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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarter ended June 29, 2001
FRESH DEL MONTE PRODUCE INC.
(Exact Name of Registrant as Specified in Its Charter)
THE CAYMAN ISLANDS
(State or Other Jurisdiction of
Incorporation or Organization)
C/O DEL MONTE FRESH PRODUCE COMPANY
800 DOUGLAS ROAD
NORTH TOWER, 12TH FLOOR
CORAL GABLES, FLORIDA 33134
(Address of Registrant's Principal Executive Offices)
[Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.]
Form 20-F [X] Form 40-F [ ]
[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.]
Yes [ ] No [X]
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN MILLIONS)
JUNE 29, DECEMBER 29,
2001 2000
-------- -------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents $ 9.8 $ 10.6
Trade accounts receivable, net of allowance of $13.6 and
$12.5, respectively 142.8 142.7
Advances to growers and other receivables, net of allowance
of $5.8 and $4.9, respectively 48.6 56.3
Inventories 180.8 188.8
Prepaid expenses and other current assets 16.2 6.5
-------- --------
Total current assets 398.2 404.9
-------- --------
Investments in unconsolidated companies 42.9 51.7
Property, plant and equipment, net 673.5 635.6
Other noncurrent assets 41.6 47.9
Goodwill, net of accumulated amortization of $11.0 and $9.3,
respectively 79.6 81.5
-------- --------
Total assets $1,235.8 $1,221.6
======== ========
See accompanying notes
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS (CONTINUED)
(U.S. DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
JUNE 29, DECEMBER 29,
2001 2000
----------- -------------
UNAUDITED
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 6.1 $ 0.4
Accounts payable and accrued expenses 210.9 187.1
Current portion of long-term debt and capital lease
obligations 49.8 51.1
Income taxes payable 18.7 9.4
-------- --------
Total current liabilities 285.5 248.0
-------- --------
Long-term debt 308.9 416.6
Capital lease obligations 17.7 17.4
Retirement benefits 54.5 53.2
Other noncurrent liabilities 10.2 9.6
Deferred income taxes 8.5 8.5
-------- --------
Total liabilities 685.3 753.3
-------- --------
Minority interest 11.8 11.1
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; 53,770,600 and 53,763,600 shares issued and
outstanding, respectively 0.5 0.5
Paid-in capital 327.2 327.1
Retained earnings 222.8 140.2
Accumulated other comprehensive loss (11.8) (10.6)
-------- --------
Total shareholders' equity 538.7 457.2
-------- --------
Total liabilities and shareholders' equity $1,235.8 $1,221.6
======== ========
See accompanying notes
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(U.S. DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
QUARTER ENDED SIX MONTHS ENDED
--------------------------------- ---------------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Net sales $ 541.0 $ 516.2 $ 1,075.3 $ 1,052.3
Cost of products sold 458.3 467.9 908.6 932.7
-------------- -------------- -------------- --------------
Gross profit 82.7 48.3 166.7 119.6
Selling, general and administrative
expenses 22.3 18.2 45.2 39.0
Amortization of goodwill 0.8 0.8 1.7 1.7
-------------- -------------- -------------- --------------
Operating income 59.6 29.3 119.8 78.9
Interest expense 9.0 11.5 20.2 21.7
Interest income 0.4 0.5 0.8 1.3
Other loss, net (3.3) (0.2) (6.2) (0.8)
-------------- -------------- -------------- --------------
Income before provision for income taxes
47.7 18.1 94.2 57.7
Provision for income taxes 6.2 0.9 11.6 2.0
-------------- -------------- -------------- --------------
Net income $ 41.5 $ 17.2 $ 82.6 $ 55.7
============== ============== ============== ==============
Net income per share:
Basic $ 0.77 $ 0.32 $ 1.54 $ 1.04
============== ============== ============== ==============
Diluted $ 0.77 $ 0.32 $ 1.53 $ 1.04
============== ============== ============== ==============
Weighted average number of ordinary shares outstanding:
Basic 53,765,781 53,763,600 53,764,691 53,763,600
Diluted 54,049,521 53,763,600 53,906,560 53,765,166
See accompanying notes
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(U.S. DOLLARS IN MILLIONS)
SIX MONTHS ENDED
------------------------
JUNE 29, JUNE 30,
2001 2000
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OPERATING ACTIVITIES:
