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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ] Registration statement pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 (NO FEE REQUIRED)
or
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
For the fiscal year ended December 28, 2001
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (NO FEE REQUIRED)
Commission file number: 1-14706
FRESH DEL MONTE PRODUCE INC.
(Exact Name of Registrant as Specified in Its Charter)
The Cayman Islands
(Jurisdiction of incorporation or organization)
Walker House, Mary Street
P.O. Box 908 GT
George Town, Grand Cayman
Cayman Islands
(Address of principal executive office)
c/o Del Monte Fresh Produce Company
800 Douglas Road, North Tower, 12th Floor, Coral Gables, FL 33134
(Address of U.S. executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
------------------- -----------------------------------------
Ordinary Shares, par value $0.01 New York Stock Exchange
per share
Securities registered or to be registered pursuant to Section
12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
54,091,650 Ordinary Shares
Indicate by check mark whether the registrant: (1) has filed all
reports required to 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 which financial statement item the registrant
has elected to follow.
Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
Page
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PART I
Item 1. Identity of Directors, Senior Management and Advisers - Not Applicable..............................1
Item 2. Offer Statistics and Expected Timetable - Not Applicable............................................1
Item 3. Key Information.....................................................................................2
Item 4. Information on the Company.........................................................................10
Item 5. Operating and Financial Review and Prospects.......................................................23
Item 6. Directors, Senior Management and Employees.........................................................36
Item 7. Major Shareholders and Related Party Transactions..................................................41
Item 8. Financial Information..............................................................................42
Item 9. The Offer and Listing..............................................................................49
Item 10. Additional Information.............................................................................50
Item 11. Quantitative and Qualitative Disclosures About Market Risk.........................................54
Item 12. Description of Securities Other than Equity Securities - Not Applicable............................55
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies...................................................55
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds......................55
PART III
Item 17. Financial Statements..............................................................................55
Item 18. Financial Statements..............................................................................55
Item 19. Exhibits..........................................................................................56
PART I
In this Annual Report (Report), references to "$" and "dollars" are to
United States dollars. Reference in this Report to Fresh Del Monte, we, our, and
us refers 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 1999 through 2001 are to fiscal years ended
December 31, 1999, December 29, 2000 and December 28, 2001, 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 CONTAIN, OR MAY CONTAIN, STATEMENTS THAT CONSTITUTE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN
THIS REPORT AND INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF 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 WITHOUT LIMITATION (I)
OUR ANTICIPATED NEEDS FOR, AND THE AVAILABILITY OF, CASH, (II) OUR LIQUIDITY AND
FINANCING PLANS, (III) TRENDS AFFECTING OUR FINANCIAL CONDITION OR RESULTS OF
OPERATIONS, INCLUDING ANTICIPATED FRESH PRODUCE SALES PRICE LEVELS AND
ANTICIPATED EXPENSE LEVELS, (IV) OUR PLANS FOR EXPANSION OF OUR BUSINESS
(INCLUDING THROUGH ACQUISITIONS) AND COST SAVINGS, (V) THE IMPACT OF
COMPETITION, AND (VI) THE RESOLUTION OF CERTAIN LEGAL AND ENVIRONMENTAL
PROCEEDINGS. 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, INCLUDING, WITHOUT LIMITATION, THE INFORMATION UNDER "KEY
INFORMATION--RISK FACTORS" AND "OPERATING AND FINANCIAL REVIEW AND PROSPECTS,"
IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
Our volume data included in this Report has been obtained from our
records. Other than with respect to volume data for Fresh Del Monte Produce
Inc., which we refer to as 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, which we refer to as
the FAO, and from our surveys of customers and other company-compiled data.
Volume data contained in this Report is shown in millions of 40 pound equivalent
boxes.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
1
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
Our principal shareholders, the Abu-Ghazaleh family, have been involved
in the fresh produce business since the late 1950s and acquired Fresh Del Monte
Produce N.V., which we refer to as FDP, N.V., and Global Reefer Carriers, Ltd.,
which we refer to as GRC, in December 1996.
We were organized to acquire beneficial ownership and control of all of
the outstanding common stock of FDP N.V. and GRC. The acquisition of FDP N.V.
and GRC, which was accounted for as a purchase and was completed on December 20,
1996. The results of operations of FDP N.V. and GRC are included in our results
commencing December 21, 1996.
On September 17, 1998, we acquired 14 wholly-owned operating companies,
referred to as IAT, from IAT Group Inc. and its shareholders. We refer to this
combination as the IAT transaction. At the time of the IAT transaction, IAT
Group Inc. owned approximately 86% of FG Holdings Limited, which in turn owned
approximately 63% of Fresh Del Monte. As a result, the IAT transaction was
accounted for as a combination of entities under common control using the as if
pooling of interests method of accounting.
Under the as if pooling of interests method of accounting, our
historical results have been restated to combine our operations and those of IAT
for all periods subsequent to August 29, 1996, the date Fresh Del Monte and IAT
came under common control. Our recorded assets and liabilities and those of IAT
were carried forward to our consolidated financial statements at their
historical amounts and consolidated earnings include our earnings and those of
IAT for all periods subsequent to the date Fresh Del Monte and IAT came under
common control.
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. Prior to 1999, IAT's fiscal year end was September
30. In 1999, IAT's fiscal year end was changed to conform to our fiscal year
end. As a result, the following selected consolidated financial information
includes balance sheet data and income statement data for IAT as of and for each
of the two years ended September 30, 1997 and 1998, respectively. As a result of
the change in IAT's year end, the results of operations for IAT for the period
October 1, 1998 to January 1, 1999, a loss of $7.6 million, are not included in
any of the periods presented in the consolidated statements of income, but are
reflected as an adjustment to retained earnings as of January 2, 1999.
The following selected consolidated financial information for the years
ended December 26, 1997, January 1, 1999, December 31, 1999, December 29, 2000
and December 28, 2001, is derived from our respective audited consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (the United States).
2
This data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included elsewhere in
this Report.
Year Ended
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December 26, January 1, December 31, December 29, December 28,
1997 1999 1999 2000 2001
----------- ----------- ------------ ----------- -----------
(In millions, except share and per share data)
INCOME STATEMENT DATA:
Net sales .................................... $ 1,452.4 $ 1,600.1 $ 1,743.2 $ 1,859.3 $ 1,928.0
Cost of products sold ........................ 1,288.7 1,405.4 1,592.6 1,692.4 1,645.1
----------- ----------- ------------ ----------- -----------
Gross profit ................................. 163.7 194.7 150.6 166.9 282.9
Selling, general and administrative expenses . 51.4 58.3 63.5 80.9 89.4
Amortization of goodwill ..................... 1.5 1.7 2.6 3.4 3.4
Acquisition-related expenses ................. -- 4.0 -- -- --
Hurricane Mitch charge ....................... -- 26.5 -- -- --
Provision for Kunia Well Site ................ -- -- -- -- 15.0
Asset impairment charges ..................... -- -- -- -- 10.2
----------- ----------- ------------ ----------- -----------
Operating income ............................. 110.8 104.2 84.5 82.6 164.9
Interest expense ............................. 45.7 30.3 30.2 43.2 32.1
Interest income .............................. 5.6 4.3 2.6 2.7 2.1
Other income (loss), net ..................... 6.0 11.4 14.7 (6.1) (12.2)
----------- ----------- ------------ ----------- -----------
Income before provision for income taxes and
extraordinary item ......................... 76.7 89.6 71.6 36.0 122.7
Provision for income taxes ................... 13.1 12.2 14.7 2.9 26.5
----------- ----------- ------------ ----------- -----------
Income before extraordinary item ............. 63.6 77.4 56.9 33.1 96.2
Extraordinary charge on early extinguishment
of debt .................................... 10.4 18.1 -- -- --
----------- ----------- ------------ ----------- -----------
Net income ................................... 53.2 59.3 56.9 33.1 96.2
Redemption premium, dividends and accretion on
convertible preferred shares .............. (22.5) -- -- -- --
----------- ----------- ------------ ----------- -----------
Net income applicable to ordinary shareholders $ 30.7 $ 59.3 $ 56.9 $ 33.1 $ 96.2
=========== =========== ============ =========== ===========
Diluted per share amount applicable to
ordinary shareholders (1):
Before extraordinary item .................. $ 0.94 $ 1.44 $ 1.06 $ 0.62 $ 1.77
Extraordinary charge ....................... $ (0.24) $ (0.34) $ -- $ -- $ --
Net income ................................. $ 0.70 $ 1.10 $ 1.06 $ 0.62 $ 1.77
Weighted average number of ordinary shares
outstanding:
Basic ...................................... 43,765,188 53,632,656 53,763,600 53,763,600 53,856,392
Diluted .................................... 43,765,188 53,774,831 53,805,237 53,764,383 54,414,868
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents .................... $ 85.7 $ 32.8 $ 31.2 $ 10.6 $ 13.0
Working capital .............................. 134.6 177.2 203.7 156.9 131.9
Total assets ................................. 1,009.3 1,034.0 1,216.2 1,221.6 1,196.9
Total debt ................................... 354.1 354.2 504.1 485.5 333.3
Ordinary shares .............................. 0.5 0.5 0.5 0.5 0.5
Paid in capital .............................. 311.7 327.1 327.1 327.1 329.7
Shareholders' equity ......................... 342.8 382.5 425.8 457.2 550.5
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(1) For the year ended December 28, 2001, basic per share income before
extraordinary charge and basic per share net income were $1.79. For all
other periods, basic and diluted per share amounts were the same.
3
RISK FACTORS
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, to a lesser extent, other fresh produce. In
1999, 2000 and 2001, banana sales accounted for the most significant portion of
our total net sales, and pineapple sales 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 significantly. Average sales prices
for bananas declined significantly from 1995 to 2000 and, as a result, our
operating results were adversely affected. Average sales prices for bananas
increased in 2001.
Sales prices for bananas, pineapples and other fresh produce are
difficult to predict. It is possible that sales prices for bananas will decline
in the future and sales prices for pineapples and 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 fresh produce 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 are fixed, so that fluctuations in the prices of fresh produce have an
immediate impact on our profitability.
DUE TO FLUCTUATIONS IN THE SUPPLY OF AND DEMAND FOR FRESH PRODUCE, OUR
RESULTS OF OPERATIONS ARE HIGHLY 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 substantial majority 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. We realize most
of our sales and gross profit for melons, grapes, non-tropical fruit and other
fruit and vegetables during the North American and European off-season from
October to May.
CROP DISEASE OR SEVERE WEATHER CONDITIONS COULD RESULT IN SUBSTANTIAL
LOSSES AND WEAKEN OUR FINANCIAL CONDITION.
Crop disease or severe weather conditions from time to time, including
floods, droughts, windstorms and hurricanes, may adversely affect our supply of
one or more fresh produce items, reduce our sales volumes and increase our unit
production costs. This is particularly true in the case of our premium pineapple
product, the "DEL MONTE GOLD (TM) EXTRA SWEET" pineapple, because a substantial
portion of our production is grown in one region in Costa Rica. Because a
significant portion of our costs are
4
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 and severe weather
conditions from time to time including Hurricane Mitch in Guatemala in 1998,
flooding in Costa Rica in 1996 and a significant outbreak of Black Sigatoka
disease at our Costa Rican banana farms during 1993 and 1994. When crop disease
or severe weather conditions destroy crops planted on our farms, we lose our
investment in those crops.
THE FRESH PRODUCE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE.
The fresh produce business is highly competitive, and the effect of
competition is intensified because 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 type
of fruit or vegetable. To compete successfully, we must be able to strategically
source fresh produce of uniformly high quality and sell and distribute it on a
timely and regular basis. In addition, since our profitability has depended
primarily on our gross profit on the sale of our extra sweet pineapples,
intensified competition in the production and sale of extra sweet pineapples
could adversely affect our financial results.
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 sales
revenues (42% in 2001) is denominated in non-dollar currencies, we incur the
majority of our costs in dollars. We generally are unable to adjust our
non-dollar local currency produce 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. 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.
OUR STRATEGY OF INCREASING THE VALUE-ADDED SERVICES THAT WE PROVIDE TO
OUR CUSTOMERS MAY NOT BE SUCCESSFUL.
We are expanding our service offering to include a higher proportion of
value-added services, such as the preparation of fresh-cut fruit and vegetables,
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 and fresh-cut facilities through capital expenditures and acquisitions.
We may not be successful in anticipating the demand for these services, in
establishing the requisite infrastructure to meet customer demands or the
provision of these value-added services. If we are not successful in these
efforts, our business, financial condition or results of operations could be
materially and adversely affected.
5
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 and resin. 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 results. Other than the cost of our products (including
packaging), sea transportation costs represent the largest component of cost of
products sold. During 1999 and 2000, the cost of fuel and containerboard
increased as compared to the prior years, which resulted in a negative impact on
our results of operations. Our average cost of fuel increased by 53% in 2000 as
compared to 1999 and our average cost of containerboard increased by 20% during
the same period. Our average cost of fuel decreased by 11% in 2001 as compared
to 2000 and our average cost of containerboard decreased by 17% during the same
period. In addition, we are subject to the volatility of the short-term charter
vessel market because approximately half of our refrigerated vessels are
chartered rather than owned. These charters are primarily short-term, typically
for periods of one to three years. As a result, a significant increase in
short-term charter rates would materially and adversely affect our results.
WE ARE SUBJECT TO LEGAL AND ENVIRONMENTAL RISKS THAT COULD RESULT IN
SIGNIFICANT CASH OUTLAYS.
We are involved in several legal and environmental matters which, 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. This risk
may increase in connection with our entry into the fresh-cut fruit and
vegetables market. In addition, although the fresh-cut fruit and vegetables
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 United States Environmental Protection Agency, or the EPA, has
placed a certain site at our plantation in Oahu, Hawaii on the National
Priorities List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, which we refer to as the "Superfund" law. 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. We expect that the
feasibility study will be finalized by the second quarter of 2002. Based on the
updated draft of the final feasibility study, the ultimate outcome and any
potential costs associated with this matter are estimated to be between
approximately $5.2 million to $28.9 million.
In addition, we are involved in several actions in the U.S. and
non-U.S. courts involving allegations by numerous Central American and
Philippine plaintiffs that they were injured during the 1970s and 1980s by
exposure to a nematocide containing the chemical Dibromochloropropane.
ENVIRONMENTAL AND OTHER REGULATION OF OUR BUSINESS 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, methyl bromide, a pesticide
used for fumigation of imported produce (principally melons) for which there is
currently no known substitute, is currently scheduled to be phased out in the
United States
6
in 2006. 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. 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 could also result in a ban on the sale of part or all
of our products in that jurisdiction.
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
restricted our access to the European Union banana market and increased the cost
of doing business in the European Union. This banana import license system is
scheduled to remain in effect until December 31, 2005. The potential risks of
operating a multinational business may be greater in countries where our
activities are a significant factor in the country's economy, which is
particularly true of our banana, pineapple and melon operations in Costa Rica
and our banana and melon operations in Guatemala.
We have a disagreement with the Government of Cameroon with respect to
its intended privatization of certain banana plantations with which we have
contracts to purchase their banana production. We disagree over the amount of
acreage that can be privatized and the date of the intended privatization. The
Government of Cameroon commenced procedures for the privatization of these
banana plantations through an auction process, but the process resulted in no
bidders. We cannot predict whether or when the Government of Cameroon will again
attempt to privatize the banana plantations. Since bananas produced in Cameroon
benefit from certain banana import preferences and tax exemptions in the
European Union, privatization may have a negative effect on our results of
operations.
Several Central and South American 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
European Union, Japan, South Korea and China. Examples of the types of
regulation we face include:
o sanitary regulations;
o regulations governing pesticide use and residue levels; and
o 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.
7
THE DISTRIBUTION OF OUR FRESH PRODUCE IN EUROPE COULD BE ADVERSELY
AFFECTED IF WE FAIL TO MAINTAIN OUR DISTRIBUTION ARRANGEMENTS.
We import and distribute a substantial portion of our fresh produce in
Europe through two marketing entities with which we have exclusive arrangements
or that distribute our products on a commission basis, one of these entities is
a partnership in which we own an 80% non-controlling interest. If any of these
arrangements were terminated without a replacement alternative, our ability to
import and distribute products in certain parts of Europe may be significantly
limited.
Due to disagreements between the partnership and us, in July 1997 we
informed the partnership that we intended to discontinue the sales and purchase
agreement as of December 31, 2002.
ACTS OR OMISSIONS OF OTHER COMPANIES COULD ADVERSELY AFFECT THE VALUE
OF THE DEL MONTE(R) BRAND.
We depend on the DEL MONTE(R) brand in marketing our fresh produce. We
share the DEL MONTE(R) brand with unaffiliated companies that manufacture,
distribute and sell canned or processed fruits 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(R) brand. Our reputation and the value of the DEL MONTE(R)
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 to 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. We also are currently subject to contractual limitations on our
ability to effect acquisitions under our credit facility.
OUR INDEBTEDNESS COULD LIMIT OUR FINANCIAL AND OPERATING FLEXIBILITY
AND SUBJECT US TO OTHER RISKS.
At December 28, 2001, our total debt, including current maturities and
capital lease obligations, was $333.3 million and our total debt to total
capitalization ratio was 38%. This level of indebtedness could have significant
consequences because:
o a substantial portion of our net cash flow from operations
must be dedicated to debt service and will not be available
for other purposes;
8
o 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; and
o our level of indebtedness may limit our flexibility in
reacting to changes in the industry and economic conditions
generally.
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 cyclicality of agricultural commodity
prices, the susceptibility of our product sourcing to crop disease or severe
weather conditions and other factors.
Since we are a 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, which strategies might not be successful. Additional sales of our
equity capital could substantially dilute the ownership interest of existing
shareholders.
Our 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 of the indebtedness due
under the facility.
WE ARE CONTROLLED BY OUR PRINCIPAL SHAREHOLDERS.
IAT Group Inc. and its current shareholders, members of the
Abu-Ghazaleh family, are our principal shareholders and currently directly and
indirectly beneficially own approximately 65.6% of our outstanding ordinary
shares. Our chairman and chief executive officer, and two other directors, are
members of the Abu-Ghazaleh family. We expect our principal shareholders to
continue to use their majority interest in the ordinary shares to direct our
management, to control the election of our entire board of directors, to
determine the method and timing of the payment of any dividends, 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.
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 the 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 54,091,650 ordinary
shares outstanding as of December 28, 2001, 35,461,450 ordinary shares are owned
by the principal shareholders and are "restricted securities." These
"restricted" ordinary shares are registrable upon demand and are eligible for
sale in the public market without registration under the Securities Act of 1933,
subject to compliance with the resale volume limitations and other restrictions
of Rule 144 under the Securities Act.
9
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:
o a classified board of directors;
o a prohibition on shareholder action through written consents;
o 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;
o advance notice requirements for shareholder proposals and
nominations;
o limitations on the ability of shareholders to amend, alter or
repeal our organizational documents; and
o 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 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 of association and our articles
of association and by the Companies Law (2001 Second Revision) 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.
ITEM 4. INFORMATION ON THE COMPANY
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 a holding company, incorporated under the
laws of the Cayman Islands on August 29, 1996 and are 56.5% 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
10
ordinary shares of Fresh Del Monte. Our principal executive office is located at
Walker House, Mary Street, P.O. Box 908GT, Georgetown, Grand Cayman, Cayman
Islands. Our U.S. executive office is located at c/o Del Monte Fresh Produce
Company, 800 Douglas Road, North Tower, 12th Floor, Coral Gables, Florida 33134.
Our telephone number at our U.S. executive office is (305) 520-8400.
Our global business, conducted through subsidiaries, is primarily the
worldwide sourcing, transportation and marketing of fresh produce. We source our
products (bananas, pineapples, cantaloupe, honeydew, watermelons, grapes,
non-tropical fruit (including citrus, apples, pears, peaches, plums, nectarines,
apricots and kiwi), plantains, Vidalia(R) sweet onions and various greens)
primarily from Central and South America and the Philippines. We also source
products from North America, Africa and Europe. We distribute our products in
North America, Europe, the Asia-Pacific region and South America. Our products
are sourced from company-owned farms, through joint venture arrangements and
through supply contracts with independent growers.
On September 17, 1998, we acquired 14 wholly-owned operating companies,
which we refer to as IAT, from IAT Group Inc. and its shareholders. At the time
of the IAT transaction, IAT Group Inc. owned approximately 86% of FG Holdings
Limited, which in turn owned approximately 63% of Fresh Del Monte. As a result,
the IAT transaction was accounted for as a combination of entities under common
control using the as if pooling of interests method of accounting.
We were organized to acquire beneficial ownership and control of all of
the outstanding common stock of FDP N.V. and GRC. The acquisition of FDP N.V.
and GRC, which was accounted for as a purchase, was completed on December 20,
1996. The results of operations of FDP N.V. and GRC are included in our results
commencing December 21, 1996.
Our principal capital expenditures for 2001 were primarily for
expansion of distribution and fresh-cut facilities in North America and
Asia-Pacific and expansion of operating facilities in Central and South America
for a total of $36.1 million. Our principal capital expenditures for 2000
consisted of the acquisition of pre-owned refrigerated vessels and expansion of
distribution and operating facilities for a total of $57.0 million. Our
principal capital expenditures for 1999 consisted of the acquisition of
pre-owned refrigerated vessels, expansion of distribution and operating
facilities and the implementation of a new computer system for a total of $95.4
million. Capital expenditures were funded from our revolving credit facility,
from mortgages on the pre-owned refrigerated vessels and from our operating cash
flows.
Principal capital expenditures planned for 2002 consist of
approximately $90 million for expansion of distribution and fresh-cut facilities
in North America, Europe and the Asia-Pacific region, expansion of operating
facilities in South and Central America and the acquisition of a pre-owned
refrigerated vessel. We expect to fund our capital expenditures for the year
2002 from operating cash flows and borrowings under our revolving credit
facility.
BUSINESS OVERVIEW
We are a leading vertically-integrated producer and marketer of high
quality fresh and packaged fresh-cut fruit and vegetables. Our products include
bananas, pineapples, cantaloupe, honeydew, watermelons, grapes, non-tropical
fruit (including citrus, apples, pears, peaches, plums, nectarines, apricots and
kiwi), plantains, Vidalia(R) sweet onions and various greens. We market our
products worldwide under the DEL MONTE(R) brand, a symbol of product quality and
reliability since 1892. Our global sourcing and logistics network allows us to
provide regular delivery of consistently high quality fresh produce and
value-added services to our customers.
