of our Annual Report
on Form 20-F for the year ended December 29, 2006).
|
|
|
10.30
|
Ninth
Amendment to Amended and Restated Credit Agreement, dated as of May 30,
2008 (incorporated by reference to Exhibit 10.3 to our Second Quarter 2008
Report on Form 10-Q).
|
|
|
10.31
|
Second
Amended and Restated Credit Agreement, dated as of July 17,
2009 (incorporated by reference to Exhibit 10.1 of our Current Report
on Form 8-K filed on July 20, 2009).
|
|
|
10.32
|
First
Amendment to Second Amended and Restated Credit Agreement, dated as of
October 8, 2009 (incorporated by reference to Exhibit 10.2 of our Third
Quarter 2009 Report on Form 10-Q).
|
|
|
21.1
|
List
of Subsidiaries.*
|
113
|
23.1
|
Consent
of Independent Registered Public Accounting Firm.*
|
|
|
31.1
|
Certification
of Chief Executive Officer filed pursuant to 17 CFR
240.13a-14(a).*
|
|
|
31.2
|
Certification
of Chief Financial Officer filed pursuant to 17 CFR
240.13a-14(a).*
|
|
|
32
|
Certifications
of Chief Executive Officer and Chief Financial Officer furnished pursuant
to 17 CFR 240.13a-14(b) and 18 U.S.C. Section
1350.*
|
|
*
|
Filed
herewith
|
|
**Management
contract or compensatory plan or
arrangement
|
114
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
FRESH
DEL MONTE PRODUCE INC.
|
||
|
Date:
March 2, 2010
|
By:
|
/s/
Hani El-Naffy
|
|
Hani
El-Naffy
|
||
|
President,
Director and Chief Operating Officer
|
||
|
Date:
March 2, 2010
|
By:
|
/s/
Richard Contreras
|
|
Richard
Contreras
Senior
Vice President and Chief Financial
Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated below on the 2nd day
of March, 2010:
|
/s/
Mohammad Abu-Ghazaleh
|
||
|
By
|
Mohammad
Abu-Ghazaleh
|
|
|
Chairman
and Chief Executive Officer
(Principal
Executive Officer)
|
||
|
/s/
Hani El-Naffy
|
||
|
By
|
Hani
El-Naffy
|
|
|
President,
Director and Chief Operating Officer
|
||
|
/s/
Richard Contreras
|
||
|
By
|
Richard
Contreras
|
|
|
Senior
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
|
||
|
/s/
Salvatore H. Alfiero
|
||
|
By
|
Salvatore
H. Alfiero
|
|
|
Director
|
||
|
/s/
Michael J. Berthelot
|
||
|
By
|
Michael
J. Berthelot
|
|
|
Director
|
||
|
/s/
Edward L. Boykin
|
||
|
By
|
Edward
L. Boykin
|
|
|
Director
|
||
|
/s/
Madeleine Champion
|
||
|
By
|
Madeleine
Champion
|
|
|
Director
|
||
|
/s/
John H. Dalton
|
||
|
By
|
John
H. Dalton
|
|
|
Director
|
||
|
/s/
Elias K. Hebeka
|
||
|
By
|
Dr.
Elias K. Hebeka
|
|
|
Director
|
||
|
/s/
Amir Abu-Ghazaleh
|
||
|
By
|
Amir
Abu-Ghazaleh
|
|
|
Director
|
115
|
Exhibit No.
|
Description
|
|
|
21.1
|
List
of Subsidiaries.
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm.
|
|
|
31.1
|
Certification
of Chief Executive Officer filed pursuant to 17 CFR
240.13a-14(a).
|
|
|
31.2
|
Certification
of Chief Financial Officer filed pursuant to 17 CFR
240.13a-14(a).
|
|
|
32
|
Certifications
of Chief Executive Officer and Chief Financial Officer furnished pursuant
to 17 CFR 240.13a-14(b) and 18 U.S.C. Section
1350.
|
116