Net income $ 82.6 $ 55.7
Adjustments to reconcile net income to cash provided by
operating activities:
Goodwill amortization 1.7 1.7
Depreciation and amortization other than goodwill 28.2 26.0
Deferred credit vessel leases -- (2.9)
Equity in earnings of unconsolidated companies, net of
dividends (1.9) (2.4)
Deferred income taxes (0.2) (1.0)
Other, net 1.5 4.2
Changes in operating assets and liabilities:
Receivables 6.3 3.1
Inventories 8.8 9.0
Accounts payable and accrued expenses 30.1 (9.8)
Prepaid expenses and other current assets (6.2) 3.0
Other noncurrent assets and liabilities 6.0 6.1
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NET CASH PROVIDED BY OPERATING ACTIVITIES 156.9 92.7
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INVESTING ACTIVITIES:
Capital expenditures (32.3) (38.1)
Capital expenditures due to Hurricane Mitch, net of
insurance proceeds -- (3.3)
Proceeds from sale of assets 0.2 3.3
Purchase of subsidiaries, net of cash acquired (13.8) (3.9)
Other investing activities, net 0.7 1.5
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NET CASH USED IN INVESTING ACTIVITIES $ (45.2) $ (40.5)
------- -------
See accompanying notes
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
UNAUDITED
(U.S. DOLLARS IN MILLIONS)
SIX MONTHS ENDED
------------------------
JUNE 29, JUNE 30,
2001 2000
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FINANCING ACTIVITIES:
Proceeds from long-term debt $ 108.3 $ 113.5
Payments on long-term debt (220.5) (179.3)
Proceeds from short-term borrowings 2.2 2.0
Payments on short-term borrowings (1.8) (4.2)
Other, net (0.9) (2.9)
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NET CASH USED IN FINANCING ACTIVITIES (112.7) (70.9)
------- -------
Effect of exchange rate changes on cash and cash equivalents 0.2 (0.6)
------- -------
Cash and cash equivalents:
Net change (0.8) (19.3)
Beginning balance 10.6 31.2
------- -------
Ending balance $ 9.8 $ 11.9
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 19.3 $ 20.4
======= =======
Cash paid for income taxes $ 1.4 $ 2.3
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SUPPLEMENTAL NON-CASH ACTIVITIES:
Capital lease obligations for new assets $ 3.7 $ 12.8
======= =======
See accompanying notes
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. GENERAL
Fresh Del Monte Produce Inc. (Fresh Del Monte) was incorporated under the laws
of the Cayman Islands on August 29, 1996 and is 57.6% owned by IAT Group Inc.,
which is 100% beneficially owned by members of the Abu-Ghazaleh family. In
addition, members of the Abu-Ghazaleh family directly own 9.1% of the
outstanding ordinary shares of Fresh Del Monte.
In the opinion of management, the accompanying unaudited consolidated financial
statements of Fresh Del Monte and subsidiaries include all adjustments,
consisting of normal recurring adjustments, necessary to present fairly their
financial position as of June 29, 2001 and their operating results and cash
flows for the periods then ended. Interim results are subject to significant
seasonal variations and may not be indicative of the results of operations that
may be expected for the entire 2001 year.
FOR ADDITIONAL INFORMATION, SEE FRESH DEL MONTE'S CONSOLIDATED FINANCIAL
STATEMENTS INCLUDED IN FRESH DEL MONTE'S ANNUAL REPORT ON FORM 20-F FOR THE YEAR
ENDED DECEMBER 29, 2000.
2. ACQUISITION
In June 2001, a subsidiary of Fresh Del Monte which owned a 50% interest in
Agricola Villa Alegre Limitada (Villa Alegre), a producer of deciduous fruit in
Chile, acquired the remaining 50% interest in Villa Alegre. The total
consideration paid in connection with the acquisition of the remaining 50%
interest was $13.8 million in cash and the assumption of approximately $2.7
million in short-term debt. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based on appraisals and other estimates
of their underlying fair values. The allocation of the purchase price is
preliminary pending finalization of certain estimates. For the six months ended
June 29, 2001, Fresh Del Monte accounted for the earnings from its original 50%
investment in Villa Alegre using the equity method of accounting. Effective June
29, 2001, the operating results of Villa Alegre were consolidated with the
operating results of Fresh Del Monte.