11
We have leading market positions in key fresh produce categories. We
believe we are:
o the number one marketer of fresh pineapples worldwide,
including our "DEL MONTE GOLD (TM) EXTRA SWEET" pineapple,
with an estimated 50% market share in 2001;
o the number one marketer of branded melons in the United States
and the United Kingdom;
o the third largest marketer of bananas worldwide, with an
estimated 16% market share in 2001;
o a leading year-round marketer of branded grapes in the United
States;
o a leading marketer of branded citrus, apples, pears and other
non-tropical fruit in selected markets; and
o a leading marketer of Vidalia(R)sweet onions in the United
States.
We also have an established platform in the value-added fresh-cut fruit
and vegetables market, which has built upon our existing fresh-cut pineapple
business. The fresh-cut fruit and vegetables market, estimated at $8 billion in
the United States alone in 1997, is one of the fastest-growing categories in the
fresh produce segment and is expected to grow to $19 billion by 2003. This
category includes fresh produce that has been trimmed, peeled, cut and packaged
into nutritious, ready-to-use products for retail stores and foodservice
operators. Our fresh-cut fruit products include pineapple, cantaloupe, honeydew,
watermelon, grapes and kiwi, and our fresh-cut vegetable products include
broccoli, cauliflower, celery, carrots and greens. We believe our global
sourcing and logistics capabilities, combined with the DEL MONTE(R) brand, will
enable us to achieve a leading position in this market.
We source and distribute our products on a global basis. Our products
are grown primarily in Central and South America and the Philippines. We also
source products from North America, Africa and Europe. Our products are sourced
from company-controlled farms and independent growers. We transport our fresh
produce to markets using our fleet of 22 owned and 18 chartered refrigerated
vessels, and we operate four port facilities in the United States. We operate 27
distribution centers, generally with cold storage and ripening facilities in our
key markets worldwide, including the United States, the United Kingdom, Japan,
Korea and Argentina. We also operate nine fresh-cut facilities in the United
States as well as Japan. 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.
We market and distribute our products to retail stores, wholesalers,
distributors and foodservice operators in more than 50 countries around the
world. North America is our largest market, accounting for 52% of our net sales
in 2001. Europe and the Asia-Pacific region, including the Middle East, are our
other major markets, accounting for 29% and 17% of our net sales in 2001,
respectively. We are continuing to expand our network of distribution centers
and fresh-cut facilities throughout the United States and in Canada. These
investments 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 fruit and vegetables, ripening,
customized sorting and packing, direct-to-store delivery and in-store
merchandising and promotional support.
12
PRODUCTS
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, with annual
imports of 14 and ten billion pounds, respectively. The Asia-Pacific region
imports approximately five billion pounds per year. Bananas are a key produce
department product due to their high turnover and the premium margins that
grocers realize on banana sales.
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.
FRESH PINEAPPLES
During the period from 1990 to 2000, the volume of fresh pineapple
imports increased by approximately 175% in North America and 71% in Europe. In
the Asia-Pacific region, the volume of imports decreased slightly during that
period. In 2000, annual fresh pineapple consumption in the United States and
Canada reached approximately 800 million pounds. In the same year, fresh
pineapple imports into Europe and the Asia-Pacific region were approximately one
billion pounds and 300 million pounds, respectively.
Pineapples are grown in tropical and sub-tropical locations, including
the Philippines, Costa Rica, Hawaii, Thailand, Malaysia, Indonesia and Africa.
In contrast to bananas, pineapples have a long growing cycle of 18 months, and
require recultivation after one to three harvests. Pineapple growing thus
requires a higher level of capital investment, as well as greater agricultural
expertise. We believe that these factors have made it relatively difficult for
small producers to enter the pineapple market.
While there are many varieties of pineapple, among the principal
varieties is the Champaka pineapple, which is the traditional conical shaped
pineapple with a light yellow flesh. While the Champaka pineapple has
historically been the most commonly available variety of fresh and canned
pineapple, we believe that the significant increase in fresh pineapple sales in
recent years is due to the introduction of premium pineapples, such as our "DEL
MONTE GOLD(TM) EXTRA SWEET" pineapple, which has enhanced taste, golden shell
color, bright yellow flesh and higher vitamin C content.
MELONS
Estimated at $1 billion in 1996, the global melon market is
experiencing growing demand. During the period from 1990 to 2000, the volume of
imports of cantaloupes and other melons increased by approximately 107% in North
America and 118% in Europe. Melons are one of the highest volume fresh produce
items, and this category includes many varieties, such as cantaloupe, honeydew
and watermelons. 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 the November to May off-season in
North America and Europe, imports significantly increase, and melons command
premium prices. Melons are grown in temperate and tropical locations and have a
relatively short growing cycle.
13
FRESH GRAPES
In the United States, approximately 15% of total grape production is
used for fresh consumption, with the remainder processed for the production of
wine, raisins, juices and canned products. The higher production costs and
higher product value of fresh grapes result from more intensive production
practices than are required for grapes grown for processing. Fresh grape
consumption in the United States increased 4% in 2000. While California supplies
approximately 60% of total volumes, imports have made fresh grapes available
year-round in the United States, with shipments mostly from Chile. Most of the
U.S. production is marketed from May through November. From December through
April, Chilean grapes dominate the market. The United States has experienced a
long-term rise in consumption of fresh grapes, which is currently estimated at
over eight pounds per capita. In addition to increased fresh grape consumption,
consumers are also shifting their preferences towards seedless grapes.
FRESH-CUT PRODUCE
The fresh-cut produce market first gained prominence in many U.S. and
European markets with the introduction of packaged salads. While packaged salads
continue to account for a large proportion of fresh-cut produce sales, the
category has expanded significantly to include pineapples, assorted melons,
broccoli, carrots, mushrooms and other produce that is washed, cut and packaged
in a ready-to-use form. It is estimated that approximately 76% of all U.S.
households now purchase fresh-cut produce at least once a month, and these
products account for a rapidly increasing share of total produce sales. 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 will be 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
foodservice operators, although retail stores are gaining market share. The
majority of fresh-cut products are offered by local or regional suppliers, and
many retail food stores conduct cutting operations on their own premises. We
believe, however, 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, that 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
will 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.
PRODUCTS, SOURCING AND PRODUCTION
Our products are grown and sourced primarily in Central and South
America and the Philippines. We also source products from North America, Africa
and Europe. In 2001, 34% of the fresh produce we sold was grown on
company-controlled farms, with the remaining 66% 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(R) brand, as well as
under other proprietary brands such as Fielder(R), Purple Mountain(R) and
UTC(R).
14
The following table indicates our net sales by product for the last
three fiscal years:
Year Ended
-----------------------------------------------------------------
December 31, December 29, December 28,
1999 2000 2001
----------------- ----------------- -----------------
($ in millions)
NET SALES BY PRODUCT CATEGORY:
Bananas ........................ $ 951.3 55% $ 921.0 50% $ 894.2 46%
Other Fresh Produce:
Pineapples ................... 313.8 18 349.9 19 399.9 21
Melons ....................... 131.2 8 166.5 9 194.7 10
Grapes ....................... 83.9 5 106.3 6 91.2 5
Non-Tropical Fruit ........... 94.2 5 91.1 5 104.2 5
Fresh-Cut Fruit and Vegetables 24.0 1 57.5 3 76.5 4
Other Fruit and Vegetables ... 54.2 3 67.6 3 62.1 3
---------- -- ---------- -- ---------- --
Total Other Fresh Produce ...... 701.3 40 838.9 45 928.6 48
Non-Produce .................... 90.6 5 99.4 5 105.2 6
---------- -- ---------- -- ---------- --
Total ........................ $ 1,743.2 100% $ 1,859.3 100% $ 1,928.0 100%
========== === ========== === ========== ===
BANANAS
We believe that we are the world's third largest marketer of bananas
with an estimated 16% market share in 2001. Our banana sales in North America,
Europe and the Asia-Pacific region accounted for approximately 44%, 30% and 25%
of our net sales of bananas in 2001, respectively. We produced 21% of the banana
volume we sold in 2001 on company-controlled farms, and we purchased the
remainder from independent growers.
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(R) 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, and reduce our average per-box logistics
costs. We believe that our investment in distribution centers will also improve
the profitability of our banana operations as we provide more ripening, cold
storage, direct-to-store delivery and other value-added services to our
customers.
We produce bananas on company-controlled farms in Costa Rica,
Guatemala, Brazil and Cameroon, and we purchase bananas from independent growers
in the Philippines, Costa Rica, Ecuador, Colombia, Guatemala and Panama.
Although our purchase 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.
Due in part to limitations in the Philippines on foreign ownership of
land, we purchase bananas in the Philippines through long-term contracts with
independent growers. Approximately 63% of our Philippine-sourced bananas are
supplied by one grower, representing 15% of our total banana volume in 2001.
PINEAPPLES
Since the introduction in 1996 of our "DEL MONTE GOLD(TM) EXTRA SWEET"
pineapple, our share of the worldwide fresh pineapple market has grown
significantly to an estimated 50% in 2001. Pineapple sales in North America,
Europe and the Asia-Pacific region accounted for 61%, 26% and 13% of our net
sales of pineapples in 2001, respectively.
15
From 1996 to 2001, our production of the "DEL MONTE GOLD(TM) EXTRA
SWEET" pineapple increased from 2.5 million boxes to 12 million boxes. Based on
FAO data, the volume of pineapple sales in the United States has increased
significantly since 1996. We believe that a substantial portion of this growth
is due to our introduction of the "DEL MONTE GOLD(TM) EXTRA SWEET" pineapple. We
expect to increase the sales volume of our extra sweet pineapples in the near
future with extra sweet pineapples grown in Hawaii and South America. The "DEL
MONTE GOLD(TM) EXTRA SWEET" pineapple has a number of highly desirable
characteristics such as enhanced taste, golden shell color, bright yellow flesh
and a higher vitamin C content as compared to traditional varieties of
pineapple, such as the Champaka pineapple.
Our pineapple business includes our frozen pineapple operations.
Recently, we doubled the size of our Costa Rican frozen fruit facilities to take
advantage of the growing demand for these products, particularly by foodservice
operators. Frozen pineapples are used in a variety of preparations, including
fruit-based drinks, such as fruit smoothies and frozen dessert products.
The principal production and procurement areas for our pineapples are
Costa Rica, Hawaii and the Philippines. Cultivating pineapples requires greater
capital resources and significant agricultural expertise, effort and longer
growing time, relative to bananas. As a result, a higher percentage of the
pineapples we sell (75% by volume in 2001) are produced on company-controlled
farms than is the case for our bananas.
MELONS
We sell a variety of melons including cantaloupe, honeydew, watermelon
and specialty melons that we have introduced to meet the different tastes and
expectations of consumers in Europe. Cantaloupes represented over 70% of our
melon sales volume in 2001. We have become a significant producer and
distributor of melons during the North American and European October to May
off-season by sourcing melons from our company-controlled farms and independent
growers in Central and South America, where production generally occurs during
this period. We believe we were the largest marketer in the United States and
the United Kingdom of branded melons in 2001. Melons sold in the North American
and European off-season generally command a premium price due to the relative
scarcity of melons and alternative fruit. Melon sales in North America and
Europe accounted for 78% and 20% of our net sales of melons in 2001,
respectively. In terms of volume, we produced 70% of the melons we sold in 2001
on company-controlled farms and purchased the remainder from independent
growers.
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 and California and the East Coast of
the United States, and we supply the European market during its summer season
with melons from Spain. We source off-season melons principally in Costa Rica,
Guatemala and Brazil.
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. 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. Since melon production
requires semi-annual crop rotation, we own a relatively small percentage of
melon farms.
16
FRESH GRAPES
We market all varieties of fresh grapes, including the popular
Thompson, Flame and Crimson seedless and Red Globe varieties. We believe fresh
grapes are among the best-selling produce items. We obtain our supply of fresh
grapes from company-controlled farms in Chile and from independent growers in
Chile, South Africa and the United States. Purchase contracts for grapes are
typically made on an annual basis. Fresh grape sales in North America and Europe
accounted for approximately 74% and 17% of our total net sales of grapes in
2001, respectively. We also sell grapes in certain local markets in South
America. We produced 15% of the grape volume we sold in 2001 on
company-controlled farms, and we purchased 85% from independent growers. As with
most of our fresh produce, we are able to supply grapes to our customers on a
year-round basis, and during the year-end holiday season in North America and
Europe, we are able to obtain premium prices.
NON-TROPICAL FRUIT
In addition to grapes, we sell a variety of non-tropical fruit
including citrus, apples, pears, peaches, plums, nectarines, apricots and kiwi.
Non-tropical fruit sales in North America, Europe, the Asia-Pacific region and
South America accounted for approximately 29%, 38%, 23% and 9% of our net sales
of non-tropical fruit in 2001, respectively. A large portion of our citrus is
sold in the Asia-Pacific region. We purchase most of our supply of non-tropical
fruit from independent growers in Chile, South Africa, the United States and
Spain. Purchase contracts for non-tropical fruit are typically made on an annual
basis.
FRESH-CUT FRUIT AND VEGETABLES
We believe that the fresh-cut fruit and vegetables market is 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 that we have
completed in the past three years 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(R) brand, will enable
us to achieve a leading position in this highly-fragmented market. Our fresh-cut
fruit products include pineapple, cantaloupe, honeydew, watermelons and grapes.
The fruit we use in our fresh-cut operations are sourced within our integrated
system of company-controlled farms and from independent growers. We also offer
fresh-cut vegetables, including broccoli, cauliflower, celery, carrots and
greens. We purchase most of our vegetables for these purposes from independent
growers in the United States. Our purchase contracts for both fruit and
vegetables are typically short-term but vary by produce item. Substantially all
of our fresh-cut products are sold in the United States, although we plan to
expand our fresh-cut operations to Europe and certain other major markets.
OTHER FRUIT AND VEGETABLES
We produce, distribute and market a variety of other fruit, including
plantains and mangos, as well as other fresh produce, including Vidalia(R) and
other sweet onions. We also distribute packaged greens, principally collard,
turnip and mustard greens and kale. We source the fruit items from
company-controlled farms and independent growers in Costa Rica, Colombia,
Ecuador and Guatemala. We source our greens primarily from our own farms in
Georgia and independent growers in the Southeastern United States. In October
1998, we purchased a Vidalia(R) sweet onion farm and distribution facility in
Georgia. Although sweet onions are grown throughout the United States, a sweet
onion may only be labeled a Vidalia(R) sweet onion if it is grown in certain
counties in Georgia. We believe we are a leading marketer of Vidalia(R) sweet
onions in the United States.
17
NON-PRODUCE PRODUCTS AND SERVICES
Our non-produce services include our third-party ocean freight
container business, our third-party plastics and box manufacturing business, our
Jordanian poultry business and our Argentine grain business. Our third-party
ocean freight container business allows us to generate incremental revenue on
vessels' return voyages to our product sourcing locations and, as space is
available on outbound voyages to our major markets, which reduces our overall
shipping costs. As a result, we believe our vessel utilization rate is above
average for the fresh produce industry. 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. We own a state-of-the-art poultry farm and processing
facility in Jordan that is a leading provider to retail stores and foodservice
operators in that country. In addition, we grow grain on leased farms in
Argentina, including corn used to supply a portion of the feed requirements of
our Jordanian poultry operations. We own and operate grain silos in Argentina
for the storage of grain grown by us and third parties, which may be held for
future sales.
LOGISTIC OPERATIONS
We market and distribute our products to retail stores, foodservice
operators, wholesalers and distributors in more than 50 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 its premature ripening and
optimizing product quality and freshness. Consistent with our reputation for
high quality fresh produce, we must preserve our 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 air, 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
22 owned and 18 chartered refrigerated vessels. In recent years, we have sought
to rationalize our fleet through opportunistic acquisitions of vessels. We
believe that our enlarged fleet of owned vessels has been a cost-effective means
of reducing our exposure to the volatility of the charter market, and we plan to
continue to evaluate opportunities to increase our fleet. Of the 18 vessels we
charter, 15 are chartered on a short-term basis. We also lease refrigerated
containers under capital, rather than operating, leases, which we believe is a
more cost-effective means of managing our container requirements.
Our logistics system is supported by various information systems. In
1999, we introduced a single, integrated telecommunications system that
centrally links our major production and distribution locations. We are also
implementing additional upgrades to our information systems that support our
logistics network. We believe that these improvements, expected to be completed
in 2002, will increase the utilization of our existing logistics network,
especially in North America.
18
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.
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. As a
result, we have made significant investments in our network of distribution
centers and plan additional investments through 2003. Our planned investments
are concentrated in the United States, our largest market, where we believe that
a nationwide presence will permit us to service a greater proportion of our
customers' needs and to capture a greater proportion of the fresh and fresh-cut
produce markets. Investments in our network will include new distribution
centers with fresh-cut, ripening and other value-added service facilities, as
well as enhancements to existing distribution centers and the addition of
smaller distribution centers to service some of our growing regional markets.
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 emphasize trade advertising and
in-store promotions.
NORTH AMERICA
In 2001, 52% 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 air, land and sea transportation and
distribution throughout our extensive logistics network. At December 28, 2001,
we operated 16 distribution centers in the United States, which generally have
ripening and fresh-cut facilities. We also operated four port facilities, which
also include cold storage facilities, as well as a fleet of refrigerated trucks.
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
able to manage the timing of our sales to maximize 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.
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
We distribute our products throughout Europe. In the United Kingdom,
where we operate five distribution centers, 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 and
Southern Europe, we generally distribute our products through two marketing
companies. In 1999, we also acquired all of the outstanding shares of Banana
Marketing Belgium, a marketing company in Belgium, which enabled us to expand
our direct sales in the Northern European market.
19
ASIA-PACIFIC
We distribute our products in the Asia-Pacific region, including the
Middle East, through direct marketing and through large distributors. Our
principal markets in this region are Japan, Korea, China and Hong Kong. In
Japan, we distributed approximately 78% of our products in 2001 through direct
sales and the remainder through Japan's largest fresh produce distribution
cooperative, which distributes our products on a sales commission basis. We
manage four distribution centers at ports in Japan with cold storage and banana
ripening facilities.
We also engage in direct sales and marketing activities in Korea and
Hong Kong. In other Asia-Pacific markets, we sell to local distributors. In
Korea, we have one distribution center, including state-of-the art ripening
technology that is not available in that market, increasing our ability to offer
value-added services.
SOUTH AMERICA
We began distributing our products in South America in 2000. We have
direct sales and marketing activities in Brazil, Argentina and Chile. We have
one distribution center in Argentina and are building a new state-of-the-art
facility in Brazil. Our initial sales in these markets have focused mainly on
bananas, melons and non-tropical fruit.
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 that generally 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 criteria. Only fresh
produce meeting our stringent quality specifications is sold under the DEL
MONTE(R) brand.
We are able to maintain the high quality of our products by growing 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 own 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, or ISO, in
environmental compliance (14001) and production processes (9002).
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 ensure compliance with applicable laws and regulations. We believe we
are in material compliance with these laws and regulations.
20
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, the countries of the European Union,
Japan, China and South Korea. These government regulations include:
o sanitary regulations, particularly in the United States and
the countries of the European Union;
o regulations governing pesticide use and residue levels,
particularly in the United States, Japan and Germany; and
o regulations governing packaging and labeling, particularly in
the United States and the countries of the European Union.
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 food service
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 fruit and vegetables 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
On May 2, 2001, the European Commission adopted a new regulation which
revised 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 became
effective July 1, 2001 and maintains the use of banana import licenses within
the tariff quotas determined by the European Commission until December 31, 2005.
ENVIRONMENTAL MATTERS
The management, use and disposal of some chemicals and pesticides are
an inherent aspect 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, the 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 below in connection with the
Kunia well site and under "-- Legal Proceedings."
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 "-- Legal Proceedings -- Kunia Well Site."
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
21
bananas, pineapples, melons and the other fresh fruit and vegetables that we
sell comes from competing producers. 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, 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, make it relatively difficult to enter the market, especially
for smaller producers. In addition, there has historically tended to be less
price volatility for pineapples as compared to bananas, due to a more stable
equilibrium between supply and demand. This is partly attributable to a
perception by consumers that there are fewer comparable alternatives to fresh
pineapples.
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 pineapples, grapes and non-tropical fruit, there
are few barriers to entry into the banana market. Supplies of bananas can be
increased relatively quickly due to banana's relatively short growing cycle and
the limited capital investment required for banana growing. As a result of
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 melons 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.
As there are comparatively fewer melons available during November to May, the
off-season in North America and Europe, we concentrate on our sales efforts
during this period when competition is less intense.
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 fruit and vegetables 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 a full range of
value-added services and increasingly national distribution, will position us to
gain an increasing share of this market.
22
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 wholly-owned are:
Subsidiary Country of Incorporation
------------------------------------------------ ------------------------
Corporacion de Desarrollo Agricola Del Monte S.A. Costa Rica
Compania de Desarrollo Bananero de Guatemala, S.A. Guatemala
Del Monte Fresh Produce Brasil Ltda. Brazil
Del Monte Fresh Produce (Chile) S.A. Chile
Del Monte Fresh Produce International Inc. Liberia
Del Monte Fresh Produce N.A., Inc. USA
Del Monte Fresh Produce (UK) Ltd. England
Fresh Del Monte Ship Holdings Ltd. Cayman Islands
Fresh Del Monte Japan Company Ltd. Japan
In addition to the above, we have a non-controlling 80% interest in
Internationale Fruchtimport Gesellschaft Weichert & Co., a German limited
partnership.
PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the plantation acreage owned or leased
by us and the principal products grown on such plantations by location as of the
end of 2001:
Acres Under Production
--------------------------------
Location Acres Owned Acres Leased Products
-------- ----------- ------------ --------
Costa Rica................. 20,700 800 Bananas, Pineapples
Guatemala.................. 15,800 3,000 Bananas, Melons
Brazil .................... 4,500 -- Bananas, Melons
Chile...................... 8,500 -- Grapes, Non-Tropical Fruit
Hawaii..................... -- 9,400 Pineapples
Contiguous United States 700 3,800 Melons, Vidalia(R)Sweet Onions and Non-Tropical
Fruit
We lease additional land in Hawaii on a month to month basis pending
resolution of the environmental issues relating to the Kunia well site. We also
lease land in Argentina on a seasonal basis for our grain operations.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
CRITICAL ACCOUNTING POLICIES
We believe the following accounting polices used in the preparation of
our consolidated financial statements may involve a higher degree of judgment
and complexity and could have a material effect on our consolidated financial
statements.