The following unaudited pro forma information presents a summary of consolidated
results of operations of Fresh Del Monte as if the acquisition of the remaining
50% interest in Villa Alegre had occurred on January 1, 2000 (U.S dollars in
millions, except share data):
SIX MONTHS ENDED
-------------------------------------
JUNE 29, 2001 JUNE 30, 2000
------------- -------------
Net sales $ 1,075.3 $ 1,052.3
Net income 82.2 56.0
Diluted net income per share $ 1.52 $ 1.04
Number of ordinary shares used in computation 53,906,560 53,765,166
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
2. ACQUISITION (CONTINUED)
The unaudited pro forma results do not purport to be indicative of the results
of operations which actually would have resulted had the acquisition of the
remaining 50% interest in Villa Alegre occurred on January 1, 2000, or of future
results of operations of the consolidated entities.
3. INVENTORIES
Inventories consisted of the following (U.S. dollars in millions):
JUNE 29, 2001 DECEMBER 29, 2000
------------- -----------------
Fresh produce $ 53.6 $ 52.4
Raw materials and packaging supplies 69.3 79.3
Growing crops 57.9 57.1
-------- --------
$180.8 $188.8
====== ======
4. COMPREHENSIVE INCOME
Fresh Del Monte had comprehensive income of $39.0 million and $16.4 million for
the quarter ended June 29, 2001 and June 30, 2000, respectively. For the six
months ended June 29, 2001 and June 30, 2000, comprehensive income was $81.5
million and $54.1 million, respectively. Comprehensive income for the quarter
and six months ended June 29, 2001 consisted of net income, unrealized foreign
currency translation losses and net unrealized gains and losses on derivatives.
Comprehensive income for the quarter and six months ended June 30, 2000
consisted of net income, unrealized foreign currency translation losses and
unrealized loss on available-for-sale equity securities.
5. CONTINGENCIES
Starting in December 1993, two of Fresh Del Monte's U.S. subsidiaries were named
among the defendants in a number of actions in courts in Texas, Louisiana,
Mississippi, Hawaii, Costa Rica and the Philippines involving allegations by
numerous foreign plaintiffs that they were injured as a result of exposure to a
nematocide containing the chemical dibromochloropropane (DBCP) during the period
1965 to 1990.
In December 1998, these subsidiaries entered into a settlement in the amount of
$4.6 million with counsel representing approximately 25,000 individuals. Of the
six principal defendants in these DBCP cases, Dow Chemical Company, Shell Oil
Company, Occidental Chemical Corporation and Chiquita Brands, Inc. have also
settled these claims. Under the terms of our settlement, approximately 22,000 of
these claimants dismissed their claims with prejudice and without payment. The
2,643 claimants who allege employment on a company-related farm in Costa Rica
and the Philippines and who demonstrated some injury were offered a share of the
settlement funds upon execution of a release. Over 98% of these claimants
accepted the terms of our settlement, the majority of which has been recovered
from our insurance carriers. The remaining claimants did not accept the
settlement proceeds and approximately $268,000 was returned to the Company's
subsidiaries.
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
5. CONTINGENCIES (CONTINUED)
On February 16, 1999, two of Fresh Del Monte's U.S. subsidiaries were served in
the Philippines in an action entitled DAVAO BANANA PLANTATION WORKERS'
ASSOCIATION OF TIBURCIA, INC. V. SHELL OIL CO., ET AL. The action is brought by
a Banana Workers' Association on behalf of its 34,852 members for injuries they
allege to have incurred as a result of DBCP exposure. At this time, it is not
known how many, if any, of the association's members are claiming against the
Fresh Del Monte's subsidiaries and whether these are the same individuals who
have already settled their claims against the Company's subsidiaries.
Fresh Del Monte's subsidiaries filed motions to dismiss and for reconsideration
on jurisdictional grounds, which were denied. Accordingly, Fresh Del Monte's
subsidiaries answered the complaint denying all of plaintiff's allegations.
Fresh Del Monte's U.S. subsidiaries have not settled the DBCP claims of
approximately 3,500 claimants represented by different counsel who filed actions
in Mississippi in 1996 and Hawaii in 1997. Each of those actions was dismissed
by a federal district court on grounds of FORUM NON CONVENIENS in favor of the
courts of the plaintiffs' home countries and appealed by the plaintiffs. As a
result of the dismissal of the Hawaiian actions, several Costa Rican and
Guatemalan individuals have filed the same type actions in those countries. On
January 19, 2001, the Court of Appeals for the Fifth Circuit affirmed the
dismissal of Fresh Del Monte's subsidiary for FORUM NON CONVENIENS and lack of
personal jurisdiction for the Mississippi actions. On May 31, 2001, the Hawaiian
plaintiffs' appeal of the dismissal was granted, thereby remanding the action to
the Hawaiian State court. A petition for an appeal to the United States Supreme
Court is planned.
On October 19, 2000, the Court of Appeals for the Fifth Circuit affirmed the
dismissal of 23 non settling defendants who had filed actions in the United
States District Court in Houston, Texas. As a result, the 23 plaintiffs who did
not accept the settlement are precluded from filing any new DBCP actions in the
United States.
On June 19, 1995, a group of several thousand plaintiffs in an action entitled
LUCAS PASTOR CANALES MARTINEZ, ET AL. V. DOW CHEMICAL CO. ET AL. sued one of
Fresh Del Monte's subsidiaries along with several other defendants in the
District Court for the Parish of St. Charles, Louisiana asserting claims similar
to those arising in the Texas cases due from the alleged exposure to DBCP. That
action was removed to the United States District Court in New Orleans and was
subsequently remanded in September 1996. Fresh Del Monte's subsidiary has
answered the complaint and asserted substantial defenses. Following the decision
of the United States Court of Appeals for the Fifth Circuit in the Texas
actions, this action was re-removed to federal court in November 2000.
On November 15, 1999, one of Fresh Del Monte's U.S. 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. These actions are
brought on behalf of claimants represented by the same counsel who filed the
Mississippi and Hawaii actions as well as a number of the claimants who have not
accepted the settlement offer. Fresh Del Monte's subsidiary has been given an
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
5. CONTINGENCIES (CONTINUED)
indefinite extension of time to respond to the complaints. At this time, it is
not known how many of the 2,962 GODOY RODRIGUEZ and MARTINEZ PUERTO plaintiffs
are claiming against the Fresh Del Monte's subsidiary and it is premature to
evaluate the likelihood of a favorable or unfavorable outcome with respect to
any of the non-settled DBCP claims.
On December 4, 2000, the Honolulu Board of Water Supply (Board) amended its
complaint (the initial complaint did not include Fresh Del Monte's subsidiary as
a defendant) in state court to include one of Fresh Del Monte's subsidiaries as
one of several defendants for alleged contamination of certain water wells in
Honolulu, Hawaii. On April 16, 2001, the Board dismissed Fresh Del Monte's
subsidiary without prejudice.
On January 8, 2001, local residents of Honolulu, Hawaii amended their complaint
(the initial complaint did not include Fresh Del Monte's subsidiary as a
defendant) in federal court to include one of Fresh Del Monte's subsidiaries as
one of several defendants for injuries allegedly caused by consuming
contaminated water. Fresh Del Monte's subsidiary has answered the complaint
denying all the plaintiffs' claims and asserting substantial defenses.
Fresh Del Monte's subsidiaries intend to vigorously defend themselves in all of
these 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, on any of the above-described matters and no accruals have been recorded as
of June 29, 2001.
In 1980, elevated levels of certain chemicals were detected in the soil and
ground water at a plantation leased by one of Fresh Del Monte's subsidiaries in
Honolulu, Hawaii (Kunia Well Site). Shortly thereafter, Fresh Del Monte's
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, Fresh Del Monte's
subsidiary entered into an order (Order) with the EPA to conduct the remedial
investigation and the feasibility study of the Kunia Well Site. Under the terms
of the Order, Fresh Del Monte's subsidiary submitted a remedial investigation
report in November 1998 for review by the EPA. The EPA approved the remedial
investigation report in February 1999. A final draft feasibility study was
submitted for EPA review in December 1999, and it is expected that the
feasibility study will be finalized by the fourth quarter of 2001.
Based on the draft feasibility study submitted to the EPA in December 1999, the
estimated remediation costs associated with this matter are expected to be
between $4.2 million and $28.1 million. Certain portions of these estimates have
been discounted using a 5% interest rate. The undiscounted estimates are between
$5.0 million and $30.0 million. An accrual of $4.2 million is included in other
noncurrent liabilities in the accompanying balance sheets.
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FRESH DEL MONTE PRODUCE INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
5. CONTINGENCIES (CONTINUED)
In addition to the foregoing, Fresh Del Monte's subsidiaries are involved from
time to time in various claims and legal actions incident to their operations,
both as plaintiff and defendant. In the opinion of management, after consulting
with legal counsel, none of these other claims are currently expected to have a
material adverse effect on Fresh Del Monte.