GROWING CROPS
Expenditures on pineapple, melon, grapes and non-tropical fruit growing
crops are valued at the lower of cost or market and are deferred and charged to
income 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. If there is an unexpected decrease in estimated harvest yields,
a write-down of deferred growing costs may be required.
23
IMPAIRMENT OF LONG-LIVED ASSETS
We account for the impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121). SFAS No. 121 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. Based on the continued operating losses of certain
growing and production facilities in South and North America related to the
banana and other fresh produce segments and estimates of fair value related to
these assets, we recorded a charge of $10.2 million for impairment of long-lived
assets in 2001, related primarily to property, plant and equipment to be
disposed of or abandoned. In assessing potential impairment, we consider the
operating performance and projected undiscounted cash flows of these assets. If
the projected cash flows are not met, we may have to record additional
impairment charges not previously recognized.
REVENUE RECOGNITION
Revenue is recognized on sales of products when the customer receives
title to the goods, generally upon delivery and when collectibility is
reasonably assured. We estimate a provision for uncollectible accounts
receivable based on our collection history.
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 future taxable income will not be sufficient to
realize income tax benefits. 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
reserves as a result of various tax audits currently in process. The eventual
outcome of these audits could differ from the estimated tax reserves.
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include our accounts and the
accounts of our majority owned subsidiaries which we control. All significant
intercompany accounts and transactions are eliminated in consolidation. We
utilize the equity method of accounting for investments in 20% to 50% owned
companies and for investments in over 50% owned companies over which we do not
have control.
ENVIRONMENTAL REMEDIATION LIABILITIES
Losses associated with environmental remediation obligations are
accrued when such losses are probable and can be reasonably estimated. We
recorded a provision for the Kunia Well Site of $15.0 million in 2001 related to
the expected environmental remediation. At December 28, 2001, we have a total
liability recorded for the Kunia Well Site of $19.1 million. The liability is
based on an updated draft final feasibility
24
study submitted to the Environmental Protection Agency for review with estimated
remediation costs that range from $5.2 million to $28.9 million. The final
outcome of the cost for the expected environmental remediation of the Kunia Well
Site is dependent on the Environmental Protection Agency's selection, review and
approval of the remediation alternatives and the actual cost.
DERIVATIVE FINANCIAL INSTRUMENTS
Effective December 30, 2000, We adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), as amended by Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS No. 133, as amended, requires the recognition of all
derivative instruments as either assets or liabilities on the balance sheet
measured at fair value and establishes new accounting rules for hedging
instrument depending on the nature of the hedge relationship. A fair value hedge
protects existing assets, liabilities, and firm commitments against changes in
fair value. 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 protects against the risk that variable
prices, costs, rates, or terms may cause future cash flows to be uncertain. 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. Any
ineffective portion of a derivative instrument's change in fair value is
immediately recognized in earnings. Fair values for derivative instruments are
estimated using valuation models that incorporate current market prices and
interest rates for the underlying financial instruments. The value of derivative
instruments are subject to fluctuations as a result of market conditions. We may
also incur losses in the event of non-performance by counterparties.
PENSION LIABILITIES
We sponsor two non-contributory defined benefit pension plans which
cover a portion of our U.S. based employees. We also provide contributory health
care benefits to our U.S. retirees and their dependents. The liabilities
recorded as of December 28, 2001 for these plans are based on actuarial
valuations which use certain assumption on the projected benefit obligation and
expected long-term return on plan assets. A significant change in these
assumptions may result in additional expense related to these plans.
OPERATING RESULTS
OVERVIEW
We are a leading vertically-integrated producer and marketer of high
quality fresh and packaged fresh-cut fruit and vegetables. Our products include
bananas, pineapples, cantaloupes, honeydew, watermelons, grapes, non-tropical
fruit (including citrus, apples, pears peaches, plums, nectarines, apricots and
kiwi), plantains, Vidalia(R) sweet onions and various greens. We market our
products worldwide under the DEL MONTE(R) brand, a symbol of product quality 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.
25
NET SALES
Our net sales are affected by numerous factors including 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.
Since our financial reporting currency is the 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 strong dollar versus such currencies
resulting in reduced net sales in dollar terms. Our net sales for 2001 were
negatively impacted by approximately $37 million, as compared to 2000, primarily
as a result of a strong dollar versus the Euro and Japanese yen.
Our net sales growth in recent years has been achieved primarily
through increased sales volume in existing markets of other fresh produce,
primarily pineapples and melons, favorable pricing on our "DEL MONTE GOLD(TM)
EXTRA SWEET" pineapple, as well as acquisitions and expansion of value-added
services such as banana ripening. Our net sales growth in recent years is also
attributable, to a lesser extent, to a broadening of our product line with the
expansion of our fresh-cut fruit and vegetable and sweet onion business. We
expect our net sales growth to continue to be driven by increased sales volumes
in our other fresh produce segment.
COST OF PRODUCTS SOLD
Cost of products sold is principally composed of two elements, product
and logistics costs. Product cost for company-grown 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 cost and packaging costs.
Logistics costs include air, 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
chartering refrigerated vessels and vessel operating expenses. Vessel operating
expenses for company-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. Containerboard, plastic, resin and fuel prices have
historically been volatile. Containerboard and fuel prices increased
significantly in 2000 as compared to 1999 and decreased in 2001 as compared to
2000.
Historically, we received subsidies from the Costa Rican government for
the production and export of pineapples which we accounted for as a reduction in
cost of products sold. These subsidies, which were $9.3 million for 1999,
expired on December 31, 1999.
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
company-owned 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
26
produced on farms owned by us 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.
In 1998, our Guatemalan banana operations were interrupted as a result
of Hurricane Mitch. The hurricane damage resulted in a one-time charge of $26.5
million for asset write offs and other costs, net of insurance proceeds and
reduced banana production by approximately six million and two million boxes in
1999 and 1998, respectively, or approximately 5% and 2%, respectively, of our
worldwide banana volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include primarily the
costs associated with selling in countries where we have our own sales force,
advertising and promotional expenses, general corporate overhead and other
related administrative functions.
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 vessel purchases and capital lease obligations. Decreases in
interest rates during 2001 significantly contributed to the decrease in interest
expense combined with a lower average debt balance.
OTHER INCOME (LOSS), NET
Other income (loss), net, primarily consists of equity earnings in
unconsolidated companies, together with currency exchange gains or losses and
other miscellaneous income and expense items.
PROVISION FOR INCOME TAXES
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 distribution
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 reserves as a
result of various tax audits currently in process. The eventual outcome of these
audits may differ from the estimated tax reserves.
27
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
-----------------------------------------------------
December 31, December 29, December 28,
1999 2000 2001
------------ ------------ ------------
INCOME STATEMENT DATA:
Net sales................................. 100.0% 100.0% 100.0%
Gross profit.............................. 8.6 8.9 14.7
Selling, general and administrative 3.6 4.4 4.6
expenses...............................
Operating income.......................... 4.8 4.4 8.6
Interest expense.......................... 1.7 2.3 1.7
Net income ............................... 3.3 1.8 5.0
The following tables present for each of the periods indicated (1)
net sales by geographic region, (2) net sales by product category and (3) gross
profit by product category, and in each case, the percentage of the total
represented thereby:
Year Ended
------------------------------------------------------------------------
December 31, December 29, December 28,
1999 2000 2001
------------------- ------------------- ------------------
($ in Millions)
NET SALES BY GEOGRAPHIC REGION:
North America ................ $ 830.4 48% $ 922.2 50% $ 995.6 52%
Europe ....................... 601.5 34 572.7 31 550.4 29
Asia-Pacific ................. 280.7 16 324.5 17 328.5 17
Other ........................ 30.6 2 39.9 2 53.5 2
---------- ---- ---------- ---- ---------- ----
Total ...................... $ 1,743.2 100% $ 1,859.3 100% $ 1,928.0 100%
========== ==== ========== ==== ========== ====
NET SALES BY PRODUCT CATEGORY:
Bananas ...................... $ 951.3 55% $ 921.0 50% $ 894.2 46%
Other fresh produce .......... 701.3 40 838.9 45 928.6 48
Non-produce .................. 90.6 5 99.4 5 105.2 6
---------- ---- ---------- ---- ---------- ----
Total ...................... $ 1,743.2 100% $ 1,859.3 100% $ 1,928.0 100%
========== === ========== === ========== ===
GROSS PROFIT BY PRODUCT CATEGORY:
Bananas ...................... $ (4.0) (3)% $ 6.3 4% $ 70.9 25%
Other fresh produce .......... 155.5 103 162.1 97 208.9 74
Non-produce .................. (0.9) -- (1.5) (1) 3.1 1
---------- ---- ---------- ---- ---------- ----
Total ...................... $ 150.6 100% $ 166.9 100% $ 282.9 100%
========== === ========== === ========== ===
2001 COMPARED WITH 2000
NET SALES
Net sales in 2001 were $1,928.0 million compared with $1,859.3 million
in 2000. The increase in net sales of $68.7 million was attributable to the
other fresh produce category, partially offset by lower banana net sales. Banana
net sales decreased by $26.8 million as compared with the prior year due in part
to a planned reduction in sales to selected less profitable markets, which was
partially offset by increased per unit selling prices. Net sales of other fresh
produce increased as a result of higher per unit sales prices of pineapples,
melons, non-tropical fruit and fresh-cut products, as well as higher sales
volumes of pineapples and fresh-cut products. The fresh-cut operations
contributed $76.5 million to net sales in 2001.
28
Net sales were adversely affected by a stronger dollar versus the Euro
and Japanese yen. The net effect of foreign exchange in 2001 compared with 2000
was a decrease in net sales of approximately $37 million.
COST OF PRODUCTS SOLD
Cost of products sold was $1,645.1 million in 2001 compared with
$1,692.4 million in 2000, a decrease of $47.3 million. The decrease is primarily
due to the planned reduction in banana sales volume combined with lower sea
transportation costs.
GROSS PROFIT
Gross profit was $282.9 million in 2001 compared with $166.9 million in
2000, an increase of $116.0 million or 70%. As a percentage of net sales, gross
profit margin increased to 14.7% in 2001 from 9.0% in 2000, primarily due to the
increase in per unit banana selling prices and the higher net sales of other
fresh produce, principally pineapples and melons, and reduced sea transportation
costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $8.5 million to
$89.4 million in 2001 compared with $80.9 million in 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 efforts.
PROVISION FOR KUNIA WELL SITE
As the result of communications with the EPA related to our leased
plantation in Kunia, Hawaii, a charge of $15.0 million for environmental
remediation was recorded in 2001. See "-- Legal Proceedings -- Kunia Well Site."
ASSET IMPAIRMENT CHARGE
Based on the continued operating losses of certain growing and
production facilities in South, Central and North America related to our banana
and the other fresh produce categories and estimates of fair values related to
these assets in 2001, we recorded a charge of $10.2 million for impairment of
long-lived assets related primarily to property, plant and equipment to be
disposed of or abandoned.
OPERATING INCOME
Operating income in 2001 was $164.9 million compared with $82.6
million in 2000, an increase of $82.3 million, or 100%. The increase is due
primarily to an increase in gross profit, partially offset by the increase in
selling, general and administrative expenses.
INTEREST EXPENSE
Interest expense decreased $11.1 million to $32.1 million for 2001
compared with $43.2 million in 2000, as a result of lower effective interest
rates during 2001 and a lower average debt balance.
29
OTHER INCOME (LOSS), NET
Other income (loss), net increased by $6.1 million to a loss of
$12.2 million in 2001 from a loss of $6.1 million in 2000. The change was due
primarily to foreign exchange losses and higher minority interest expense
related to consolidated subsidiaries which are not wholly owned by us, partially
offset by higher equity earnings of unconsolidated subsidiaries.
PROVISION FOR INCOME TAXES
Provision for income taxes increased from $2.9 million in 2000 to
$26.5 million in 2001 primarily due to adjustments that may result from ongoing
audits in various jurisdictions, increased earnings in jurisdictions where tax
rates are significantly higher, and jurisdictions in which the use of tax loss
carry forwards cannot be assured.
We are currently undergoing tax audits in several jurisdictions for
certain years prior to 2001. As a result of these examinations, we provided
reserves of $19.1 million during 2001. The accrual for the audits are included
in other noncurrent liabilities in our balance sheet at December 28, 2001. We
believe the amounts accrued as of December 28, 2001 are sufficient to cover
potential tax assessments for the years under examination.
2000 COMPARED WITH 1999
NET SALES
In 2000 net sales were $1,859.3 million compared with $1,743.2 million
for 1999, an increase of 7%. The increase in net sales of $116.1 million was
primarily the result of higher sales volume of other fresh produce, partially
offset by lower per unit sales volume of bananas and the effect of a stronger
dollar against the Euro.
Net sales of bananas decreased 3% in 2000 compared with 1999, as a
result of a planned 4% reduction in sales volume in Europe and North America and
lower per unit sales prices in Europe and the Asia-Pacific region, partially
offset by higher per unit sales prices in North America. The decrease in per
unit sales pricing in Europe and the Asia Pacific region resulted from an
oversupply in these markets.
Net sales of other fresh produce increased by $137.6 million, or 20%,
in 2000 compared with 1999 primarily due to an increase in unit sales volume of
our extra sweet pineapples, melons, non-tropical fruit and fresh-cut operations
and higher per unit sales prices of all of the major products. The increase in
unit sales volume resulted from better yields from the melon operations and the
introduction of our fresh-cut operations in late 1999. Our fresh-cut operations
contributed $59.8 million to net sales in 2000.
Our net sales in 2000 were negatively impacted by the strengthening of
the dollar versus the Euro, partially offset by a weaker dollar versus the
Japanese yen. The net effect of foreign exchange for the year 2000 compared with
1999 was a decrease of approximately $35.0 million in net sales.
COST OF PRODUCTS SOLD
Cost of products sold was $1,692.4 million for 2000 compared with
$1,592.6 million for 1999, an increase of $99.8 million. The increase in cost of
products sold was principally attributable to the increased unit sales volume in
the other fresh produce segment.
30
GROSS PROFIT
Gross profit was $166.9 million for 2000 compared with $150.6 million
for 1999, an increase of $16.3 million or 11%. As a percentage of net sales,
gross profit remained relatively constant from 8.6% in 1999 to 8.9% in 2000.
Gross profit was favorably impacted by increased sales volumes of other fresh
produce and overall improved per unit sales prices, and negatively impacted by
the effect of foreign exchange and higher fuel and containerboard prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $17.4 million to
$80.9 million in 2000 compared with $63.5 million in 1999. This increase is
primarily the result of increased sales and marketing expenses related to the
expansion in North America, increased selling and marketing activities in the
Asia-Pacific region, an increase in bad debt expense in certain European
operations and increased sales volumes of other fresh produce.
INTEREST EXPENSE
Interest expense increased $13.0 million to $43.2 million for 2000
compared with $30.2 million in 1999, as a result of higher effective interest
rates during 2000 and a higher average debt balance.
OTHER INCOME (LOSS), NET
Other income (loss), net was a loss of $6.1 million in 2000 compared to
income of $14.7 million in 1999. The loss in 2000 was due primarily to foreign
exchange losses and recognition of a $5.2 million loss due to a permanent
decline in market value on available-for-sale securities, partially offset by
equity income in unconsolidated subsidiaries. The income in 1999 was primarily
due to Hurricane Mitch insurance recoveries of $13.5 million.
PROVISION FOR INCOME TAXES
Provision for income taxes decreased from $14.7 million in 1999 to $2.9
million in 2000 primarily due to a decrease in taxable income in North America
and Europe.
SEASONALITY
In part as a result of seasonal sales price fluctuations, we have
historically realized most of our net sales and a substantial majority of our
gross profit during the first two calendar quarters of the year. The sales
prices of any fresh produce item fluctuate 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
during the off-season from November 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. These seasonal fluctuations
are illustrated in the following table, which presents certain unaudited
quarterly financial information for the periods indicated:
31
Year Ended
------------------------------
December 29, December 28,
2000 2001
------------ ------------
NET SALES:
First quarter...... $ 536.1 $ 534.3
Second quarter..... 516.2 541.0
Third quarter...... 395.8 430.7
Fourth quarter..... 411.2 422.0
---------- ----------
TOTAL ......... $ 1,859.3 $ 1,928.0
========== ==========
GROSS PROFIT:
First quarter...... $ 71.3 $ 84.0
Second quarter..... 48.3 82.7
Third quarter...... 21.9 64.6
Fourth quarter..... 25.4 51.6
---------- ----------
TOTAL .... $ 166.9 $ 282.9
========== ==========
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for 2001 was $230.2 million,
an increase of $131.7 million from 2000. The increase in net cash provided by
operating activities was primarily attributable to the increase in net income,
lower inventory balances, a reduction in the growth of accounts receivable, and
a reduction in advances to growers and other receivables, combined with the
changes in other noncurrent assets and liabilities, the accruals for Kunia Well
Site and tax reserves and the asset impairment charges.
Net cash provided by operating activities for 2000 was $98.5 million,
an increase of $59.6 million from 1999. The increase in net cash provided by
operating activities was primarily attributable to lower inventory balances,
prepaid expenses and other current assets and a reduction in the growth of
accounts receivable, combined with changes in other noncurrent assets and
liabilities.
Net cash used in investing activities was $66.6 million for 2001, $81.2
million for 2000 and $172.3 million for 1999. Net cash used in investing
activities for 2001 consisted primarily of capital expenditures of $55.9 million
and the acquisition of the remaining 50% interest in a Chilean subsidiary
engaged in the production of grapes and non-tropical fruit for approximately
$13.8 million. Capital expenditures for 2001 were primarily for expansion of our
production facilities in South America and distribution facilities in North
America and the Asia-Pacific region. Net cash used in investing activities for
2000 was primarily attributable to capital expenditures of $75.5 million and the
acquisition of fresh-cut operations in the United States and a fresh produce
distribution operation in the United Kingdom totaling $9.9 million. Capital
expenditures for 2000 were primarily for expansion of our production and
distribution facilities in North and South America and the purchase of pre-owned
refrigerated vessels. Net cash used in investing activities for 1999 consisted
primarily of capital expenditures of $100.8 million and the acquisition of a
Belgian banana marketing company for $58.7 million. Capital expenditures for
1999 were primarily for expansion of our production and distribution facilities
in North, Central and South America and the purchase of pre-owned refrigerated
vessels. Capital expenditures were funded from our credit facility, from
mortgages on the pre-owned refrigerated vessels and from our operating cash
flows
Net cash used in financing activities for 2001 and 2000 of $161.6
million and $37.7 million, respectively, were primarily for net payments on
long-term debt. Net cash provided by financing
32
activities for 1999 of $144.5 million was primarily attributed to borrowing
under our revolving credit facility.
In recent years, we have financed our working capital and other
liquidity requirements primarily through cash from operations and borrowings
under our credit facility. We have a credit facility with Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland," New York Branch, which we
refer to as Rabobank. Our obligations under the credit facility are guaranteed
by certain of our subsidiaries. This credit facility includes a revolving line
of credit, letter of credit facility and foreign exchange contract facility of
up to $450 million and as of May 2000, a term loan of an additional $135
million. The credit facility is collateralized directly or indirectly by
substantially all of our assets and requires us to meet certain covenants. We
believe we are in compliance with these covenants. The revolving line of credit
expires on May 19, 2003, and amounts outstanding under the revolving line of
credit must be repaid by that date. We expect to refinance the revolving line of
credit in 2002. We believe we will be able to refinance our revolving line of
credit and obtain suitable terms based on our positive operating results and
cash flows in recent years. The revolving line of credit permits borrowings with
an interest rate based on a spread over LIBOR. The term loan is payable in
quarterly installments of $3.4 million which commenced in September 2000, and
bears interest based on a spread over LIBOR. The term loan matures on May 10,
2005 with a principal payment at maturity of $70.9 million. As of December 28,
2001, $2.7 million of the available credit line was applied towards the issuance
of letters of credit. The principal amount outstanding under the revolving line
of credit at December 28, 2001 was $130.4 million, bearing interest at a
weighted average rate of 3.5% at that date. The unpaid balance on the term loan
was $114.8 million at December 28, 2001, bearing interest at a rate of 4.34% at
that date. See "Financial Information--Description of Revolving Credit
Facility."
In connection with the revolving credit facility, we entered into an
interest rate swap agreement expiring in January 2003 with Rabobank
International in order to limit the effect of an increase in interest rates on a
portion of the revolving credit facility. The notional amount of the swap
decreases over its life from $150 million in the first three months to $53.6
million in the last three months. The cash differentials paid or received on the
swap agreement are accrued and recognized as adjustments to interest expense.
Interest expense related to the swap agreement for 2001 was $1.4 million.
Interest income related to the swap agreement for 2000 was $0.3 million.
Interest expense related to the swap agreement for 1999 was $0.9 million.
At December 28, 2001, we had $451.6 million in committed working
capital facilities, of which $317.3 million was available. The major portion of
these facilities is represented by the $450.0 million revolving credit facility.
As of December 28, 2001, we had $332.1 million of long-term debt and
capital lease obligations, including the current portion, consisting of $130.4
million related to the revolving credit facility, $114.8 million related to the
term loan, $50.3 million of long-term debt related to refrigerated vessel loans,
$15.2 million of other long-term debt and $21.4 million of capital lease
obligations.
Principal capital expenditures planned for 2002 consist of
approximately $90 million for expansion of distribution and fresh-cut facilities
in North America, Europe and the Asia-Pacific region, expansion of operating
facilities in South and Central America and the acquisition of a pre-owned
refrigerated vessel. We expect to fund our capital expenditures for the year
2002 from operating cash flows, borrowings under our revolving credit facility
and a mortgage on the pre-owned refrigerated vessel.
We believe that cash generated from operations and available borrowings
will be adequate to cover our cash needs during 2002. We generated cash from
operations of $230.2 million in 2001 and
33
have $317.3 million available under our revolving credit facility as of December
28, 2001. Based on our operating plan goals and borrowing capacity of our
revolving credit facility, we believe we have sufficient cash to meet our
obligations in 2002. Our revolving credit facility matures in May 2003. We
believe we will be able to refinance our revolving line of credit and obtain
suitable terms based on our positive operating results and cash flows in recent
years.
The following is information of our contractual obligations as of
December 28, 2001.