On May 2, 2001, the European Commission adopted a new regulation which will
implement a banana import system based on the agreement reached by the European
Union with the United States government on April 11, 2001. The new system is
effective July 1, 2001 and maintains the use of the banana import licenses until
December 31, 2005. We expect that the new system will not have a negative
financial impact on Fresh Del Monte. The new system allows Fresh Del Monte to
amortize the remaining cost of banana licenses Fresh Del Monte acquired in 1999
through December 31, 2005.
6. EARNINGS PER SHARE
Basic and diluted per share income is calculated as follows (U.S. dollars in
millions, except share data):
QUARTER ENDED SIX MONTHS ENDED
--------------------------------- ---------------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
NUMERATOR:
Net income $ 41.5 $ 17.2 $ 82.6 $ 55.7
============== ============== ============== ==============
DENOMINATOR:
Denominator for basic earnings per share -
weighted average number of ordinary shares
outstanding 53,765,781 53,763,600 53,764,691 53,763,600
Effect of dilutive securities:
Employee stock options 283,739 -- 141,870 1,566
-------------- -------------- -------------- --------------
Denominator for diluted earnings per share 54,049,521 53,763,600 53,906,560 53,765,166
============== ============== ============== ==============
Net income per share:
Basic $ 0.77 $ 0.32 $ 1.54 $ 1.04
============== ============== ============== ==============
Diluted $ 0.77 $ 0.32 $ 1.53 $ 1.04
============== ============== ============== ==============
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FRESH DEL MONTE PRODUCE INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
7. BUSINESS SEGMENT DATA
Fresh Del Monte evaluates performance based on several factors, of which net
sales and gross profit are the primary financial measures (U.S. dollars in
millions):
QUARTER ENDED SIX MONTHS ENDED
--------------------------------------------- -----------------------------------------------
JUNE 29, 2001 JUNE 30, 2000 JUNE 29, 2001 JUNE 30, 2000
--------------------- -------------------- ---------------------- -------------------
GROSS GROSS GROSS GROSS
NET SALES PROFIT NET SALES PROFIT NET SALES PROFIT NET SALES PROFIT
--------- ------ --------- ------ --------- ------ --------- ------
Bananas $ 246.5 $ 21.2 $ 250.6 $ 10.1 $ 479.8 $ 42.3 $ 514.4 $ 43.3
Other fresh produce 267.7 59.2 241.5 42.2 541.6 121.9 485.1 79.6
Non-produce 26.8 2.3 24.1 (4.0) 53.9 2.5 52.8 (3.3)
-------- -------- -------- -------- -------- -------- -------- --------
Total $ 541.0 $ 82.7 $ 516.2 $ 48.3 $1,075.3 $ 166.7 $1,052.3 $ 119.6
======== ======== ======== ======== ======== ======== ======== ========
8. DERIVATIVE FINANCIAL INSTRUMENTS
Effective December 30, 2000, Fresh Del Monte adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities. SFAS 133, as amended, requires the recognition of all
derivative instruments as either assets or liabilities in the balance sheet
measured at fair value and establishes new accounting rules for the hedging
instrument depending on the nature of the hedge relationship. A fair value hedge
requires that the effective portion of the change in the fair value of a
derivative 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
(OCI), a component of shareholders' equity, and reclassified into earnings in
the same period or periods during which the hedged transaction affects earnings.
Any ineffective portion of a derivative instrument's change in fair value is
immediately recognized in earnings. The unaudited consolidated financial
statements for the periods ended June 29, 2001 include the provisions required
by SFAS 133, while the unaudited consolidated financial statements for the
periods ended June 30, 2000 were prepared in accordance with the applicable
professional literature for derivatives and hedging instruments in effect at
that time.
Fresh Del Monte uses derivative financial instruments primarily to reduce its
exposure to adverse fluctuations in interest rates and foreign exchange rates.
When entered into, Fresh Del Monte formally designates and documents 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. 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
of the underlying exposures being hedged. Derivatives are recorded in the
consolidated balance sheet at fair value in either "prepaid expenses and other
current assets" or "accounts payable and accrued expenses",
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
8. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
depending on whether the amount is an asset or liability. 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 of the underlying hedged transactions and other exposures and to the
overall reduction in our risk relating to adverse fluctuations in foreign
exchange rates and interest rates. In addition, the earnings impact resulting
from our derivative instruments is recorded in the same line item within the
consolidated statement of income as the underlying exposure being hedged. Fresh
Del Monte also formally assesses, both at the 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 of the
related underlying exposures. Any ineffective portion of a financial
instrument's change in fair value is immediately recognized in earnings.
Counterparties expose Fresh Del Monte to credit loss in the event of
non-performance on currency forward contracts or the interest rate swap
agreement However, because the contracts are entered into with highly-rated
financial institutions, Fresh Del Monte does not anticipate non-performance by
any of these counterparties. The exposure is usually the amount of the
unrealized gains, if any, in such contracts.
FOREIGN CURRENCY MANAGEMENT
To protect against the reduction in value of forecasted foreign currency cash
flows resulting from certain net sales over the next year, Fresh Del Monte
periodically enters into foreign currency cash flow hedges (Euro and Japanese
Yen). Fresh Del Monte hedges portions of its forecasted revenue denominated in
foreign currencies with forward contracts, which generally expire within one
year. When the dollar strengthens significantly against foreign currencies, the
decline in value of hedged future foreign currency net sales is offset by gains
in the value of the forward contracts. Conversely, when the dollar weakens, the
increase in the value of hedged future foreign currency net sales is offset by
losses in the value of the forward contracts.
INTEREST RATE MANAGEMENT
Because Fresh Del Monte utilizes primarily variable-rate debt, our results of
operations may be significantly affected by fluctuations in interest rates. To
protect against fluctuations in interest rates, Fresh Del Monte has entered into
an interest rate swap agreement that effectively converts a portion of its
$450.0 million Revolving Credit Facility debt to a fixed rate basis through
January 30, 2003, thus reducing the impact of interest rate changes under the
revolving credit agreement on future interest expense. At June 29, 2001, 57% of
the outstanding balance of the Revolving Credit Facility was covered by the
interest rate swap agreement.
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
8. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The adoption of SFAS 133, as amended, on December 30, 2000 did not result in a
significant cumulative effect of an accounting change to the result of
operations or financial position of Fresh Del Monte. The following table
summarizes activity in Other Comprehensive Income/(Loss) (OCI) related to
derivatives classified as "cash flow hedges" held by Fresh Del Monte during the
six months ended June 29, 2001 (U.S. dollars in millions):
OCI - derivative instruments, beginning of period $ --
Unrealized gain on foreign exchange forward contracts 5.4
Realized gain on foreign exchange forward contracts
reclassified to the income statement (2.8)
Unrealized loss on interest rate swap agreement (1.8)
----
OCI - derivative instruments, end of period $0.8
====
9. STOCK BASED COMPENSATION
On April 17, 2001, Fresh Del Monte granted to officers, key employees and
directors options to purchase a total of 1,159,030 ordinary shares of Fresh Del
Monte at the fair market value of the ordinary shares at the date of grant of
$5.95 per share. The options were granted under Fresh Del Monte's 1997 and 1999
share incentive plans. The options vest over periods ranging from twelve months
to four years and may be exercised over a period not in excess of ten years.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141) and
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method and changes the criteria to recognize intangible
assets apart from goodwill. Under SFAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually, or more
frequently if impairment indicators arise, for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives. The amortization provisions of SFAS 142 apply
to goodwill and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, Fresh Del Monte
is required to adopt SFAS 142 effective December 29, 2001. Fresh Del Monte is
currently evaluating the effect that adoption of the provisions of SFAS 142 may
have on its results of operations and financial position.
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $156.9 million for the first six
months of 2001 compared to $92.7 million for the first six months of 2000. The
increase in cash provided by operating activities was primarily attributed to
the increase in net income combined with higher balances in accounts payable and
accrued expenses.
Working capital was $112.7 million at June 29, 2001 and $156.9 at December 29,
2000, a decrease of $44.2 million.
Net cash used in investing activities for the first six months of 2001 was $45.2
million compared with net cash used in investing activities of $40.5 million for
the first six months of 2000. Net cash used in investing activities for 2001
consisted primarily of capital expenditures of $32.3 million and the acquisition
of the remaining 50% interest in a Chilean subsidiary engaged in the production
of deciduous fruit for approximately $13.8 million. Net cash used in investing
activities for 2000 primarily consisted of capital expenditures of $38.1
million.