Payments Due Under Contractual Obligations
Total 2002 2003 2004 2005 2006 Thereafter
----- ---- ---- ---- ---- ---- ----------
Long-term debt $310.7 $43.3 $161.8 $ 17.7 $ 82.0 $ 1.3 $ 4.6
Capital lease
obligations
(including interest) 25.0 7.6 7.1 4.5 2.1 3.7 -
Operating leases 59.0 10.8 9.6 8.0 7.0 6.5 17.1
------- ------ ------ ------ ---- ------- ------
Total $394.7 $61.7 $178.5 $30.2 $91.1 $11.5 $21.7
====== ===== ====== ===== ===== ===== =====
We also have agreements to purchase substantially all of the production
of certain independent growers in Costa Rica, Guatemala, Ecuador, Cameroon,
Colombia, Chile, Panama, South Africa and the Philippines. Total purchases under
these agreements amounted to $458.5 million, $494.8 million and $560.9 million
for 2001, 2000 and 1999, respectively.
OTHER
We are involved in several legal and environmental matters which, 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 "Business Overview--Environmental Matters" and "Legal
Proceedings."
RESEARCH AND DEVELOPMENT, TRADEMARKS AND LICENSES
RESEARCH AND DEVELOPMENT
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 major
production facilities, and we provide our growers with access to improved
technologies and practices.
Some of the recent research and development projects include:
o the development of the "DEL MONTE GOLD(TM) EXTRA SWEET"
pineapple;
o improved irrigation methods and soil preparation for melon
planting; and
o improved packing technology, including "lay-down" boxes for
our pineapples that help reduce damage to our pineapples in
transit, and various technological enhancements to packing
designs and materials that improve the strength of our
packaging, while maintaining a level of air flow and moisture
that allows for optimal ripening and minimal deterioration
during transit.
34
TRADEMARKS AND LICENSES
We have the exclusive right to use the DEL MONTE(R) brand for fresh
fruit, fresh vegetables and other fresh and fresh-cut produce on a royalty-free
basis under a worldwide, perpetual license from Del Monte Corporation, an
unaffiliated company that owns the DEL MONTE(R) trademark. Del Monte Corporation
and several other unaffiliated companies manufacture, distribute and sell under
the DEL MONTE(R) 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, conditional upon our compliance
with certain quality control standards. 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, 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 the fresh fruit, fresh vegetables, fresh
produce and certain other specified products.
We also sell produce under several other brands for which we have
obtained registered trademarks, including Fielder(R), Purple Mountain(R) and
UTC(R).
35
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
The names and positions of our directors and senior management are as follows:
Name Position Current Position Held Since (1)
---- -------- -------------------------------
Mohammad Abu-Ghazaleh................... Chairman of the Board, Director and Chief December 20, 1996
Executive Officer
Hani El-Naffy........................... President, Director and Chief Operating December 20, 1996
Officer
John F. Inserra......................... Executive Vice President and Chief December 7, 1994
Financial Officer
M. Bryce Edmonson....................... Senior Vice President, North America January 4, 1997
Jean-Pierre Bartoli..................... Senior Vice President, Europe and Africa April 1, 1997
Randolph Breschini...................... Vice President, Asia-Pacific May 19, 1998
Jose Antonio Yock....................... Senior Vice President, Central America July 20, 1994
Jose Luis Bendicho...................... Vice President, South America March 30, 2000
Sergio Mancilla......................... Senior Vice President, Shipping Operations January 4, 1997
Dr. Thomas R Young...................... Vice President, Research Development & January 15, 2001
Agricultural Services
Zoltan Pinter........................... Vice President, General Counsel and July 16, 1999
Secretary
Marissa R. Tenazas...................... Vice President, Human Resources May 1, 1999
Antolin D. Saiz......................... Vice President, Internal Audit May 24, 1999
Amir Abu-Ghazaleh....................... Director December 20, 1996
Maher Abu-Ghazaleh...................... Director December 20, 1996
Marvin P. Bush.......................... Director January 8, 1998
Stephen L. Way.......................... Director January 8, 1998
John H. Dalton.......................... Director May 11, 1999
Edward L. Boykin........................ Director November 1, 1999
-------------------
(1) Officers who held positions with us prior to December 20, 1996 held those
positions with FDP N.V.
MOHAMMAD ABU-GHAZALEH - CHAIRMAN OF THE BOARD, DIRECTOR AND CHIEF
EXECUTIVE OFFICER. Mr. Abu-Ghazaleh has served as our Chairman of the Board of
Directors and Chief Executive Officer since December 1996. He was also the
President and Chief Executive Officer of IAT Group Inc. Mr. Abu-Ghazaleh was
President and Chief Executive Officer of United Trading Company from 1986 to
1996. Prior to that time, he was General Manager for Metico from 1967 to 1986.
36
HANI EL-NAFFY - PRESIDENT, DIRECTOR AND CHIEF OPERATING OFFICER. Mr.
El-Naffy has served as our President, Director and Chief Operating Officer since
December 1996. Prior to that time, he served as Executive Director for United
Trading Company from 1986 until December 1996. From 1976 to 1986, he was the
President and General Manager of T.C.A. Shipping.
JOHN F. INSERRA - EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER.
Mr. Inserra has served as our Executive Vice President and Chief Financial
Officer since December 1994. In April 1993, he was named our Controller and in
July 1994, he became our Vice President and Controller. Between 1989 and April
1993, Mr. Inserra was the Controller of Del Monte Tropical Fruit Company.
M. BRYCE EDMONSON - SENIOR VICE PRESIDENT, NORTH AMERICA. Mr. Edmonson
has served as our Senior Vice President, North America since January 1997. Prior
to that time, he was our Vice President-Sales and Marketing for North America
from September 1995 to January 1997, and our Director of Del Monte melon
operations from 1990 to 1995. From 1987 to 1990, Mr. Edmonson was our Director
of North American Product Management.
JEAN-PIERRE BARTOLI - SENIOR VICE PRESIDENT, EUROPE AND AFRICA. Mr.
Bartoli has served as our Senior Vice President, Europe & Africa since April
1997. Prior to that time, he served as our Financial Director for the European
and African region from 1990 to 1997. Mr. Bartoli held various financial
positions in our European operations from 1983 to 1990.
RANDOLPH BRESCHINI - VICE PRESIDENT, ASIA-PACIFIC. Mr. Breschini has
served as our Vice President, Asia-Pacific since March 1998. Prior to that time,
he was the Chief Executive Officer and General Manager for the California 38th
District Agricultural Association from 1997 to 1998 and General Manager for Hunt
Wesson, Inc. from 1994 to 1996. From 1984 to 1994, Mr. Breschini held various
senior operational management positions with Dole Fruit Company.
JOSE ANTONIO YOCK - SENIOR VICE PRESIDENT, CENTRAL AMERICA. Mr. Yock
has served as our Senior Vice President, Central and South America since July
1994. Prior to that time, he was our Vice President-Finance for the Latin
American region from June 1992 to July 1994. Mr. Yock joined Fresh Del Monte in
April 1982 and has served in several financial management positions.
JOSE LUIS BENDICHO - VICE PRESIDENT, SOUTH AMERICA. Mr. Bendicho has
served as our Vice President, South America since March 2000. From September
1998 until March 2000, he served as our Finance Regional Director - Chile. From
1997 through 1998, Mr. Bendicho served as our Manager of the Administration and
Finance Division. Prior to 1997, Mr. Bendicho was Administration and Finance
Manager for United Trading Company.
SERGIO MANCILLA - SENIOR VICE PRESIDENT, SHIPPING OPERATIONS. Mr.
Mancilla has served as our Senior Vice President, Shipping Operations since
January 1997. Prior to that time, he was General Manager for Maritima Altisol,
Ltd. from October 1990 to December 1996. From January 1981 through October 1990,
Mr. Mancilla was Master Officer with several Chilean shipping companies.
DR. THOMAS R YOUNG - VICE PRESIDENT, RESEARCH, DEVELOPMENT AND
AGRICULTURAL SERVICES. Dr. Young joined us in January 2001, from Syngenta
Corporation, formerly Novartis Crop Protection, where he served in a variety of
R&D positions coordinated national and international research programs involving
plant disease control on vegetable, field, fruit and ornamental crops.
ZOLTAN PINTER - VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Mr.
Pinter has served as our Vice President, General Counsel and Secretary since
July 16, 1999. From 1998 to 1999, Mr. Pinter served as our Associate General
Counsel and Assistant Secretary. Prior to joining Fresh Del Monte, he served as
37
General Counsel and Secretary for IAT Group Inc. from 1997 to 1998. From 1994 to
1997, Mr. Pinter was a senior associate with Adorno & Zeder, P.A. and an
associate with Popham Haik Schnobrich and Kaufman, Ltd. from 1991 to 1994.
MARISSA R. TENAZAS - VICE PRESIDENT, HUMAN RESOURCES. Ms. Tenazas has
served as our Vice President, Human Resources since May 1, 1999. From December
1996 to April 1999, she served as our Senior Director Human Resources. From 1989
to 1996, she served as Personnel Manager for Suma Fruit International (USA),
Inc., a subsidiary of IAT Group Inc.
ANTOLIN D. SAIZ - VICE PRESIDENT, INTERNAL AUDIT . Mr. Saiz has served
as our Vice President, Internal Audit since May 1999. From March 1996 until
April 1999, he served as the Controller for Latin America for the Inacom
Corporation. From 1993 through 1996, Mr. Saiz served in Financial Controllership
roles for the Wackenhut and LifeFleet Corporations. Prior to that time, Mr. Saiz
served as an Audit Manager with BDO Seidman, CPAs.
AMIR ABU-GHAZALEH - DIRECTOR. Mr. Abu-Ghazaleh has served as our
Director since December 1996. He is currently the General Manager for
Abu-Ghazaleh International Company and has held this position since April 1987.
MAHER ABU-GHAZALEH - DIRECTOR. Mr. Abu-Ghazaleh has served as our
Director since December 1996. He is presently the Managing Director of Suma
International General Trading and Contracting Company. Prior to this, he served
as the General Manager of Metico from 1975 to 1995.
MARVIN P. BUSH - DIRECTOR. Mr. Bush has served as our Director since
January 1998. He is a co-founder and the Managing Director of Winston Partners
Group, a private investment firm based in Vienna, Virginia. He is also Managing
General Partner of Winston Growth Fund, L.P., Winston International Growth Fund,
L.P., Winston Small Cap Growth Fund, L.P., and a series of private equity
investment partnerships. Mr. Bush also serves on the Board of Directors of
Kerrco, Inc. and HCC Insurance Holdings, Inc.
STEPHEN L. WAY - DIRECTOR. Mr. Way has served as our Director since
January 1998. He is the Chairman and Chief Executive Officer of HCC Insurance
Holdings, Inc., a New York Stock Exchange company which he founded in 1974.
JOHN H. DALTON - DIRECTOR. Mr. Dalton has served as our Director since
May 1999. He is the President and Director of IPG Photonics Corp. He has held
three presidential appointments. Mr. Dalton served as Secretary of the Navy from
July 1993 through November 1998. He served as a member and chairman of the
Federal Home Loan Bank Board from December 1979 through July 1993. Mr. Dalton
held the position of President of the Government National Mortgage Association
of the U.S. Department of Housing and Urban Development from April 1977 through
April 1979. Mr. Dalton also serves on the Board of Directors of Niagara Mohawk
Holdings, Inc., Trans Technology, Inc., and Cantor Exchange.
EDWARD L. BOYKIN - DIRECTOR. Mr. Boykin has served as our Director
since November 1999. Following a 30-year career with Deloitte & Touche LLP., Mr.
Boykin retired in 1991 and is currently a private consultant. Mr. Boykin also
serves on the board of Blue Cross and Blue Shield of Florida, Inc.
Mr. Mohammad Abu-Ghazaleh, Mr. Amir Abu-Ghazaleh and Mr. Maher
Abu-Ghazaleh are brothers and, together with other members of the Abu-Ghazaleh
family, are shareholders of IAT Group Inc., our principal shareholder which
controls our company.
38
COMPENSATION
The aggregate compensation expense with respect to services rendered by
all directors and senior management of our Company as a group during 2001 was
$6.1 million. This amount includes an incentive payment made under an agreement
that provides for annual incentive payments equal to the sum of (a) 2% of the
amount of our consolidated net income up to $20 million, and (b) 1 1/2 % of the
amount of our consolidated net income above $20 million. For fiscal 2001 and
subsequent years, aggregate compensation expense will also include (a) an
incentive payment made under a program providing for annual incentive payments
equal to between 5% and 100% of annual compensation based on price performance
of our ordinary shares, (b) performance incentive payments providing for payment
of up to 25% of annual compensation based on achievement of performance
objectives.
During 2001, we contributed or accrued an aggregate of $41,869 for the
accounts of our executive officers under an incentive savings and security plan
(the "Savings Plan"). The Savings Plan is a defined contribution pension plan
that is qualified under Section 401(k) of the Internal Revenue Code of 1986. We
make matching contributions for the accounts of participants in the Savings Plan
generally equal to 50% of the contributions made by each such participant to the
Savings Plan up to 6% of an employee's compensation. We also maintain certain
tax-qualified defined benefit pension plans and supplemental non-qualified
defined benefit pension plans.
BOARD PRACTICES
Our board of directors is divided into three classes, as nearly equal
in number as possible, with one class being elected at each year's annual
general meeting of shareholders. Mr. Maher Abu-Ghazaleh and Mr. Marvin Bush are
in the class of directors whose term expires at the 2002 annual general meeting
of our shareholders. Mr. Mohammad Abu-Ghazaleh, Mr. Hani El-Naffy and Mr. John
Dalton are in a class of directors whose term expire at the 2003 annual
shareholders meeting. Mr. Amir Abu-Ghazaleh, Mr. Stephen Way and Mr. Edward
Boykin are in the class of directors whose term expires at the 2004 annual
general meeting of our shareholders. At each annual general meeting of our
shareholders, successors to the class of directors whose term expires at such
meeting will be elected to serve for three-year terms and until their successors
are elected and qualified.
Members of our senior management are appointed by, and serve at the
discretion of, our board of directors.
Our board of directors has established a compensation committee and an
audit committee whose members are comprised solely of directors independent of
our management. The compensation committee establishes salaries, incentives and
other forms of compensation for our directors and officers and recommends
policies relating to our benefit plans. The audit committee oversees the
engagement of our independent auditors and the work of our internal auditors,
and, together with our independent auditors and internal auditors, reviews our
accounting practices, internal accounting controls and financial results. The
audit committee members are Mr. Edward Boykin, Mr. Marvin Bush and Mr. John
Dalton. The compensation committee members are Mr. Stephen Way and Mr. Marvin
Bush.
EMPLOYEES
At year-end 2001, 2000 and 1999, we employed a total of approximately
20,000 persons worldwide, substantially all of whom are year-round employees.
Approximately 18,000 of these persons are employed in production locations and
the majority are unionized.
We believe that our overall relationship with our employees and unions
is satisfactory.
39
SHARE OWNERSHIP
SHARE OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT
As of February 25, 2002, the aggregate number of our ordinary shares
owned by our directors and senior management was 6,792,349. This number includes
options to purchase an aggregate of 2,272,224 ordinary shares under our Option
Plans. Except as disclosed in Item 7 below, each director and member of senior
management individually owns less than 1% of our outstanding ordinary shares
(treating as ordinary shares, for purposes of this calculation, each such
individual's beneficial ownership of currently exercisable options to purchase
ordinary shares).
EMPLOYEE STOCK OPTION AND INCENTIVE PLAN
Effective immediately prior to the closing of our initial public
offering in October 1997, we adopted the 1997 Share Incentive Plan (the "1997
Plan") which provides for options to purchase an aggregate of 2,380,030 ordinary
shares to be granted to non-employee directors and employees of our company who
are largely responsible for the management, growth and protection of our
business of Fresh Del Monte and its subsidiaries ("eligible persons") in order
to provide the eligible persons with incentives to continue with Fresh Del Monte
and to attract personnel with experience and ability. On May 11, 1999, our
shareholders approved and ratified and our Board of Directors adopted the 1999
Share Incentive Plan (the "1999 Plan"), which provides for options to purchase
an aggregate of 2,000,000 ordinary shares to be granted to eligible persons.
Each option has an exercise price per share equal to the fair market value of an
ordinary share on the grant date, and are usually exercisable with respect to
20% of the ordinary shares subject to the option on the date of grant and will
become exercisable with respect to an additional 20% of the shares on each of
the next four anniversaries of such date and will terminate ten years after the
date of grant (unless earlier terminated under the terms of the 1997 Plan).
The following table shows the options for ordinary shares outstanding
as of February 25, 2002 under the 1997 and 1999 Plans:
Number of Options
Outstanding Exercise Price Per Share Expiration Date
----------------- ------------------------ ---------------
970,000 $16.00 October 2007
90,000 $14.21875 January 2008
400,000 $15.6875 March 2009
12,000 $8.375 November 2009
1,106,000 $9.2813 November 2009
30,000 $7.875 March 2010
997,224 $5.95 April 2011
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
In our Memorandum and Articles of Association, our authorized share
capital consists of 200,000,000 ordinary shares having a par value of $0.01 per
share, of which 54,297,150 shares were issued and outstanding as of February 25,
2002, and 50,000,000 preferred shares having a par value of $0.01 per share,
none of which have been issued.
40
The following table sets forth certain information as of February 25,
2002, with respect to each shareholder known to us to own more than 5% of our
ordinary shares and with respect to the ownership of ordinary shares by all
directors and officers of our company as a group. The information in the table
has been calculated in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934.
Person or Group Number of Shares Owned Percent of Class
--------------- ---------------------- ----------------
IAT Group Inc.(1)(2) ................ 30,294,836 55.8%
Sumaya Abu-Ghazaleh (2)(3)(5) ....... 30,294,836 55.8
Mohammad Abu-Ghazaleh (2)(4)(5) ..... 32,690,341 60.2
Oussama Abu-Ghazaleh (2)(4)(5) ...... 31,078,075 57.2
Maher Abu-Ghazaleh (2)(3)(5) ........ 30,968,075 57.0
Amir Abu-Ghazaleh (2)(3)(5) ......... 31,354,217 57.7
Fatima Abu-Ghazaleh(2)(3)(5)......... 30,294,836 55.8
Nariman Abu-Ghazaleh(2)(3)(5) ....... 30,294,836 55.8
Maha Abu-Ghazaleh(2)(3)(5) .......... 30,294,836 55.8
Wafa Abu-Ghazaleh(2)(3)(5) .......... 30,294,836 55.8
Hanan Abu-Ghazaleh(2)(3)(5).......... 30,294,836 55.8
All directors and officers as a group
(19 persons) (6)................... 36,089,961 66.5%
(1) The registered office address of IAT Group Inc. is c/o Walker, Walker
House, Mary Street, P.O. Box 908GT, George Town, Grand Cayman, Cayman
Islands.
(2) Sumaya Abu-Ghazaleh beneficially owns 12.5% of IAT Group Inc.'s
outstanding voting equity securities, each of Mohammad Abu-Ghazaleh,
Oussama Abu-Ghazaleh, Maher Abu-Ghazaleh and Amir Abu-Ghazaleh
beneficially owns 20.2% of IAT Group Inc.'s outstanding voting equity
securities, and each of Fatima Abu Ghazaleh, Nariman Abu-Ghazaleh, Maha
Abu-Ghazaleh, Wafa Abu-Ghazaleh and Hanan Abu-Ghazaleh beneficially
owns 1.34% of IAT Group Inc.'s outstanding voting equity securities.
Individually, no Abu- Ghazaleh family member owns a controlling
interest in IAT Group Inc.; however, because each of the IAT Group Inc.
shareholders votes with other family members, the Abu-Ghazaleh family
jointly controls IAT Group Inc. As a result, the individual
Abu-Ghazaleh family members may be deemed to beneficially own the
ordinary shares directly owned by IAT Group Inc. and to share voting
and dispositive power with respect to the ordinary shares directly
owned by IAT Group Inc. However, because no one individual Abu-Ghazaleh
family member owns a controlling interest in IAT Group Inc., but rather
the family members must act in concert to control IAT Group Inc., no
individual Abu-Ghazaleh family member has the sole power to vote or to
direct the voting of, the sole power to dispose or to direct the
disposition of, any ordinary shares directly owned by IAT Group Inc.
(3) The business address of Sumaya Abu-Ghazaleh, Maher Abu-Ghazaleh, Amir
Abu-Ghazaleh, Fatima Abu Ghazaleh, Nariman Abu-Ghazaleh, Maha
Abu-Ghazaleh, Wafa Abu-Ghazaleh, and Hanan Abu-Ghazaleh is c/o Ahmed
Abu-Ghazaleh & Sons Co. Ltd., No. 18, Hamariya Fruit & Vegetable
Market, Dubai, United Arab Emirates.
(4) The business address of Mohammad Abu-Ghazaleh and Oussama Abu-Ghazaleh
is c/o Del Monte Fresh Produce (Chile) S.A., Avenida Santa Maria 6330,
Vitacura, Santiago, Chile.
(5) Includes 30,294,836 ordinary shares owned directly by IAT Group Inc.
which each of the named individuals may be deemed to beneficially own
indirectly by virtue of their ownership interest in IAT Group Inc.
(6) Includes (1) 30,294,836 shares owned directly by IAT Group Inc. which
each of Mohammad Abu-Ghazaleh, Maher Abu-Ghazaleh and Amir Abu-Ghazaleh
may be deemed to beneficially own indirectly by virtue of his ownership
interest in IAT Group Inc., (2) an aggregate of 4,520,125 shares owned
directly by certain directors and officers and (3) an aggregate of
1,275,000 ordinary shares subject to vested and currently exercisable
options held by certain directors and officers.
41
RELATED PARTY TRANSACTIONS
In the past, we have engaged in and may continue to engage in
transactions with our directors, officers, principal shareholders and their
respective affiliates. The terms of these transactions are typically negotiated
by one or more of our employees who are not related parties using the same model
agreements and business parameters that apply generally to our third-party
transactions.
In November 1998, we acquired a 62% majority interest in National
Poultry, a publicly traded company in Jordan, engaged in the poultry business. A
portion of the acquired shares were purchased from members of the Abu-Ghazaleh
family for a total purchase price of $4.5 million, based on a fairness opinion
from an independent party. In February 2002, we acquired an additional 5% of the
outstanding common stock in National Poultry from an individual related to a
member of the Abu-Ghazaleh family. The total consideration paid was $2.4
million.
In September 1998, we acquired 14 operating subsidiaries of IAT Group
Inc. for six million ordinary shares valued at the time of the acquisition at
$102.3 million, $25.0 million in cash and the assumption of indebtedness of
$130.0 million.