Net cash used in financing activities for the first six months of 2001 and 2000
was $112.7 million and $70.9 million, respectively. Net cash used in financing
activities for the first six months of 2001 and 2000 consisted primarily of net
repayments of long-term debt of $112.2 million and $65.8 million, respectively.
At June 29, 2001, Fresh Del Monte had $457.8 in committed working capital
facilities, of which $299.1 million was available. The major portion of these
facilities is represented by the $450.0 million Revolving Credit Facility. This
Revolving Credit Facility includes a swing line facility, a letter of credit
facility and a foreign exchange contract facility. At June 29, 2001, $2.6
million of available credit was applied towards the issuance of letters of
credit. The Revolving Credit Facility is collateralized directly or indirectly
by substantially all of Fresh Del Monte's assets and expires on May 19, 2003.
The Revolving Credit Facility permits borrowings with an interest rate based on
a spread over the London Interbank Offered Rate (LIBOR). Outstanding borrowings
on the Revolving Credit Facility at June 29, 2001 were $150.1 million, bearing
interest at an average rate of 6.46%.
On May 10, 2000, Fresh Del Monte amended the $450.0 million Revolving Credit
Facility to include a five-year term loan (Term Loan) of $135.0 million. The
Term Loan has similar terms and conditions as the Revolving Credit Facility, is
payable in quarterly installments of $3.4 million which commenced on September
30, 2000, and bears interest based on a spread over LIBOR (7.65% at June 29,
2001). The Term Loan matures on May 10, 2005 with a final payment of $70.9
million. The unpaid balance of the Term Loan at June 29, 2001 was $121.5
million.
As of June 29, 2001, Fresh Del Monte had $376.4 million of long-term debt and
capital lease obligations, including the current portion, consisting of $150.1
million related to the Revolving Credit Facility, $121.5 million related to the
Term Loan, $62.2 million of long-term debt related to refrigerated vessel loans,
$18.7 million of other long-term debt and $23.9 million of capital lease
obligations.
As of June 29, 2001, Fresh Del Monte had cash and cash equivalents of $9.8
million.
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
SECOND QUARTER 2001 COMPARED WITH SECOND QUARTER 2000
NET SALES. Net sales for the second quarter of 2001 were $541.0 million compared
with $516.2 million for the second quarter of 2000. The increase in net sales of
$24.8 million was attributed to the other fresh produce category, partially
offset by a decrease in net sales of bananas. The increase in net sales of other
fresh produce is primarily due to higher per unit net sales prices and higher
sales volumes of pineapples and fresh cut products and higher per unit sales
prices of melons. Banana net sales decreased by $4.1 million as compared with
the prior year due to a planned reduction in sales volumes partially offset by
increased per unit sales prices.
Net sales were adversely affected by a weaker Euro and Japanese Yen. The net
effect of foreign exchange in the second quarter of 2001 compared with the same
period of 2000 was a decrease in net sales of approximately $13.1 million.
COST OF PRODUCTS SOLD. Cost of products sold was $458.3 million for the second
quarter of 2001 compared with $467.9 million for the second quarter of 2000, a
decrease of $9.6 million primarily attributable to the planned reduction in
banana sales volumes combined with lower ocean freight costs due to the
acquisition of more efficient refrigerated vessels in 2000, partially offset by
higher sales volumes of pineapple and fresh cut products.
GROSS PROFIT. Gross profit was $82.7 million for the second quarter of 2001
compared with $48.3 million for the same period in 2000, an increase of $34.4
million. As a percentage of net sales, gross profit margin increased from 9.4%
in the second quarter of 2000 to 15.3% in the second quarter of 2001 primarily
due to higher per unit sales prices of bananas, pineapples, melons and deciduous
fruit combined with reduced ocean freight costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $22.3 million in the second quarter of 2001
compared with $18.2 million for the second quarter of 2000, an increase of $4.1
million. The increase is principally due to higher selling and marketing
expenses in Europe and North America combined with higher professional fees and
other expenses due to business expansion initiatives.
OPERATING INCOME. Operating income for the second quarter of 2001 was $59.6
million compared with $29.3 million for the same period in 2000, an increase of
$30.3 million due to the increase in gross profit, partially offset by the
increase in selling, general and administrative expenses.
INTEREST EXPENSE. Interest expense decreased $2.5 million to $9.0 million for
the second quarter of 2001 compared with $11.5 million for the second quarter of
2000, as a result of lower effective interest rates and a lower average debt
balance.
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SECOND QUARTER 2001 COMPARED WITH SECOND QUARTER 2000 (CONTINUED)
OTHER LOSS, NET. Other loss, net increased by $3.1 million from a loss of $0.2
million for the second quarter of 2000 to a loss of $3.3 million for the second
quarter of 2001. The change is due primarily to lower equity earnings of
unconsolidated subsidiaries and the higher minority interest of consolidated
subsidiaries which are not wholly-owned by Fresh Del Monte.
PROVISION FOR INCOME TAXES. Provision for income taxes increased from $0.9
million in the second quarter of 2000 to $6.2 million in the second quarter of
2001 primarily due to increased earnings in jurisdictions where tax rates are
significantly higher and where tax loss carryforwards cannot be utilized.
FIRST SIX MONTHS OF 2001 COMPARED WITH FIRST SIX MONTHS OF 2000
NET SALES. Net sales for the first six months of 2001 were $1,075.3 million
compared with $1,052.3 million for the first six months of 2000. The increase in
net sales of $23.0 million was attributed to the other fresh produce category,
partially offset by lower banana net sales. Net sales of other fresh produce
increased as a result of higher per unit sales prices of pineapples, melons,
deciduous fruit and fresh cut products as well as higher sales volumes of
pineapples and fresh cut products. Banana net sales decreased by $34.6 million
as compared with the prior year due to a planned reduction in sales volumes.
Net sales were adversely affected by a weaker Euro and Japanese Yen. The net
effect of foreign exchange in the first six months of 2001 compared with the
same period of 2000 was a decrease in net sales of approximately $24.9 million.
COST OF PRODUCTS SOLD. Cost of products sold was $908.6 million for the first
six months of 2001 compared with $932.7 million for the first six months of
2000, a decrease of $24.1 million. The decrease is primarily due to the planned
reduction in banana sales volumes combined with lower ocean freight costs.
GROSS PROFIT. Gross profit was $166.7 million for the first six months of 2001
compared with $119.6 million for the same period in 2000. As a percentage of net
sales, gross profit margin increased to 15.5% in the first six months of 2001
from 11.4% in the first six months of 2000 primarily due to the higher net sales
of other fresh produce and reduced ocean freight costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $6.2 million to $45.2 million in the first six
months of 2001 compared with $39.0 million for the first six months of 2000. The
increase is principally due to higher selling and marketing expenses in North
America combined with higher professional fees and other expenses due to
business expansion initiatives.
OPERATING INCOME. Operating income for the first six months of 2001 was $119.8
million compared with $78.9 million for the same period in 2000, an increase of
$40.9 million. The increase is due primarily to an increase in gross profit,
partially offset by the increase in selling, general and administrative
expenses.
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FIRST SIX MONTHS OF 2001 COMPARED WITH FIRST SIX MONTHS OF 2000 (CONTINUED)
OTHER LOSS, NET. Other loss, net increased by $5.4 million from a loss of $0.8
million for the first six months of 2000 to a loss of $6.2 million for the first
six months of 2001. The change was due primarily to lower equity earnings of
unconsolidated subsidiaries and the higher minority interest of consolidated
subsidiaries which are not wholly-owned by Fresh Del Monte.
PROVISION FOR INCOME TAXES. Provision for income taxes increased from $2.0
million in the first six months of 2000 to $11.6 million for the first six
months of 2001 primarily due to increased earnings in jurisdictions where tax
rates are significantly higher and where tax loss carryforwards cannot be
utilized.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141) and
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method and changes the criteria to recognize intangible
assets apart from goodwill. Under SFAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually, or more
frequently if impairment indicators arise, for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives. The amortization provisions of SFAS 142 apply
to goodwill and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, Fresh Del Monte
is required to adopt SFAS 142 effective December 29, 2001. Fresh Del Monte is
currently evaluating the effect that adoption of the provisions of SFAS 142 may
have on its results of operations and financial position.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRESH DEL MONTE PRODUCE INC.
Date: August 6, 2001 By: /s/ HANI EL-NAFFY
-------------------------------------------
Hani El-Naffy
President & Chief Operating Officer
By: /s/ JOHN F. INSERRA
--------------------------------------------
John F. Inserra
Executive Vice President &
Chief Financial Officer
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