In connection with the IAT transaction, our board of directors
established a special committee comprised of disinterested outside directors to
evaluate and negotiate at arm's-length the terms of the acquisition. The special
committee retained its own legal and financial advisors and unanimously approved
the transaction. Additionally, at a special meeting of our shareholders held to
consider the acquisition, a substantial majority of our public shareholders
(excluding our controlling shareholders) voted to approve the acquisition.
Because our Articles of Association and Cayman Islands law required that holders
of a majority of all of the outstanding shares approve the acquisition, the
members of the Abu-Ghazaleh family, rather than abstaining from voting, voted
the shares beneficially owned by them for and against the acquisition in the
same proportion that all other shares were voted.
ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
Our financial statements and schedule set forth in the accompanying
Index to Consolidated Financial Statements and Supplemental Financial Statement
Schedule included in this report following Part III beginning on pages F-1 and
S-1, respectively, are hereby incorporated in this Report by reference. Our
consolidated financial statements and schedule are filed as part of this Report.
DESCRIPTION OF REVOLVING CREDIT FACILITY
The following is a summary of the revolving credit agreement entered
into by Fresh Del Monte and certain of its subsidiaries, as amended to date (the
"Revolving Credit Agreement"). The summary does not purport to be complete and
is subject to, and qualified by reference to, the provisions of the Revolving
Credit Agreement which we have filed with the SEC. Capitalized terms used but
not defined below have the meanings indicated in the Revolving Credit Agreement.
42
Borrowers:................... Fresh Del Monte; Global Reefer Carriers, Ltd.;
Del Monte Fresh Produce (UK) Ltd.; Wafer Limited;
Del Monte Fresh Produce International Inc.; Del
Monte Fresh Produce N.A., Inc.
Lenders:..................... Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland," New York Branch
("Rabobank"); ABN Amro Bank N.V., New York
Branch; Union Bank of California, N.A.; Nordea
PLC, New York Branch; Wachovia Bank; Bank of
America; The Fuji Bank Limited; Deutsche
Financial Services; Banque Francaise de L'Orient;
Harris Trust and Savings Bank; Banque Nationale
de Paris Chicago branch; First Union National
Bank; AGFirst Farm Credit Bank; Barclays Bank
PLC; SunTrust Bank N.A.; US Bancorp; Artesia Bank
Luxembourg; Banque Artesia Netherlands; Farm
Credit of Wichita; and Farm Credit Services of
America; Central Coast Federal; Agstar Financial
Services, PCA.
Agent:....................... Rabobank.
Facility:.................... $450 million revolving credit facility including
a letter of credit facility of up to $35 million;
a swing line facility of up to $15 million; and a
foreign exchange contract facility of up to $20
million (increased by $5 million in May of each
year, commencing May 1, 1999).
Term Loan:................... $135 million term loan entered into May 10, 2000
(reduced by quarterly principal payments of $3.4
million commencing on September 30, 2000 and each
quarter thereafter.)
Purpose:..................... For general corporate purposes.
Guarantors:.................. Obligations under the facility are guaranteed by
FDP N.V.; Del Monte Fresh Produce B.V.; Del Monte
Fresh Produce (Asia-Pacific) Limited; Claverton
Limited; Del Monte BVI Limited; Compania de
Desarrollo Bananero de Guatemala, S.A.; Del Monte
Fresh Produce Company; FDM Holdings Limited;
Corporacion de Desarrollo Bananero de Costa Rica,
S.A.; Corporacion de Desarrollo Agricola Del
Monte S.A.; and each Borrower.
Termination Date:............ Earlier of (1) May 19, 2003 or (2) termination
of the facility commitment pursuant to the
Revolving Credit Agreement. The Term Loan matures
on May 10, 2005 with a balloon payment of
$70.9 million.
43
Interest Rate:............... Base Rate advances bear interest at the greater
of (1) Rabobank's base rate from time to time and
(2) 0.50% per annum above the Federal Funds Rate.
LIBO Rate advances bear interest at a rate based
on the London interbank offered rate plus a
spread that varies between 0.75% and 2.75%. The
spread for LIBO Rate advances is determined
quarterly based on the level of our Leverage
Ratio for that fiscal quarter along with the
three immediately preceding fiscal quarters and
was 1.25% for the fourth quarter of 2001. The
Term Loan commitment advances bear interest at a
rate based on the LIBO Rate plus a spread that
varies between 1.25% and 3.25%.
Commitment Fee:.............. Varies between 0.25% and 0.50% per annum on the
average daily Unused Commitment, payable monthly
in arrears. The rate is determined quarterly
based on the level of our Leverage Ratio.
Collateral:.................. The revolving credit facility is collateralized
directly or indirectly by substantially all the
assets of Fresh Del Monte and our material
subsidiaries.
Financial Covenants:......... The following financial covenants apply to Fresh
Del Monte and our Subsidiaries:
MAXIMUM LEVERAGE RATIO. Maintenance of a ratio of
Consolidated Total Debt to Consolidated EBITDA
for each fiscal quarter along with the three
immediately preceding fiscal quarters, of not
more than 3.75 to 1.0 from September 2001 and
thereafter.
MINIMUM TANGIBLE NET WORTH. Maintenance of
Consolidated Tangible Net Worth as of the end of
each fiscal quarter of not less than the sum of
(1) $135,000,000, (2) 50% of our cumulative
Consolidated Net Income for fiscal quarters
ending on and after March 27, 1998 and (3) 85% of
the increase in Tangible Net Worth resulting from
the IAT transaction.
MINIMUM INTEREST COVERAGE. Maintenance of a ratio
of Consolidated EBITDA to Consolidated interest
expense for each fiscal quarter indicated below
along with the three immediately preceding fiscal
quarters, of not less than 2.5 to 1.0 from June
2001 and thereafter.
MINIMUM FIXED CHARGES COVERAGE RATIO. Maintenance
of a Fixed Charges Coverage Ratio for each fiscal
quarter along with the three immediately
preceding fiscal quarters, of not less than 1.20
to 1.0 through September 2002 and 1.25 to 1.0 for
December 2002 and thereafter.
44
Certain Other Covenants:..... Other covenants applicable to the Borrowers
include limitations on liens, the incurrence or
prepayment of debt, the payment of dividends,
mergers and similar transactions, sales of
assets, investments, amendments to the
constituent documents; a limitation on annual
Capital Expenditures of $1,000,000 if we are (or
would, as a result of the expenditure, be) in
breach of our financial covenants; a requirement
to pledge the inventory, receivables and
intellectual property of and equity interests in
any subsidiary that becomes a Material
Subsidiary; an annual limit of $75.0 million for
mergers and investments in stock of companies
conducting a similar business; and a negative
pledge.
Events of Default:........... Events of Default include non-payment, material
misrepresentation, covenant default,
cross-default, bankruptcy and insolvency, certain
judgments, a Change in Control and certain
Employee Retirement Income Security Act events.
Governing Law:............... The laws of the State of New York.
Pursuant to the Revolving Credit Agreement, the Borrowers and their
subsidiaries generally are prohibited from:
o incurring debt and related liens, with certain limited
exceptions;
o returning any capital to their stockholders, or
o making any distribution of assets, share capital, warrants,
rights, options, obligations or securities to their
stockholders, other than a distribution in shares.
So long as there is no continuing default under the Revolving Credit
Agreement and no default would result,
o we may declare and pay dividends and distributions in cash
solely out of and up to 50% of our net income (computed on a
non-cumulative, consolidated basis in accordance with U.S.
GAAP) for the fiscal year immediately preceding the year in
which the dividend or distribution is paid; and
o any subsidiary of a Borrower may declare and pay cash
dividends to the Borrower and to any other wholly-owned
subsidiary of a Borrower of which it is a direct or indirect
subsidiary; and
o any subsidiary that is not a wholly-owned subsidiary may
declare and pay cash dividends consistent with past practices.
LEGAL PROCEEDINGS
DBCP LITIGATION
Starting in December 1993, two of our 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
45
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, our U.S. 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 our subsidiary.
On February 16, 1999, two of our 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 (Association) on behalf of its 34,852 members for injuries
they allege to have incurred as a result of DBCP exposure. Approximately 13,000
members of the Association claim employment on a farm that was under contract to
one of our subsidiaries at the time of DBCP use.
Our subsidiaries filed motions to dismiss the action and for
reconsideration on jurisdictional grounds, which were denied. Accordingly, our
subsidiaries answered the plaintiffs' complaint denying all the plaintiffs'
allegations. Our subsidiaries believe that they have substantial defenses to the
claims asserted by the Association. To date only 300 of more than 34,000 members
have come forward to be tested. The court in the Philippines may set a date as
early as the second quarter of 2002 for the trial to start. Discovery and
medical testing of Association members can continue during the trial.
Our 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 subsidiaries for FORUM NON CONVENIENS and lack of personal
jurisdiction for the Mississippi actions, and on October 1, 2001, the United
States Supreme Court denied plaintiffs' petition for an appeal. 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 was filed on October 9, 2001. On December 7, 2001, the
Supreme Court requested the views of the Office of the Solicitor General on the
petition. The Solicitor General has yet to provide its views and the petition to
the Supreme Court remains pending.
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 our 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 arising from the alleged exposure to DBCP. That
action was removed to the
46
United States District Court in New Orleans and was subsequently remanded in
September 1996. Our 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. Fresh Del Monte's subsidiary has settled with
all but 13 of the Canales Martinez plaintiffs. On October 25, 2001, defendants
filed a motion to dismiss the action on grounds of FORUM NON CONVENIENS in favor
of plaintiffs' home countries. The motion will be heard on April 19, 2002.
On November 15, 1999, one of our 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 our settlement offer. Our subsidiary has been given an 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 our subsidiaries. The court's disposition of the pending motion
in the Canales Martinez action to dismiss on grounds of FORUM NON CONVENIENS
will likely apply to theses two cases as well.
HAWAIIAN LITIGATION
On January 8, 2001, local residents of Honolulu, Hawaii amended their
complaint (the original complaint did not include Fresh Del Monte as a
defendant) in federal court to include one of our subsidiaries as one of several
defendants for injuries allegedly caused by consuming contaminated water. Our
U.S. subsidiary has answered the complaint denying all the plaintiffs' claims
and asserting substantial defenses. This matter is still in the early stage of
the litigation, which has been bifurcated to address the claims of an initial
set of 34 plaintiffs.
BRAZIL LITIGATION
On or about October 20, 1997, one of our subsidiaries and Nordeste
Investimentos e Participacoes S.A. (Nordeste), our subsidiary's partner in two
joint venture companies, Interfruit Brasil S.A. (IBSA) and International Produce
Trading Ltd. (IPTL), agreed to submit to arbitration certain disputes that arose
under joint venture agreements relating to the development of and exporting of
produce from a banana plantation in Brazil. In its Request for Arbitration and
Reply to Nordeste's Counterclaim, our subsidiary asserted claims for breach of
contract, breach of duty of loyalty, misappropriation of trade secrets and
proprietary information. Our subsidiary sought injunctive relief and $43 million
in damages. Nordeste asserted in its Counterclaim that our subsidiary breached
certain contractual obligations and improperly terminated the joint venture
agreements and sought to recover liquidated and other damages in the amount of
approximately $39.2 million. The hearing of the claims before the arbitral
tribunal was conducted in October 1999. On May 10, 2000, the arbitrators issued
their award requiring our subsidiary to pay $2 million to Nordeste and that
Nordeste and our subsidiary exchange the 50% ownership they each have in two
joint venture companies (IPTL and IBSA, respectively). We accrued for the $2
million award. The May 10, 2000 award directed our subsidiary to transfer to
Nordeste all of its shares in Bananos do Brazil Ltda (Bandebras) which held the
shares of IBSA. Unbeknownst to the arbitral tribunal, during the pendency of the
arbitration Bandebras was renamed Del Monte Fresh Produce Brasil Ltda (DMFPB)
and to it were transferred substantial assets and operations of Fresh Del Monte
in Brazil.
On June 8, 2000 the arbitral tribunal issued an Addendum to Final
Award, in which the Final Award was corrected to require our subsidiary to
transfer to Nordeste the shares of IBSA and not any other company. Our
subsidiary has tendered payment of the $2 million and has proposed to have a
closing to effect the transfer of the shares of the two companies. Nordeste has
declined our subsidiary's
47
tender. On July 24, 2001, DMFPB was served with a preliminary injunction issued
by a judge of the Eighth Civil Court in Recife, Brazil enjoining our subsidiary
from transferring the assets and ownership of DMFPB as well as requiring the
provision of certain information to the court on a monthly basis regarding
DMFPB's business pending the resolution of Nordeste's action seeking enforcement
of the May 10, 2000 arbitral award as originally entered, and declaring the
addendum to that award a nullity. On August 6, 2001, DMFPB filed an appeal with
the State of Pernambuco Appellate Tribunal seeking to revoke the preliminary
injunction. The appeal contained a specific request addressed to the Reporting
Judge of the Appellate Tribunal for the immediate suspension of the effects of
the preliminary injunction. On August 21, 2001, the Reporting Judge denied
DMFPB's specific request for an immediate suspension of the preliminary
injunction. On December 21, 2001, the briefs in support of the principal appeal
were filed, along with a motion for change of venue. The three judge panel of
the Appellate Tribunal has yet to rule on the merits of DMFPB's principal
appeal.
KUNIA WELL SITE
In 1980, elevated levels of certain chemicals were detected in the soil
and ground water at one of our subsidiaries' leased plantation in Hawaii (Kunia
Well Site). Shortly thereafter, we discontinued the use of the Kunia Well site
and provided an alternate water source to area well users and commenced our 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. One of our subsidiaries entered into
an order with the EPA for the Kunia Well Site on September 28, 1995. Under the
terms of the order, our subsidiary submitted a remedial investigation report in
November 1998 for review by the EPA. The remedial investigation report was
approved by the EPA in February 1999. A final draft feasibility study was
submitted for EPA review in December 1999, and our subsidiary expects that the
feasibility study will be finalized by the second quarter of 2002.
Based on an updated draft of the final feasibility study in December
2001, the estimated remediation costs associated with this matter range from
$5.2 million to $28.9 million. Certain portions of these estimates have been
discounted using a 5% interest rate. The undiscounted estimates are between $6.4
million and $33.6 million. As a result of communications with the EPA, our
subsidiary recorded a charge of $15.0 million in 2001 in addition to $4.1
million previously recorded as an estimate of the expected future cleanup cost
for the Kunia Well Site. Accordingly, an accrual of $19.1 million is included in
other noncurrent liabilities in the balance sheet at December 28, 2001.
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 are currently expected to have a material
adverse effect on us.
DIVIDEND POLICY
On January 8, 2002, we announced that our Board of Directors determined
to pay a regular quarterly cash dividend of $0.05 per share. The first quarterly
dividend was declared for payment on March 6, 2002 to shareholders of record as
of February 11, 2002. Because we are a 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 our Revolving
Credit Agreement, we may declare and pay dividends and distributions in cash
solely out of and up to 50% of our net income for the fiscal year immediately
preceding the year in which the dividend or distribution is paid. It is possible
that countries in which one or more of
48
our subsidiaries are located could institute exchange controls which could
prevent those subsidiaries from remitting dividends or other payments to us.
ITEM 9. THE OFFER AND LISTING
ORDINARY SHARE PRICES AND RELATED MATTERS
The Company's 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 quarters indicated as reported on the New York Stock
Exchange Composite Tape:
High Low
---- ---
FIVE MOST RECENT FINANCIAL YEARS
Year ended December 26, 1997 (commencing October 24,
1997).................................................. $18.00 $13.13
Year ended January 1, 1999............................. $23.63 $10.50
Year ended December 31, 1999........................... $21.00 $ 6.31
Year ended December 29, 2000........................... $ 9.94 $ 3.38
Year ended December 28, 2001........................... $15.95 $ 4.56
2000
First quarter.......................................... $ 9.75 $ 6.75
Second quarter......................................... $ 9.94 $ 6.06
Third quarter.......................................... $ 7.06 $ 5.38
Fourth quarter......................................... $ 6.44 $ 3.38
2001
First quarter.......................................... $ 8.89 $ 4.56
Second quarter......................................... $11.08 $ 5.75
Third quarter.......................................... $15.95 $10.10
Fourth quarter......................................... $15.14 $11.69
MOST RECENT SIX MONTHS
September 2001......................................... $15.95 $10.10
October 2001........................................... $13.82 $11.69
November 2001.......................................... $14.00 $12.35
December 2001.......................................... $15.14 $12.55
January 2002........................................... $15.34 $13.50
February 2002.......................................... $17.88 $15.15
As of December 28, 2001, there were 54,091,650 ordinary shares
outstanding. We believe that approximately 31% of the outstanding ordinary
shares were held by holders in the United States, as of February 14, 2002.
49
ITEM 10. ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
REGISTERED OFFICE.
The Company has been assigned registration number CR-68097 by the
registrar of companies in the Cayman Islands. The registered office is located
at Walkers House, Mary Street, P.O. Box 908 GT, Mary Street, George Town, Grand
Cayman, Cayman Islands. The telephone number at that location is (345) 949-0100.
OBJECT AND PURPOSE
Paragraph 3 of the Amended and Restated Memorandum of Association
(Memorandum of Association) provides that our object and purpose is to perform
all corporate activities not prohibited by any law as provided by The Companies
Law (2001 Second Revision).
DIRECTORS
Articles 82 and 83 of our Amended and Restated Articles of Association
(Articles of Association) provide that a director may vote in respect of any
contract or proposed contract or arrangement notwithstanding such director's
interest and that such an interested director will not be liable to the Company
for any profit realized through any such contract or arrangement. Article 60
provides that directors' compensation shall from time to time be determined by
the renumeration committee appointed by the board of directors in accordance
with the Articles of Association. Article 74 provides that directors may
exercise all the powers of the Company to borrow money and to mortgage or charge
its undertaking, property and uncalled property or any part thereof, to issue
debentures, debenture stock and other securities wherever money is borrowed or
as security for any debt, liability or obligation of the Company or of any third
party. Such borrowing power can only be altered through an amendment of the
Articles of Association. Article 61 provides that the directors of the Company
are not required to own shares of the Company in order to serve as directors
unless fixed by the Company at a shareholders' meeting.
ORDINARY SHARES
The Company's Memorandum of Association authorize the issuance of
200,000,000 ordinary shares with a par value of US$.01 per share. Upon issuance
and once payment is received, the ordinary shares are fully paid and accordingly
no further capital may be called for by the Company from any holder of the
ordinary shares outstanding. Under Cayman Island law, non-residents may freely
hold, vote and transfer ordinary shares in the same manner as Cayman Islands
residents, subject to the provisions of The Companies Law (2001 Second Revision)
and the Articles of Association. No Cayman Islands laws or regulations restrict
the export or import or capital, or affect the payment of dividends to
non-residents holders of the ordinary shares.
Some provisions of our Memorandum of Association may have the effect of
delaying, deterring or preventing a change in control not approved by our board
of directors and contains a variety of anti-takeover provisions that could
delay, deter or prevent a change in control.
DIVIDENDS
The holders of ordinary shares are entitled to receive, when, as if
declared out of legally available funds, dividends in cash, shares or our
property. We may in a general meeting declare dividends but no
50
dividend shall exceed the amount recommended by the directors. The directors may
from time to time pay to the shareholders such interim dividends as appear to
the directors to be justified from our profits. Dividends declared on the
ordinary shares will be paid ratably in proportion to the number of ordinary
shares held by the holders of the ordinary shares.
VOTING
Except as provided by statute or the Articles of Association, holders
of ordinary shares have the sole right and power to vote on all matters on which
a vote of our shareholders is to be taken. At every meeting of the shareholders,
each holder of the ordinary shares present in person or by proxy is entitled to
cast one vote for each ordinary share standing in his or her name as of the
record date for the vote.
LIQUIDATION
In the case of our voluntary or involuntary liquidation, dissolution or
winding-up, after payment of our creditors, our remaining assets and funds
available for distribution will be divided among our shareholders and any
distribution to the holders of ordinary shares will be paid ratably to the
holders of the ordinary shares.
ELECTION AND REMOVAL OF DIRECTORS
The holders of ordinary shares are entitled, by a majority vote of
those present, to elect and remove directors from our board of directors. We
have a classified board of directors serving staggered terms.
PREFERRED SHARES
The Memorandum of Association authorizes the issuance of 50,000,000
preferred shares with a par value of US$.01 per share. Our board of directors
may, from time to time, direct the issuance of preferred shares in series and
may, at the time of issue, determine the rights, preferences and limitations of
each series. Satisfaction of any dividend preferences of outstanding preferred
shares will reduce the amount of funds available for the payment of dividends on
ordinary shares. Holders of the preferred shares may be entitled to receive a
preference payment in the event of our liquidation, dissolution or winding up
before any payment is made to the holders of ordinary shares. Holders of
preferred shares may also be granted special voting rights. Under certain
circumstances, the issuance of preferred shares may render more difficult or
tend to discourage a merger, tender offer or proxy contest, the assumption of
control by the holder of a large block of our securities or the removal of
incumbent management.
CERTAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION HAVING THE EFFECT OF
DELAYING, DEFERRING OR PREVENTING A CHANGE IN CONTROL
The Articles of Association provide that shareholder action can only be
taken at a general meeting of the shareholders and cannot be taken by written
consent in lieu of a meeting. The Articles of Association provide that, except
as otherwise required by law, general meetings of the shareholders may only be
called pursuant to a resolution adopted by a majority of the board of directors
or by the chairman of the board of directors. Shareholders are not permitted to
call for a general meeting or require the board of directors to call for a
meeting.
The Articles of Association establish an advance notice procedure for
shareholder proposals to be brought before a general meeting of shareholders of
the Company, including proposed nominations of persons for election to the board
of directors.
51
Shareholders at a general meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting (1)
by or at the direction of the board of directors or (2) by a shareholder who was
a shareholder of record on the record date of the meeting and who has given the
directors timely written notice, in proper form, of the shareholder's intention
to bring that business before the meeting.
Although the Articles of Association do not provide the board of
directors the power to approve or disapprove shareholder nominations of
candidates or proposals regarding other business to be conducted at a general
meeting, they may have the effect of precluding the conduct of some business at
a meeting if the proper procedures are not followed or may discourage or deter a
potential acquiror from conducting solicitation proxies to elect its own slate
of directors or otherwise to obtain control of us.
Under Cayman Islands law, the affirmative vote of holders of at least
two-thirds of the total votes eligible to be cast and present at any meeting and
casted at a general meeting of the Company is required to amend, alter, change
or repeal provisions of the Articles of Association. This requirement of a
special resolution to approve amendments to the Articles of Association could
enable a minority of the Company's shareholders to exercise veto power over any
such amendment.
The Articles of Association provide for the board of directors to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one third of the board of directors will be
elected each year.
MATERIAL CONTRACTS
Other than the contracts listed under Item 19. Exhibits, in the past
two years we have not entered into any material contracts other than contracts
entered into in the ordinary course of our business.
EXCHANGE CONTROLS
The Articles authorizes us to issue an aggregate of 200,000,000
ordinary shares with a par value of $0.01 per share. Of those 200,000,000
authorized ordinary shares, 54,297,150 shares were issued and outstanding as of
February 25, 2002, all of which are fully paid or credited as fully paid. We may
not call for any further capital from any holder of ordinary shares outstanding.
Under Cayman Islands law, non-residents of the Cayman Islands may freely hold,
vote and transfer ordinary shares in the same manner as Cayman Islands
residents, subject to the provisions of the Companies Law (2001 Second Revision)
and our Articles. No Cayman Islands laws or regulations restrict the export or
import of capital, or affect the payment of dividends to non-resident holders of
ordinary share.
TAXATION
CAYMAN ISLANDS
There is at present no direct taxation in the Cayman Islands on
interest, dividends and gains payable to or by us and all such monies will be
received free of all Cayman Islands taxes. Accordingly, U.S. holders of ordinary
shares are not presently subject to Cayman Islands income or withholding taxes
with respect to such holdings. We are an exempted company incorporated under
Cayman Islands law and have obtained an undertaking as to tax concessions
pursuant to Section 6 of the Tax Concessions Law (Revised) which provides that
for a period of 20 years from April 22, 1997, no law thereafter enacted in the
Cayman Islands imposing any taxes or duty to be levied on profits, income, gains
or appreciations or which is in the nature of estate duty or inheritance tax
shall be payable by us on or in respect of our shares or other obligations.
52
UNITED STATES
The following discussion summarizes some of the principal U.S. federal
income tax considerations that may be relevant to you if you invest in ordinary
shares and are a U.S. holder. You will be a U.S. holder if you are:
o an individual who is a citizen or resident of the United
States,
o a U.S. domestic corporation, or
o any other person that is subject to U.S. federal income tax on
a net income basis in respect of its investment in ordinary
shares.
This summary deals only with U.S. holders that hold ordinary shares as
capital assets. It does not address considerations that may be relevant to you
if you are an investor that is subject to special tax rules, such as a bank,
thrift, real estate investment trust, regulated investment company, insurance
company, dealer in securities or currencies, trader in securities or commodities
that elects mark-to-market treatment, person that will hold ordinary shares as a
position in a "straddle" or conversion transaction, tax exempt organization,
person whose "functional currency" is not the dollar, or person that holds 10%
or more of our voting shares.
Dividends paid with respect to ordinary shares to the extent of our
current and accumulated earnings and profits as determined under U.S. federal
income tax principles will be taxable to you as ordinary income at the time that
you receive such amounts. Dividends generally will be foreign source income and
will not be eligible for the dividends-received deduction available to domestic
corporations.
Upon a sale, exchange or other taxable disposition of ordinary shares
you generally will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (1) the sum of the amount of cash and the
fair market value of any property you receive and (2) your tax basis in the
ordinary shares that you dispose of. Such gain or loss will generally be
long-term capital gain or loss if you have held the ordinary shares for more
than one year. Net long-term capital gain recognized by an individual U.S.
holder generally will be subject to a maximum rate of 20% for ordinary shares
held for more than one year. A special lower rate of 18% applies to transactions
after December 31, 2000 when the shares have been held more than five years. The
ability of U.S. holders to offset capital losses against ordinary income is
limited. Any gain generally will be treated as U.S. source income.
You may be subject to backup withholding at a rate of 31% with respect
to dividends paid on ordinary shares or the proceeds of a sale, exchange or
other disposition of ordinary shares, unless you:
o are a corporation or come within another exempt category, and,
when required, you demonstrate this fact or
o provide a correct taxpayer identification number, certify that
you are not subject to backup withholding and otherwise comply
with applicable requirements of the backup withholding rules.
Any amount withheld under these rules will be creditable against your
federal income tax liability. You should consult your tax advisor regarding your
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
53
ITEM 11. 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 is not to be a party to any leveraged
financial instruments.
We manage our currency exchange rate and interest 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 dollars may be significantly affected by fluctuations in rates
of exchange between currencies. These fluctuations could be significant.
Approximately 42% of our net sales in 2001 was received 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 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. At December 28, 2001, we did not have exchange forward
contracts outstanding.
The results of a uniform 10% strengthening in the value of the dollar
at December 30, 2000 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 $60 million for the year ended December 28, 2001.
This calculation assumes that each exchange rate would change in the same
direction relative to the dollar. In addition to the direct effects 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.
INTEREST RATE RISK
As described in Note 12 of the notes to our year-end audited
consolidated financial statements, our indebtedness is primarily variable rate.
We use an interest rate swap agreement to limit our exposure to short-term
interest rate movements under a portion of our credit agreement.
At December 28, 2001, our variable rate long-term debt had a carrying
value of $269.1 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 2001 would have resulted in a negative impact of approximately
$1.0 million on our results of operations for the year ended December 28, 2001.
54
At December 28, 2001, the notional amount of the interest rate swap
agreement was $75 million. The carrying value and fair value of this agreement
was a liability of $2.8 million at December 28, 2001. Based upon a hypothetical
10% increase in the period end market interest rate, the fair value of this
instrument would have increased by approximately $0.2 million.
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.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There are no defaults, dividend arrearages or delinquencies that are required to
be disclosed.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
There are no material modifications to the rights of security holders that are
required to be disclosed.
PART III
ITEM 17. FINANCIAL STATEMENTS
Our Consolidated Financial Statements have been prepared in accordance
with Item 18 hereof.
ITEM 18. FINANCIAL STATEMENTS
Our financial statements and schedule set forth in the accompanying
Index to Consolidated Financial Statements and Supplemental Financial Statement
Schedule included in this report following Part II beginning on pages F-1 and
S-1, respectively, are hereby incorporated herein by this reference. Such
consolidated financial statements and schedule are filed as part of this Report.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Certified Public Accountants.........................F-1
Consolidated Balance Sheets at December 28, 2001 and December 29, 2000........................F-2
Consolidated Statements of Income for the years ended December 28, 2001,
December 29, 2000 and December 31, 1999.......................................................F-4
Consolidated Statements of Cash Flows for the years ended December 28, 2001,
December 29, 2000 and December 31, 1999.......................................................F-5
Consolidated Statements of Shareholders' Equity for the years ended
December 28, 2001, December 29, 2000 and December 31, 1999....................................F-7
Notes to Consolidated Financial Statements....................................................F-8
55
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
Report of Ernst & Young LLP, Independent Certified Public Accountants.........................S-1
Schedule II - Valuation and Qualifying Accounts...............................................S-2
ITEM 19. EXHIBITS
8.1 List of Subsidiaries
10.1 Consent of Ernst & Young LLP
56
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report on Form 20-F or amendments
thereto to be signed on its behalf by the undersigned, thereunto duly
authorized.
FRESH DEL MONTE PRODUCE INC.
Date: March 4, 2002 By: /s/ Hani El-Naffy
-------------------------------------
Hani El-Naffy
President and Chief Operating Officer
By: /s/ John F. Inserra
-------------------------------------
John F. Inserra
Executive Vice President and
Chief Financial Officer
57
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Fresh Del Monte Produce Inc.
We have audited the accompanying consolidated balance sheets of Fresh Del Monte
Produce Inc. and subsidiaries as of December 28, 2001 and December 29, 2000, and
the related consolidated statements of income, cash flows and shareholders'
equity for each of the three years in the period ended December 28, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 December 28, 2001 and December 29, 2000, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 28, 2001, in conformity with
accounting principles generally accepted in the United States of America.
/s/ ERNST & YOUNG LLP
Miami, Florida
February 11, 2002
F-1
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions)
December 28, December 29,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 13.0 $ 10.6
Trade accounts receivable, net of allowance of $13.9 and
$12.5, respectively 141.2 142.7
Advances to growers and other receivables, net of allowance
of $13.5 and $4.9, respectively 39.7 56.3
Inventories 178.5 188.8
Prepaid expenses and other current assets 9.5 6.5
---------- ----------
Total current assets 381.9 404.9
---------- ----------
Investments in unconsolidated companies 42.9 51.7
Property, plant and equipment, net 658.1 635.6
Other noncurrent assets 37.0 47.9
Goodwill, net of accumulated amortization of $12.2 and $9.3,
respectively 77.0 81.5
---------- ----------
Total assets $ 1,196.9 $ 1,221.6
========== ==========
See accompanying notes
F-2
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(U.S. dollars in millions, except share data)
December 28, December 29,
2001 2000
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 1.2 $ 0.4
Accounts payable and accrued expenses 186.2 187.1
Current portion of long-term debt and capital lease
obligations 49.9 51.1
Income taxes payable 12.7 9.4
---------- ----------
Total current liabilities 250.0 248.0
---------- ----------
Long-term debt 267.4 416.6
Capital lease obligations 14.8 17.4
Retirement benefits 53.2 53.2
Other noncurrent liabilities 41.0 9.6
Deferred income taxes 7.7 8.5
----------- --------------
Total liabilities 634.1 753.3
---------- ----------
Minority interest 12.3 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; 54,091,650 and 53,763,600 shares issued and
outstanding 0.5 0.5
Paid-in capital 329.7 327.1
Retained earnings 236.4 140.2
Accumulated other comprehensive loss (16.1) (10.6)
---------- ----------
Total shareholders' equity 550.5 457.2
---------- ----------
Total liabilities and shareholders' equity $ 1,196.9 $ 1,221.6
========== ==========
See accompanying notes
F-3
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in millions, except share data)
Year Ended
--------------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
Net sales $ 1,928.0 $ 1,859.3 $ 1,743.2
Cost of products sold 1,645.1 1,692.4 1,592.6
---------- ---------- ----------
Gross profit 282.9 166.9 150.6
Selling, general and administrative expenses 89.4 80.9 63.5
Amortization of goodwill 3.4 3.4 2.6
Provision for Kunia Well Site 15.0 -- --
Asset impairment charges 10.2 -- --
---------- ---------- ----------
Operating income 164.9 82.6 84.5
Interest expense 32.1 43.2 30.2
Interest income 2.1 2.7 2.6
Other income (loss), net (12.2) (6.1) 14.7
---------- ---------- ----------
Income before provision for income taxes 122.7 36.0 71.6
Provision for income taxes 26.5 2.9 14.7
---------- ---------- ----------
Net income $ 96.2 $ 33.1 $ 56.9
========== ========== ==========
Net income per share:
Basic $ 1.79 $ 0.62 $ 1.06
Diluted $ 1.77 $ 0.62 $ 1.06
Weighted average number of ordinary shares outstanding:
Basic 53,856,392 53,763,600 53,763,600
Diluted 54,414,868 53,764,383 53,805,237
See accompanying notes
F-4
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
Year Ended
-----------------------------------------
December 28, December 29, December 31,
2001 2000 1999
----------- ------------ ------------
OPERATING ACTIVITIES:
Net income $ 96.2 $ 33.1 $ 56.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Goodwill amortization 3.4 3.4 2.6
Depreciation and amortization other than
goodwill 57.8 54.4 42.6
Provision for Kunia Well Site 15.0 -- --
Asset impairment charges 10.2 -- --
Deferred credit vessel leases -- (2.9) (4.8)
Equity in earnings of unconsolidated companies,
net of dividends (1.6) (1.4) 2.1
Gain on insurance proceeds related to Hurricane
Mitch -- -- (13.5)
Unrealized loss on available-for-sale
marketable securities 0.1 5.2 --
Deferred income taxes (0.8) (2.8) 6.4
Other, net 4.3 2.3 2.0
Changes in operating assets and liabilities:
Receivables 16.2 (10.6) (22.9)
Inventories 10.5 7.4 (40.3)
Prepaid expenses and other current assets (3.1) 6.9 21.6
Accounts payable and accrued expenses (0.3) (2.5) (1.6)
Other noncurrent assets and liabilities 22.3 6.0 (12.2)
-------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 230.2 98.5 38.9
INVESTING ACTIVITIES:
Capital expenditures (55.9) (75.5) (100.8)
Capital expenditures due to Hurricane Mitch, net of
insurance proceeds -- (3.1) (2.8)
Proceeds from sale of assets 1.4 5.9 0.1
See accompanying notes
F-5
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(U.S. dollars in millions)
Year Ended
------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
INVESTING ACTIVITIES (CONTINUED):
Purchase of subsidiaries, net of cash acquired $ (13.8) $ (9.9) $ (67.7)
Other investing activities, net 1.7 1.4 (1.1)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (66.6) (81.2) (172.3)
FINANCING ACTIVITIES:
Proceeds from long-term debt 256.0 273.5 321.6
Payments on long-term debt (413.2) (307.8) (181.4)
Proceeds from short-term borrowings 2.2 5.8 10.6
Payments on short-term borrowings (6.8) (8.5) (5.9)
Other financing activities, net 0.2 (0.7) (0.4)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (161.6) (37.7) 144.5
Effect of exchange rate changes on cash and cash
equivalents 0.4 (0.2) (4.5)
-------- -------- --------
Cash and cash equivalents:
Net change 2.4 (20.6) 6.6
Beginning balance 10.6 31.2 32.8
Net cash change due to change in year end of
subsidiaries -- -- (8.2)
-------- -------- --------
Ending balance $ 13.0 $ 10.6 $ 31.2
======== ======== ========
SUPPLEMENTAL NON - CASH ACTIVITIES:
Capital lease obligations for new assets $ 4.4 $ 13.9 $ 2.5
======== ======== ========
See accompanying notes
F-6
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(U.S. dollars in millions)
Accumulated
Ordinary Other Total
Shares Ordinary Paid-in Retained Comprehensive Shareholders'
Outstanding Shares Capital Earnings Loss Equity
----------- -------- -------- -------- ------------- -------------
Balance at January 1, 1999 53,763,600 $ 0.5 $ 327.1 $ 57.8 $ (2.9) $ 382.5
Net loss of IAT for the three
month period ended January
1, 1999 -- -- -- (7.6) -- (7.6)
Comprehensive income:
Net income -- -- -- 56.9 -- 56.9
Unrealized loss on
available-for-sale -- -- -- -- (3.7) (3.7)
marketable securities
Currency translation adjustment -- -- -- -- (2.3) (2.3)
--------
Comprehensive income 50.9
---------- ------- -------- -------- ------- --------
Balance at December 31, 1999 53,763,600 0.5 327.1 107.1 (8.9) 425.8
Comprehensive income:
Net income -- -- -- 33.1 -- 33.1
Unrealized loss on
available-for-sale
marketable securities, net
of reclassification for
losses of $5.2 included in
net income -- -- -- -- 3.6 3.6
Currency translation
adjustment -- -- -- -- (5.3) (5.3)
--------
Comprehensive income 31.4
---------- ------- -------- -------- ------- --------
Balance at December 29, 2000 53,763,600 0.5 327.1 140.2 (10.6) 457.2
Issuance of ordinary shares
upon exercise of stock
options 328,050 -- 2.6 -- -- 2.6
Comprehensive income:
Net income -- -- -- 96.2 -- 96.2
Unrealized loss on
available-for-sale
marketable securities, net
of reclassification for
losses of $0.1 included in
net income -- -- -- -- 0.1 0.1
Currency translation
adjustment -- -- -- -- (3.3) (3.3)
Unrealized loss on derivatives -- -- -- -- (2.3) (2.3)
--------
Comprehensive income 90.7
---------- ------- -------- -------- ------- --------
Balance at December 28, 2001 54,091,650 $ 0.5 $ 329.7 $ 236.4 $ (16.1) $ 550.5
========== ======= ======== ======== ======= ========
See accompanying notes
F-7
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 56.5% 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.
On September 17, 1998, Fresh Del Monte acquired 14 wholly owned operating
companies from IAT Group Inc. and its shareholders (collectively, such companies
are known as IAT and their acquisition is known as the IAT transaction). At the
time of the IAT transaction, IAT Group Inc. owned approximately 86% of FG
Holdings Limited, which in turn owned approximately 63% of Fresh Del Monte. As a
result, the IAT transaction was accounted for as a combination of entities under
common control using the as if pooling of interests method of accounting.
Under the as if pooling of interests method of accounting, the historical
results of Fresh Del Monte were restated to combine the operations of Fresh Del
Monte and IAT for all periods subsequent to August 29, 1996, the date Fresh Del
Monte and IAT came under common control. The recorded assets and liabilities of
Fresh Del Monte and IAT were carried forward to Fresh Del Monte's consolidated
financial statements at their historical amounts. Consolidated earnings of Fresh
Del Monte include the earnings of Fresh Del Monte and IAT for all periods
subsequent to the date Fresh Del Monte and IAT came under common control.
Prior to January 2, 1999, IAT's fiscal year end was September 30. Effective
January 2, 1999, IAT's fiscal year end was changed to conform to Fresh Del
Monte's fiscal year end. As a result of this change in fiscal year ends, the
year ended December 31, 1999 reflected the operating results of Fresh Del Monte
and subsidiaries, including IAT, for the same months. The results of operations
for IAT for the period from October 1, 1998 to January 1, 1999 are not included
in the consolidated statements of income or cash flows for any of the periods
presented, but are reflected as an adjustment to retained earnings as of January
2, 1999. For the period from October 1, 1998 to January 1, 1999, IAT incurred a
net loss of $7.6 million.
Fresh Del Monte and its subsidiaries are engaged primarily in the worldwide
production, transportation and marketing of fresh produce. Fresh Del Monte and
its subsidiaries source their products, bananas, pineapples, cantaloupe,
honeydew, watermelons, grapes, non-tropical fruit (including citrus, apples,
pears, peaches, plums, nectarines, apricots and kiwi), plantains, Vidalia(R)
sweet onions and various greens primarily from Central and South America and the
Philippines. Fresh Del Monte also sources products from North America, Africa
and Europe and distributes its products in North America, Europe, the
Asia-Pacific region and South America. Products are sourced from company-owned
farms, through joint venture arrangements and through supply contracts with
independent growers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Fresh Del Monte
and its majority owned subsidiaries which Fresh Del Monte controls. Fresh Del
Monte's 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.
F-8
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
Preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS
Fresh Del Monte classifies as cash equivalents all highly liquid investments
with a maturity of three months or less at the time of purchase.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is computed using
the weighted average cost method for fresh produce, principally in-transit, and
the first-in first-out, actual cost or average cost methods for raw materials
and packaging supplies. Raw materials inventory consists primarily of
agricultural supplies, containerboard, packaging materials and spare parts.
GROWING CROPS
Expenditures on pineapple, melon, grape and non-tropical fruit growing crops are
valued at the lower of cost or market and are deferred and charged to income
when the related crop is harvested and sold. The deferred growing costs consist
primarily of land preparation, cultivation, irrigation and fertilization costs.
Expenditures related to banana crops are expensed in the year incurred.
INVESTMENTS IN UNCONSOLIDATED COMPANIES
Investments in unconsolidated companies are accounted for under the equity
method of accounting for investments in 20% to 50% owned companies and for
investments in over 50% owned companies over which Fresh Del Monte does not have
control.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is recorded
following the straight-line method over the estimated useful lives of the
assets, which range from 10 to 30 years for buildings, 10 to 20 years for ships
and containers, 2 to 20 years for machinery and equipment, 3 to 7 years for
furniture, fixtures and office equipment and 2 to 10 years for automotive
equipment. Leasehold improvements are amortized over the life of the lease or
the related asset, whichever is shorter. 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 when incurred. Significant expenditures, which
extend useful lives of assets, are capitalized. Costs related to land
improvements for bananas, pineapples, grapes and non-tropical fruit and other
agricultural projects are deferred during the formative stage and are amortized
over the estimated life of the project.
F-9
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill has been amortized on a straight-line basis over its estimated useful
life which ranges from 10 to 40 years. Fresh Del Monte continually assesses the
carrying value of its goodwill in order to determine whether an impairment has
occurred. This assessment takes into account both historical and forecasted
results of operations including consideration of a terminal value. See further
discussion under "New Accounting Pronouncements".
IMPAIRMENT OF LONG-LIVED ASSETS
Fresh Del Monte accounts for the impairment of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121). SFAS No. 121 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. Based on the continued operating losses of certain
growing and production facilities in South and North America related to the
banana and the other fresh produce segments and estimates of fair values related
to these assets, Fresh Del Monte recorded a charge of $10.2 million for
impairment of long-lived assets in 2001, related primarily to property, plant
and equipment to be disposed of or abandoned.
REVENUE RECOGNITION
Revenue is recognized on sales of products when the customer receives title to
the goods, generally upon delivery and when collectibility is reasonably
assured.
COST OF PRODUCTS SOLD
Cost of products sold includes the cost of produce, packaging materials, labor
and overhead, air, land and sea transportation and other distribution costs,
including shipping and handling costs incurred to deliver fresh produce to the
customer.
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 future taxable income will not be sufficient to realize
income tax benefits. Generally, the provision for income taxes is the income
taxes payable for the year and the net change during the year in deferred tax
assets and liabilities and in tax reserves.
F-10
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ENVIRONMENTAL REMEDIATION LIABILITIES
Losses associated with environmental remediation obligations are accrued when
such losses are probable and can be reasonably estimated. Fresh Del Monte
recorded a provision of $15.0 million in 2001 related to the environmental
remediation for the Kunia Well Site (see Note 18).
CURRENCY TRANSLATION
For Fresh Del Monte's operations in countries that are not highly inflationary
and 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 at the average exchange rate for
the year. The gains and losses resulting from the changes in exchange rates from
year to year are recorded as a component of accumulated other comprehensive
income or loss as currency translation adjustments.
For Fresh Del Monte's operations where the functional currency is the U.S.
dollar or where the operations are located in highly inflationary countries,
non-monetary assets 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 depreciation, are translated at
the average exchange rate for the year. These translation adjustments are
included in the determination of net income in other income (loss), net.
Other income (loss), net in the accompanying consolidated statements of income
includes approximately $12.9 million, $4.7 million and $3.6 million in net
losses on foreign exchange for 2001, 2000 and 1999, respectively. These amounts
include the effect of foreign currency translation, realized foreign currency
gains and losses and changes in the value of the foreign currency accounts
receivable and related forward contracts.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) encourages, but does not require, companies to
record stock-based compensation plans at fair value. Fresh Del Monte has chosen,
as allowed by the provisions of SFAS No. 123, to account for its Stock Plan
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB No. 25) and related interpretations. Under APB No. 25,
because the exercise price of Fresh Del Monte's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recorded. SFAS No. 123 requires disclosure of the estimated fair
value of employee stock options granted and pro forma financial information
assuming compensation expense was recorded using these fair values.
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 No. 133), as amended by Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS No. 133, as amended, requires the recognition of all
derivative instruments as either assets or liabilities on the balance sheet
measured at fair value and establishes new
F-11
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 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
consolidated financial statements for the year ended December 28, 2001 comply
with the provisions required by SFAS No. 133, while the consolidated financial
statements for the years ended on or before December 29, 2000 and December 31,
1999 were prepared in accordance with the applicable professional literature for
derivatives and hedging instruments in effect at that time.
RECLASSIFICATIONS
Certain amounts from 2000 and 1999 have been reclassified to conform to the 2001
presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141)
and No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS No. 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 No. 142, goodwill and intangible assets
with indefinite lives will no longer be amortized but will be reviewed annually,
or more frequently if 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 No. 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 will adopt SFAS No. 142 effective December 29, 2001. Adoption of the
provisions of SFAS No. 142 will eliminate goodwill amortization starting in
2002.
During 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS 144 superseded Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business. SFAS No.
144 also amended Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. Fresh Del Monte will adopt SFAS 144 on
December 29, 2001, and expects the adoption of this standard will not have a
material impact on its financial condition, results of operations or cash flows.
F-12
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS
AGRICOLA VILLA ALEGRE
In June 2001, a subsidiary of Fresh Del Monte, which owned a 50% interest in
Agricola Villa Alegre Limitada (Villa Alegre), a producer of grapes and
non-tropical 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. For the period prior to the
acquisition, Fresh Del Monte accounted for the earnings from its original 50%
investment in Villa Alegre using the equity method of accounting (see Note 5).
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):
Year Ended
-------------------------------------------
December 28, 2001 December 29, 2000
----------------- -----------------
Net sales $ 1,928.0 $ 1,859.3
Net income 95.8 32.7
Diluted net income per share $ 1.76 $ 0.61
Number of ordinary shares used in computation 54,414,868 53,764,383
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.
BELGIAN ACQUISITION
On January 14, 1999, Fresh Del Monte acquired all of the outstanding shares of
Banana Marketing Belgium N.V. (BMB) and executed a long-term banana purchase
agreement with a subsidiary of C.I. Banacol S.A. (Banacol). Banacol is a
significant producer of bananas and BMB was Banacol's exclusive marketing
company in Europe.
The total consideration paid in connection with the acquisition of BMB was $58.7
million. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
acquired of $36.9 million, consisting primarily of European banana import
licenses, based on an appraisal. The value assigned to the banana import
licenses is included in other noncurrent assets and was being amortized over
their estimated life of five years. On May 12, 2001, the European Commission
adopted a new regulation which implemented a banana import system based on an
agreement reached by the European Union with the U.S. government. The new system
became effective July 1, 2001 and maintains the use of the banana import
licenses until December 31, 2005. Based on this
F-13
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
new system, Fresh Del Monte extended the amortization period of the banana
import licenses acquired through December 31, 2005. The excess of the purchase
price over the fair value of net assets acquired of $21.8 million was classified
as goodwill and is being amortized over 20 years.
The effect of the change in the amortization period of the Belgian licenses is a
reduction in amortization expense of $1.9 million or $0.03 per diluted share for
2001.
4. INVENTORIES
Inventories consisted of the following (U.S. dollars in millions):
December 28, December 29,
2001 2000
------------ ------------
Fresh produce, principally in-transit $ 44.1 $ 52.4
Raw materials and packaging supplies 70.0 79.3
Growing crops 64.4 57.1
------- -------
$ 178.5 $ 188.8
======= =======
5. INVESTMENTS IN UNCONSOLIDATED COMPANIES
Fresh Del Monte utilizes the equity method of accounting for investments in 20%
to 50% owned companies and for investments in over 50% owned companies over
which Fresh Del Monte does not have control. Investments in unconsolidated
companies accounted for under the equity method amounted to $41.3 million and
$50.3 million at December 28, 2001 and December 29, 2000, respectively. At
December 28, 2001 and December 29, 2000, net amounts receivable from
unconsolidated companies amounted to $6.8 million and $13.7 million,
respectively.
These unconsolidated companies are engaged in the manufacturing of corrugated
boxes (Compania Industrial Corrugadora Guatemala, S.A. - 50% owned) and the
production and distribution of fresh fruit and other produce (Davao Agricultural
Ventures Corporation - 40% owned; Agricola Villa Alegre, Limitada - 50% owned
through June 29, 2001 (see Note 3); various melon farms - 50% owned; and
Internationale Fruchtimport Gesellschaft Weichert & Co. (Interfrucht) - a
non-controlling 80% interest).
Purchases from these unconsolidated companies were $62.4 million, $63.8 million
and $58.7 million for 2001, 2000 and 1999, respectively.
F-14
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN UNCONSOLIDATED COMPANIES (CONTINUED)
Combined financial data of unconsolidated companies is summarized as follows
(U.S. dollars in millions):
December 28, December 29,
2001 2000
------------ ------------
Current assets $ 48.2 $ 53.2
Noncurrent assets 52.4 83.2
Current liabilities (23.6) (37.7)
Noncurrent liabilities (5.2) (6.6)
------ ------
Net worth $ 71.8 $ 92.1
====== ======
Year Ended
--------------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
Net sales $193.8 $206.0 $228.4
Gross profit 10.4 15.9 14.0
Net income 6.6 5.8 6.3
Fresh Del Monte's portion of earnings in unconsolidated companies amounted to
$4.1 million, $3.6 million and $3.7 million, in 2001, 2000 and 1999,
respectively, and is included in other income (loss), net. Dividends received
from unconsolidated subsidiaries amounted to $2.5 million, $2.2 million and $5.8
million in 2001, 2000 and 1999, respectively.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (U.S. dollars in
millions):
December 28, December 29,
2001 2000
------------ ------------
Land and land improvements $ 251.8 $ 228.6
Buildings and leasehold improvements 158.7 155.0
Maritime equipment (including containers) 210.4 207.2
Machinery and equipment 140.8 125.6
Furniture, fixtures and office equipment 52.8 50.6
Automotive equipment 17.0 15.9
Construction-in-progress 36.6 23.2
-------- --------
868.1 806.1
Less accumulated depreciation and amortization (210.0) (170.5)
-------- --------
$ 658.1 $ 635.6
======== ========
F-15
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation and amortization expense on property, plant and equipment amounted
to $51.5 million, $46.2 million and $36.3 million for 2001, 2000 and 1999,
respectively.
Buildings, containers, machinery and equipment and automotive equipment under
capital leases totaled $38.1 million and $33.6 million at December 28, 2001 and
December 29, 2000, respectively. Accumulated amortization for assets under
capital leases was $10.2 million and $6.2 million at December 28, 2001 and
December 29, 2000, respectively.
7. HURRICANE MITCH
In 1998, Fresh Del Monte's Guatemalan banana operations were damaged as a result
of Hurricane Mitch. Insurance recoveries related to Hurricane Mitch of $13.5
million are included in other income (loss), net for the year ended December 31,
1999.
Fresh Del Monte maintained insurance for both property damage and business
interruption applicable to its production facilities, including its operations
in Guatemala. The policies providing the coverages for losses caused by
Hurricane Mitch were subject to deductibles of $0.1 million for property damage
and business interruption. Fresh Del Monte is pursuing additional recoveries
under its business interruption coverages related to the damage of its
operations in Guatemala caused by Hurricane Mitch. The amount of total
recoveries under business interruption coverages cannot be estimated at this
time.
8. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consisted of the following (U.S. dollars in
millions):
Unrealized
Gain/(loss) On Unrealized
Currency Translation Available-for-Sale Loss On
Adjustments Marketable Securities Derivatives Total
--------------------- --------------------- ----------- -----
Balance, January 1, 1999 $ (2.9) $ -- $ -- $ (2.9)
Current year net change in
accumulated other comprehensive
income (loss) (2.3) (3.7) -- (6.0)
------ ------- ----- ------
Balance, December 31, 1999 (5.2) (3.7) -- (8.9)
Current year net change in
accumulated other comprehensive
income (loss) (5.3) 3.6 -- (1.7)
------ ------- ----- ------
Balance, December 29, 2000 (10.5) (0.1) -- (10.6)
Current year net change in
accumulated other comprehensive
income (loss) (3.3) 0.1 (2.3) (5.5)
------ ------- ----- ------
Balance, December 28, 2001 $(13.8) $ -- $(2.3) $(16.1)
====== ======= ===== ======
F-16
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following (U.S. dollars
in millions):
December 28, December 29,
2001 2000
------------ -----------
Trade payables $ 85.0 $ 93.2
Payroll and employee benefits 11.7 9.7
Vessel and port operating expenses 14.7 16.4
Accrued interest payable 2.0 3.0
Other payables and accrued expenses 72.8 64.8
------ ------
$186.2 $187.1
====== ======
10. PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following (U.S. dollars in
millions):
Year Ended
----------------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ----------- ------------
Current:
U.S. federal income tax $ 18.1 $ -- $ 2.5
State 0.3 -- 0.3
Non-U.S. 8.9 5.7 5.8
------- ------ ------
27.3 5.7 8.6
Deferred:
U.S. (1.0) (1.0) 1.7
Non-U.S. 0.2 (1.8) 4.4
------- ------ ------
(0.8) (2.8) 6.1
------- ------ ------
Provision for income taxes $ 26.5 $ 2.9 $ 14.7
======= ====== ======
Total income tax payments during 2001, 2000 and 1999 were $6.3 million, $3.9
million and $5.9 million, respectively.
Income (loss) before provision for income taxes consisted of the following (U.S.
dollars in millions):
Year Ended
------------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
United States $(26.0) $(13.5) $ 3.3
Non-U.S. 148.7 49.5 68.3
------ ------ -----
$122.7 $ 36.0 $71.6
====== ====== =====
F-17
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PROVISION FOR INCOME TAXES (CONTINUED)
The differences between the reported provision for 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
--------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
Income tax provision computed at the U.S.
statutory federal income tax rate $42.9 $ 12.6 $ 25.1
Effect of tax rates on non-U.S. operations, and
changes in valuation allowance for non-U.S.
operations (42.4) (9.7) (10.5)
Reserve for tax audits 19.1 -- --
Valuation allowance for U.S. net loss
carryforwards 6.9 -- --
Other -- -- 0.1
----- ------ -----
$26.5 $ 2.9 $14.7
===== ====== =====
Deferred income tax assets and liabilities consisted of the following (U.S.
dollars in millions):
December 28, December 29,
2001 2000
------------ ------------
DEFERRED TAX LIABILITIES:
Inventories $ (9.6) $ (8.6)
Depreciation (15.9) (14.2)
Equity in earnings of unconsolidated companies (4.5) (4.1)
------- -------
Total deferred tax liabilities (30.0) (26.9)
DEFERRED TAX ASSETS:
Pension liability 1.7 1.1
Post-retirement benefits other than pension 7.2 6.7
Net operating loss carryforwards 27.0 29.8
Other, net 11.5 8.6
------- -------
Total deferred tax assets 47.4 46.2
Valuation allowance (25.1) (27.8)
------- -------
Net deferred tax liabilities $ (7.7) $ (8.5)
======= =======
The valuation allowance established with respect to the deferred tax assets
relates primarily to net operating losses and employee benefit accruals in
taxing jurisdictions where, due to Fresh Del Monte's current and foreseeable
operations within the various jurisdictions, it is deemed more likely than not
that future taxable income will not be sufficient within such jurisdictions to
realize the related income tax benefits. During 2001, the valuation allowance
decreased by $2.7 million. In 2001, non-U.S. net operating loss carryforwards
expired for which $11.3 million of deferred tax assets and valuation allowance
had been previously recorded.
F-18
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PROVISION FOR INCOME TAXES (CONTINUED)
At December 28, 2001, Fresh Del Monte had approximately $130.4 million of tax
operating loss carry forwards expiring as follows (U.S. dollars in millions):
Expiration Amount
---------- ------
2003 $ 12.1
2004 1.6
2005 0.3
2006 and beyond 23.1
No expiration 93.3
-------
$130.4
Fresh Del Monte is currently undergoing tax audits in several jurisdictions for
certain years prior to 2001. As a result of these examinations, Fresh Del Monte
has provided reserves of $19.1 million during 2001. The accrual for the audits
are included in other noncurrent liabilities in the accompanying balance sheet
at December 28, 2001. Fresh Del Monte believes the amounts accrued as of
December 28, 2001 are sufficient to cover potential tax assessments for the
years under examination.
11. NOTES PAYABLE TO BANKS
Fresh Del Monte has $1.6 million of working capital revolving credit facilities
with banks in Japan and Chile. These facilities expire on May 2002 and June 2002
and bear interest, as of December 28, 2001, at 2.5% and 4.0%, respectively. As
of December 28, 2001, there was $1.2 million in borrowings outstanding under
these credit facilities. As of December 29, 2000, Fresh Del Monte also had a
working capital facility with the same Japanese bank with an outstanding balance
of $0.4 million.
The weighted average interest rate on borrowings under these short-term credit
facilities as of December 28, 2001 and December 29, 2000 was 3.5% and 2.5%,
respectively. The cash payments for interest on notes payable to banks and other
financial institutions was $0.4 million, $0.3 million and $0.2 million for 2001,
2000, 1999, respectively.
F-19
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LONG-TERM DEBT
The following is a summary of long term-debt (U.S. dollars in millions):
December 28, December 29,
2001 2000
------------ ------------
$450.0 million five-year syndicated credit facility (see below). $130.4 $246.3
$135.0 million five-year term loan (see below). 114.8 128.2
Term notes bearing interest at various rates ranging from 8.62% to
LIBOR plus 1.25%, set quarterly (3.27% at December 28, 2001), payable in
quarterly installments of principal and interest maturing in January 2003
and January 2004, secured by mortgages on
five of Fresh Del Monte's vessels. 7.6 11.9
Term notes bearing interest at 8.62%, payable in quarterly
installments of principal and interest maturing in January 2003, secured
by mortgages on five of Fresh Del Monte's vessels. 9.9 17.2
Term notes bearing interest at various rates ranging from 7.14% to LIBOR
plus 1.25%, set quarterly (3.84% at December 28, 2001), payable in
quarterly installments of principal and interest maturing from August
2001 to January 2005, with a balloon payment of $6.9 million due in
January 2005, secured by mortgages on five of Fresh Del Monte's vessels
for 2000 and three for 2001. 17.3 22.6
Term notes payable to financial institutions, bearing interest at LIBOR plus
1%, set quarterly (3.27% at December 28, 2001) due October 2003, secured
by mortgages on five of Fresh Del Monte's vessels. 15.5 22.6
Various other notes payable 15.2 12.8
------ ------
Total 310.7 461.6
Less current portion (43.3) (45.0)
------ ------
$267.4 $416.6
====== ======
On May 19, 1998, Fresh Del Monte, and certain wholly-owned subsidiaries, entered
into a $350.0 million, five-year syndicated credit facility (the Revolving
Credit Facility), with Rabobank International, New York Branch, as agent. On
December 15, 1998, the Revolving Credit Facility was amended to increase the
borrowing level to $389.0 million and on May 20, 1999, the Revolving Credit
Facility was amended to increase the borrowing level to $450.0 million. The
Revolving Credit Facility includes a swing line facility, a letter of credit
facility and an exchange contract facility. The Revolving Credit Facility is
collateralized directly or indirectly by substantially all of the assets of
Fresh Del Monte and its subsidiaries. The facility expires on May 19, 2003, and
permits borrowings with an interest rate based on a spread over the London
Interbank offered rate (LIBOR). Outstanding borrowings at December 28, 2001 were
$130.4 million, bearing interest at a weighted average rate of 3.5%. At December
28, 2001, Fresh Del Monte applied $2.7 million of available credit under this
facility towards the issuance of letters of credit.
F-20
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LONG-TERM DEBT (CONTINUED)
On May 10, 2000, Fresh Del Monte amended its $450.0 million Revolving Credit
Facility to include a five-year term loan (Term Loan) of $135.0 million giving
Fresh Del Monte a total borrowing capacity under this facility of $585.0
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
in September 2000, and bears interest based on a spread over LIBOR. The Term
Loan matures on May 10, 2005 with a balloon payment of $70.9 million. The unpaid
balance at December 28, 2001 of the Term Loan was $114.8 million bearing
interest at a rate of 4.34%.
The Revolving Credit Facility contains covenants which require Fresh Del Monte
to maintain certain minimum financial ratios and limits the payment of future
dividends. In connection with the Revolving Credit Facility, Fresh Del Monte
entered into an interest rate swap agreement expiring in 2003 with the same bank
to limit the effect of increases in interest rates on a portion of the Revolving
Credit Facility. The notional amount of the swap decreases over its life from
$150.0 million in the first three months, to $53.6 million in the last three
months. The cash differentials paid or received on the swap agreement are
accrued and recognized as adjustments to interest expense. Interest expense
related to the swap agreement amounted to $1.4 million for 2001. Interest income
related to the swap agreement for 2000 amounted to $0.3 million. Interest
expense related to the swap agreement for 1999 amounted to $0.9 million.
Cash payments of interest on long-term debt, net of amounts capitalized were
$28.9 million, $38.3 million and $27.2 million for 2001, 2000 and 1999,
respectively.
Maturities on long-term debt during the next five years are (U.S. dollars in
millions):
2002 $ 43.3
2003 161.8
2004 17.7
2005 82.0
2006 1.3
Thereafter 4.6
------
$310.7
F-21
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. CAPITAL LEASE OBLIGATIONS
Fresh Del Monte leases certain buildings, machinery and equipment, and
containers under capital leases. These lease obligations are payable in monthly
installments. The future minimum lease payments at December 28, 2001 are as
follows (U.S. dollars in millions):
2002 $ 7.6
2003 7.1
2004 4.5
2005 2.1
2006 3.7
Thereafter --
------
Total payments remaining under capital leases 25.0
Less amount representing interest (3.6)
------
Present value of capital leases 21.4
Less current portion (6.6)
------
Capital lease obligations, net of current portion $ 14.8
======
14. EARNINGS PER SHARE
Basic and diluted per share income is calculated as follows (U.S. dollars in
millions, except per share data):
Year Ended
--------------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
NUMERATOR:
Net income $96.2 $33.1 $56.9
DENOMINATOR:
Denominator for basic earnings per share - weighted average
number of ordinary shares outstanding 53,856,392 53,763,600 53,763,600
Effect of dilutive securities:
Employee stock options 558,476 783 41,637
---------- ---------- ----------
Denominator for diluted earnings per share 54,414,868 53,764,383 53,805,237
========== ========== ==========
Net income per share:
Basic $ 1.79 $ 0.62 $ 1.06
Diluted $ 1.77 $ 0.62 $ 1.06
The number of outstanding stock options considered antidilutive for either part
or all of the fiscal year and not included in the calculation of diluted net
income per share for 2001, 2000 and 1999 were 1,478,000 3,082,000 and 3,078,000,
respectively.
F-22
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS
Fresh Del Monte sponsors two non-contributory defined benefit pension plans,
which cover a portion of its U.S. based employees. These plans provide benefits
based on the employees' years of service and qualifying compensation. Fresh Del
Monte's 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 of July 31, 1997, a subsidiary of Fresh Del Monte ceased accruing benefits
under its cash balance pension plan covering all salaried employees who were
U.S. based and worked a specified minimum number of hours. The hypothetical
account balances under such plan continued to be credited with monthly interest
and participants who are not fully vested in such plan continued to earn vesting
services after July 31, 1997. Fresh Del Monte adopted an amendment to terminate
the cash balance plan effective as of December 31, 1999 and a settlement
distribution of $10.1 million was paid during 2000. The loss recognized in 2000
due to settlement amounted to $1.1 million.
Fresh Del Monte provides contributory health care benefits to its U.S. retirees
and their dependents. Fresh Del Monte has recorded a liability equal to the
unfunded accumulated benefit obligation as required by the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (SFAS No. 106). SFAS No. 106
requires that the cost of these benefits, which are primarily for health care
and life insurance, be recognized in the financial statements throughout the
employees' active working careers. Claims under the plan are funded by Fresh Del
Monte as they are incurred and, accordingly, the plan has no assets.
The weighted average discount rate used in determining the accumulated benefit
obligation for postretirement pension benefit obligation was 7.25% at December
28, 2001 and December 29, 2000. For measuring the liability as of December 28,
2001, a 10% annual rate of increase in real medical inflation, declining
gradually to 4% by the year 2007 and thereafter, were assumed.
The assumptions used in the calculation of the actuarial present value of the
projected benefit obligation and expected long-term return on plan assets for
Fresh Del Monte's defined benefit pension plans consisted of the following:
December 28, December 29,
2001 2000
------------- -------------
Weighted average discount rate 6.00% - 7.25% 6.00% - 7.50%
Rate of increase in compensation levels 4.50% 4.50%
Expected long-term return on assets 8.75% 7.75% - 8.75%
F-23
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth a reconciliation of benefit obligations, plan
assets and funded status for Fresh Del Monte's defined benefit pension plans and
post retirement pension plan as of December 28, 2001 and December 29, 2000 (U.S.
dollars in millions):
Postretirement Plan Defined Benefit Plans
------------------------------- --------------------------------
December 28, December 29, December 28, December 29,
2001 2000 2001 2000
------------ ------------ ------------ ------------
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation at beginning of period $13.7 $12.5 $14.0 $21.2
Service cost 0.6 0.5 0.3 0.3
Interest cost 0.9 0.9 1.0 1.4
Actuarial (gain)/loss 2.3 0.2 0.2 2.0
Benefits paid (0.5) (0.4) (0.8) (0.7)
Settlements -- -- -- (10.1)
Other -- -- (0.1) (0.1)
----- ----- ----- -----
Benefit obligation at end of period $17.0 $13.7 $14.6 $14.0
===== ===== ===== =====
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
period $ -- $ -- $10.8 $18.5
Actual return on plan assets -- -- 0.8 1.2
Employer contribution 0.5 0.4 0.6 1.9
Benefits paid (0.5) (0.4) (0.8) (0.7)
Settlements -- -- -- (10.1)
------- ------- ----- -----
Fair value of plan assets at end of period $ -- $ -- $11.4 $10.8
======= ======= ===== =====
RECONCILIATION:
Funded status $(17.0) $(13.7) $(3.2) $(3.2)
Unrecognized net (gain)/loss (2.9) (5.6) 1.2 0.9
------- ------- ------ ------
Accrued benefit cost $(19.9) $(19.3) $(2.0) $(2.3)
======= ======= ====== ======
F-24
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the net periodic pension cost of Fresh Del
Monte's defined benefit pension plans for 2001, 2000 and 1999 (U.S. dollars in
millions):
Year Ended
---------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
Service cost-benefits earned during the period $0.3 $0.3 $0.4
Interest cost on projected benefit obligation 1.0 1.4 2.1
Expected return on assets (0.9) (1.3) (2.1)
---- ---- ----
Net periodic pension expense for defined benefit
plans $0.4 $0.4 $0.4
==== ==== ====
The following table sets forth the net periodic cost of Fresh Del Monte's
postretirement plan for 2001, 2000 and 1999 (U.S. dollars in millions):
Year Ended
----------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
Service cost-benefits earned during the period $0.6 $0.5 $0.4
Interest cost on accumulated postretirement benefit
obligation 0.9 0.9 0.9
Net amortization of deferred gain (0.4) (0.4) (0.3)
---- ---- ----
Net periodic postretirement benefit cost $1.1 $1.0 $1.0
==== ==== ====
The cost trend rate assumption has a significant impact on the amounts reported.
For example, increasing the cost trend rate 1% each year would increase the
accumulated postretirement benefit obligation by $2.4 million as of December 28,
2001 and the total of service cost plus interest cost by $0.3 million for 2001.
In addition, decreasing the trend rate by 1% would decrease the accumulated
postretirement benefit obligation by $2.0 million as of December 28, 2001 and
the total of the service cost plus interest cost by $0.2 million for 2001.
Fresh Del Monte also sponsors 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
Fresh Del Monte 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 $0.8 million, $0.4 million, and $0.4 million for 2001, 2000 and 1999,
respectively.
F-25
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
Fresh Del Monte provides retirement benefits to substantially all 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. The majority of these
programs are commonly referred to as termination indemnities which provide
retirement benefits in accordance with programs mandated by the governments of
the countries in which such employees work. The expense pertaining to these
programs was $4.5 million, $4.5 million and $7.5 million for 2001, 2000 and
1999, respectively. The decrease in the expense in 2000 was caused primarily by
a decrease in the number of employees covered by the program due to terminations
during 1999 and 2000.
Funding generally occurs when employees cease active service. The most
significant of these programs pertains to one of Fresh Del Monte's subsidiaries
in Central America for which a liability of $14.7 million and $15.6 million was
recorded at December 28, 2001 and December 29, 2000, respectively. Expenses for
this program for 2001, 2000 and 1999 amounted to $1.5 million, $1.8 million and
$3.3 million, respectively, including service cost earned of $0.9 million, $0.9
million and $1.6 million, and interest cost of $0.8 million, $0.9 million and
$1.7 million, respectively.
As of August 31, 1997, a subsidiary of the Fresh Del Monte ceased accruing
benefits under its salary continuation plan covering all Central American
management personnel. At December 28, 2001 and December 29, 2000, Fresh Del
Monte had $9.1 million and $8.7 million, respectively, accrued for this plan.
16. STOCK BASED COMPENSATION
Effective upon the completion of its initial public offering in October 1997,
Fresh Del Monte established a share option plan pursuant to which options to
purchase ordinary shares may be granted to certain directors, officers and key
employees of Fresh Del Monte 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
ordinary shares of Fresh Del Monte at the fair market value of the ordinary
shares at the date of grant.
On May 11, 1999, Fresh Del Monte's shareholders approved and ratified the 1999
Share Incentive Plan (the 1999 Plan). Under the 1999 Plan, the Board of
Directors is authorized to grant options to purchase an aggregate of 2,000,000
ordinary shares. Under this plan, options have been granted to directors,
officers and other key employees to purchase ordinary shares of Fresh Del Monte
at the fair market value of the ordinary shares at the date of grant.
Under the plans, twenty percent of the options usually vest immediately and the
remaining options vest in equal installments over the next four years and may be
exercised over a period not in excess of ten years. During 2000, the vesting
schedule for 120,000 options granted during the year was accelerated so that
100% of the options vested within six months.
F-26
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK BASED COMPENSATION (CONTINUED)
On April 17, 2001, Fresh Del Monte granted to directors' officers and key
employees 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.
During 2001, Fresh Del Monte received proceeds of $2.6 million due to the
exercise of 328,050 options.
A summary of Fresh Del Monte's stock option activity and related information is
as follows:
Number of Weighted Average
Shares Exercise Price
--------- ----------------
Options outstanding at January 1, 1999 1,227,000 $15.91
Granted 1,960,000 $10.89
Canceled (79,000) $15.32
----------
Options outstanding at December 31, 1999 3,108,000 $12.08
Granted 150,000 $ 9.14
Canceled (176,000) $13.90
----------
Options outstanding at December 29, 2000 3,082,000 $12.52
Granted 1,159,030 $ 5.95
Exercised (328,050) $ 7.80
Canceled (90,000) $15.11
----------
Options outstanding at December 28, 2001 3,822,980 $10.87
=========
Exercisable at December 31, 1999 1,155,000 $14.10
========= ======
Exercisable at December 29, 2000 1,698,000 $13.10
========= ======
Exercisable at December 28, 2001 2,125,756 $13.11
========= ======
Weighted
Number of Average Price
Range of Options Wrighted Average Weighted of Exercisable
Exercise Outstanding at Reamining Average Exercisable at Options at
Prices December 28, 2001 Contractual Life Exercise Price December 28, 2001 December 28, 2001
-------- ----------------- ---------------- -------------- ----------------- -----------------
$5.95 - $9.28 2,344,980 8.5 years $ 7.76 831,756 $ 8.84
$14.22 - $16 1,478,000 6.2 years $15.81 1,294,000 $15.85
SFAS No. 123 requires pro forma information regarding net income and earnings
per share determined as if Fresh Del Monte had accounted for its employee stock
options under the fair value method of SFAS No. 123. The fair value for the
outstanding options was estimated at the date of grant using a Black-Scholes
option pricing model. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected stock
price volatility.
F-27
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK BASED COMPENSATION (CONTINUED)
The weighted-average fair value of each option granted during 2001, 2000 and
1999 is estimated at $2.34, $1.37 and $5.18, respectively, on the date of grant
using the Black-Scholes option-pricing model using the following assumptions:
dividend yield of 3.36%, 0% and 0% in 2001, 2000 and 1999, respectively,
expected volatility of 0.603, 0.53 and 0.45 in 2001, 2000 and 1999,
respectively, risk free interest rate of 3.31%, 5.02% and 6.13% in 2001, 2000
and 1999, respectively, and expected lives of two to five years.
For purposes of pro forma disclosures required by SFAS No. 123, the estimated
fair value of the options is amortized to expense over the options' vesting
period. Fresh Del Monte's 2001, 2000 and 1999 pro forma information follows
(U.S. dollars in millions, except per share data):
Year Ended
--------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
------------ ------------ ------------
Net income $90.2 $27.8 $52.4
Net income per ordinary share
Basic $1.67 $0.52 $0.97
Diluted $1.66 $0.52 $0.97
In accordance with APB No. 25, because the exercise price of Fresh Del Monte's
employee stock options equaled the market price of the underlying stock on the
date of grant, no compensation expense was recorded for 2001, 2000 and 1999 in
connection with the 1997 Plan and the 1999 Plan.
17. COMMITMENTS AND CONTINGENCIES
Fresh Del Monte leases agricultural land and certain property, plant and
equipment, including office facilities and vessels, under operating leases. The
aggregate minimum rental payments under all operating leases with initial terms
of one year or more at December 28, 2001 are as follows (U.S. dollars in
millions):
2002 $10.8
2003 9.6
2004 8.0
2005 7.0
2006 6.5
Thereafter 17.1
-----
$59.0
Total rent expense for all operating leases amounted to $23.5 million, $39.0
million and $55.2 million for 2001, 2000 and 1999, respectively, of which $22.1
million and $40.9 million pertained to vessel charter lease commitments in 2000
and 1999, respectively. In 2001, Fresh Del Monte did not have vessel charter
lease commitments with initial terms of one year or more.
F-28
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Fresh Del Monte also has agreements to purchase substantially all of the
production of certain independent growers in Costa Rica, Guatemala, Ecuador,
Cameroon, Colombia, Chile, Panama, South Africa and the Philippines. Total
purchases under these agreements amounted to $458.5 million, $494.8 million and
$560.9 million for 2001, 2000 and 1999, respectively.
18. LITIGATION
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 the 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 the settlement, the majority of which has been recovered
from insurance carriers. The remaining claimants did not accept the settlement
proceeds and approximately $268,000 was returned to Fresh Del Monte's
subsidiaries.
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
the Banana Workers' Association (Association) on behalf of its 34,852 members
for injuries they allege to have incurred as a result of DBCP exposure.
Approximately 13,000 members of the Association claim employment on a farm that
was under contract to a Fresh Del Monte subsidiary at the time of DBCP use.
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 subsidiaries believe that they have substantial defenses to
the claims asserted by the Association. To date only 300 of more than 34,000
members have come forward to be tested. The court in the Philippines may set a
date as early as the second quarter of 2002 for the trial to start. Discovery
and medical testing of Association members can continue during the trial.
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 subsidiaries for FORUM NON CONVENIENS and lack of
personal jurisdiction for the Mississippi actions, and on October 1, 2001, the
United States Supreme Court denied plaintiffs' petition for an appeal. On May
31, 2001,
F-29
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. LITIGATION (CONTINUED)
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 was filed on October 9, 2001. On December 7, 2001, the
Supreme Court requested the views of the Office of the Solicitor General on the
petition. The Solicitor General has yet to provide its views and the petition to
the Supreme Court will be heard on April 19, 2002.
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 U.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. Fresh Del
Monte's subsidiary has settled with all but 13 of the Canales Martinez
plaintiffs. On October 25, 2001, defendants filed a motion to dismiss the action
on grounds of FORUM NON CONVENIENS in favor of plaintiffs' home countries. The
motion remains pending.
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
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 Fresh Del Monte's subsidiary. The court's disposition of
the pending motion in the Canales Martinez action to dismiss on grounds of FORUM
NON CONVENIENS will likely apply to theses two cases as well.
On January 8, 2001, local residents of Honolulu, Hawaii amended their complaint
(the initial complaint did not include Fresh Del Monte's U.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 U.S. subsidiary has answered the complaint
denying all the plaintiffs' claims and asserting substantial defenses. This
matter is still in the early stage of the litigation, which has been bifurcated
to address the claims of an initial set of 34 plaintiffs.
F-30
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. LITIGATION (CONTINUED)
On or about October 20, 1997, one of Fresh Del Monte's subsidiaries and Nordeste
Investimentos e Participacoes S.A. (Nordeste), Fresh Del Monte's subsidiary
partner in two joint venture companies, Interfruit Brasil S.A. (IBSA) and
International Produce Trading Ltd. (IPTL), agreed to submit to arbitration
certain disputes that arose under joint venture agreements relating to the
development of and exporting of produce from a banana plantation in Brazil. In
its Request for Arbitration and Reply to Nordeste's Counterclaim, Fresh Del
Monte's subsidiary asserted claims for breach of contract, breach of duty of
loyalty, misappropriation of trade secrets and proprietary information. Fresh
Del Monte's subsidiary sought injunctive relief and $43 million in damages.
Nordeste asserted in its Counterclaim that Fresh Del Monte's subsidiary breached
certain contractual obligations and improperly terminated the joint venture
agreements and sought to recover liquidated and other damages in the amount of
approximately $39.2 million. The hearing of the claims before the arbitral
tribunal was conducted in October 1999. On May 10, 2000, the arbitrators issued
their award requiring Fresh Del Monte's subsidiary to pay $2 million to Nordeste
and that Nordeste and Fresh Del Monte's subsidiary exchange the 50% ownership
they each have in the two joint venture companies (IPTL and IBSA, respectively).
Fresh Del Monte accrued for the $2 million award. The May 10, 2000 award
directed Fresh Del Monte's subsidiary to transfer to Nordeste all of its shares
in Bananos do Brazil Ltda (Bandebras) which held the shares of IBSA. Unbeknownst
to the arbitral tribunal, during the pendency of the arbitration Bandebras was
renamed Del Monte Fresh Produce Brasil Ltda (DMFPB) and to it were transferred
substantial assets and operations of Fresh Del Monte in Brazil.
On June 8, 2000 the arbitral tribunal issued an Addendum to Final Award, in
which the Final Award was corrected to require Fresh Del Monte's subsidiary to
transfer to Nordeste the shares of IBSA and not any other company. Fresh Del
Monte's subsidiary has tendered payment of the $2 million and has proposed to
have a closing to effect the transfer of the shares of the two companies.
Nordeste has declined Fresh Del Monte's subsidiary's tender.
On July 24, 2001, DMFPB was served with a preliminary injunction issued by a
judge of the Eighth Civil Court in Recife, Brazil enjoining Fresh Del Monte's
subsidiary from transferring the assets and ownership of DMFPB as well as
requiring the provision of certain information to the court on a monthly basis
regarding DMFPB's business pending the resolution of Nordeste's action seeking
enforcement of the May 10, 2000 arbitral award as originally entered, and
declaring the addendum to that award a nullity. On August 6, 2001, DMFPB filed
an appeal with the State of Pernambuco Appellate Tribunal seeking to revoke the
preliminary injunction. The appeal contained a specific request addressed to the
Reporting Judge of the Appellate Tribunal for the immediate suspension of the
effects of the preliminary injunction. On August 21, 2001, the Reporting Judge
denied DMFPB's specific request for an immediate suspension of the preliminary
injunction. On December 21, 2001, the briefs in support of the principal appeal
were filed, along with a motion for change of venue. The three judge panel of
the Appellate Tribunal has yet to rule on the merits of DMFPB's principal
appeal.
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 December 28, 2001, except for the previously noted accrual related to the
Nordeste action.
F-31
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. LITIGATION (CONTINUED)
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 U.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 is updated
from time to time), and it is expected that the feasibility study will be
finalized by the second quarter of 2002.
Based on an updated draft of the final feasibility study in December 2001, the
estimated remediation costs associated with this matter range from $5.2 million
to $28.9 million. Certain portions of these estimates have been discounted using
a 5% interest rate. The undiscounted estimates are between $6.4 million and
$33.6 million. As a result of communications with the EPA, Fresh Del Monte
recorded a charge of $15.0 million in 2001 in addition to $4.1 million
previously recorded as an estimate of the expected future cleanup cost for the
Kunia Well Site. Accordingly, an accrual of $19.1 million is included in other
noncurrent liabilities in the accompanying balance sheet at December 28, 2001.
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's financial position or operating
results.
19. DERIVATIVE FINANCIAL INSTRUMENTS
Effective December 30, 2001, Fresh Del Monte began accounting for derivative
financial instruments in accordance with SFAS No. 133, as amended. 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 or fair value 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," depending on whether the
amount is an asset or liability. The fair values of derivatives used to hedge or
modify Fresh Del Monte's 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 Fresh Del Monte's risk relating to adverse
fluctuations in foreign exchange rates and interest rates. In addition, the
earnings impact resulting from Fresh Del Monte's derivative instruments is
recorded in the same line item
F-32
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (CONTINUED)
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 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. Hedge ineffectiveness was not material for the year ended December 28,
2001.
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 a portion of net sales, Fresh Del Monte periodically enters
into foreign currency cash flow hedges (Euro and Japanese yen). Fresh Del Monte
hedges portions of its forecasted sales denominated in foreign currencies with
forward contracts, which generally expire within one year. The forward contracts
are designated as dual-purpose cash flow hedges with gains and losses in the
forward contract recognized in other comprehensive income or loss until the
foreign currency denominated sales are recognized in earnings. Subsequent to the
recognition of the sale in earnings, changes in the value of the foreign
currency accounts receivable and related forward contract are recognized in
"other income". Any ineffective portion of a financial instrument's change in
fair value is immediately recognized in earnings. Hedge ineffectiveness had no
material impact on earnings for the year ended December 28, 2001. As of December
28, 2001, Fresh Del Monte had no outstanding foreign currency cash flow hedges.
INTEREST RATE MANAGEMENT
Because Fresh Del Monte utilizes primarily variable-rate debt, the results of
operations may be significantly affected by fluctuations in interest rates. To
protect against fluctuations in interest rates, Fresh Del Monte 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. The interest rate swap had a
notional amount of $75.0 million at December 28, 2001. Fresh Del Monte accounts
for the interest rate swap as a cash flow hedge whereby the fair value of the
interest rate swap is recognized as a liability in "accounts payable and accrued
expenses" with the offset, net of hedge ineffectiveness (which is not material),
recorded as accumulated other comprehensive income or loss. The fair value of
the interest rate swap as of December 28, 2001 was a liability of $2.8 million.
Amounts recorded in accumulated other comprehensive income or loss are amortized
as an adjustment to interest expense over the term of the related hedge.
The adoption of SFAS No. 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.
F-33
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (CONTINUED)
OFF BALANCE SHEET RISK
At December 29, 2000, Fresh Del Monte had $15.2 million (notional amount) of
currency forward contracts outstanding for the Euro with an unrealized loss of
$0.8 million and $8.7 million (notional amount) of currency forward contracts
outstanding for Japanese yen with an unrealized gain of $0.1 million. There were
no currency forward contracts outstanding at December 28, 2001.
At December 29, 2000, Fresh Del Monte had $96.4 million (notional amount)
related to the swap agreement with an unrealized loss of $0.3 million.
Fresh Del Monte, in estimating its fair value disclosures for financial
instruments, used the following methods and assumptions:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ADVANCES TO GROWERS, AND
ACCOUNTS PAYABLE: The carrying value reported in the balance sheet for these
items approximates their fair value.
CAPITAL LEASE OBLIGATIONS. The carrying value of Fresh Del Monte's capital lease
obligations approximate their fair value based on current interest rates for
similar instruments.
NOTES PAYABLE AND LONG-TERM DEBT: The carrying value of Fresh Del Monte's notes
payable and long-term debt approximate their fair value since they bear interest
at variable rates or fixed rates which approximate market.
The carrying amounts and fair values of Fresh Del Monte's financial instruments
are as follows (U.S. dollars in millions):
December 28, 2001 December 29, 2000
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Cash and cash equivalents $ 13.0 $ 13.0 $ 10.6 $ 10.6
Accounts receivables 141.2 141.2 142.7 142.7
Advances to growers and other
receivables 39.7 39.7 56.3 56.3
Accounts payable (85.0) (85.0) (93.2) (93.2)
Notes payable and long-term debt (311.8) (311.8) (462.0) (462.0)
Capital lease obligations (21.4) (21.4) (23.5) (23.5)
Forward contracts -- -- -- (0.7)
Swap agreement (2.8) (2.8) -- (0.3)
20. RELATED PARTY TRANSACTIONS
Fresh Del Monte's products are distributed in Northern Europe by Interfrucht, an
unconsolidated subsidiary. Receivables from Interfrucht, included in accounts
receivable, were $4.3 million and $2.8 million at December 28, 2001 and December
29, 2000, respectively. Sales to this distributor amounted to $79.5 million,
$85.8 million and $112.5 million for 2001, 2000 and 1999, respectively.
F-34
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. RELATED PARTY TRANSACTIONS (CONTINUED)
Sales to Ahmed Abu-Ghazaleh & Sons Company, a related party through common
ownership, were $15.8 million, $17.3 million and $8.7 million in 2001, 2000 and
1999, respectively. At December 28, 2001 and December 29, 2000 there were $1.7
million and $1.2 million, respectively, of receivables from this related party,
which are included in trade accounts receivable.
21. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following summarizes certain quarterly operating data (U.S. dollars in
millions, except per share data):
Quarter Ended
--------------------------------------------------------------------
March 30, June 29, Sept. 28, December 28,
2001 2001 2001 2001
--------- -------- --------- ------------
Net sales $534.3 $541.0 $430.7 $422.0
Gross profit 84.0 82.7 64.6 51.6
Net income 41.1 41.5 8.3 5.3
Net income per share $ 0.76 $ 0.77 $ 0.15 $ 0.10
Quarter Ended
--------------------------------------------------------------------
March 31, June 30, Sept. 29, December 29,
2001 2001 2001 2001
--------- -------- --------- ------------
Net sales $536.1 $516.2 $395.8 $411.2
Gross profit 71.3 48.3 21.9 25.4
Net income (loss) 38.5 17.2 (14.1) (8.5)
Net income (loss) per share $ 0.72 $ 0.32 $ (0.26) $ (0.16)
22. BUSINESS SEGMENT DATA
Fresh Del Monte is principally engaged in one major line of business, the
production, distribution and marketing of bananas and other fresh produce. Fresh
Del Monte's products are sold in markets throughout the world, with its major
producing operations located in North, Central and South America, the
Asia-Pacific region and Africa.
Fresh Del Monte's operations have been aggregated on the basis of products;
bananas, other fresh produce and non-produce. Other fresh produce includes
pineapples, melons, grapes, non-tropical fruit, other fruit and vegetables and
fresh-cut fruit and vegetables. Non-produce includes a third-party ocean freight
container business, a plastic products and box manufacturing business, a poultry
business and a grain business.
F-35
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. BUSINESS SEGMENT DATA
Fresh Del Monte evaluates performance based on several factors, of which gross
profit by product and total assets by geographic region are the primary
financial measures (U.S. dollars in millions):
Year Ended
-------------------------------------------------------------------------------------
December 28, 2001 December 29, 2000 December 31, 1999
------------------------- -------------------------- --------------------------
Gross Profit Gross Profit
Net Sales Gross Profit Net Sales (Loss) Net Sales (Loss)
--------- ------------ --------- ------------ --------- ------------
Bananas $ 894.2 $ 70.9 $ 921.0 $ 6.3 $ 951.3 $ (4.0)
Other fresh produce 928.6 208.9 838.9 162.1 701.3 155.5
Non-produce 105.2 3.1 99.4 (1.5) 90.6 (0.9)
-------- ------- -------- ------ -------- ------
TOTAL $1,928.0 $ 282.9 $1,859.3 $166.9 $1,743.2 $150.6
======== ======= ======== ====== ======== ======
Year Ended
--------------------------------------------------------------------
December 28, 2001 December 29, 2000 December 31, 1999
------------------ ------------------ ------------------
NET SALES BY GEOGRAPHIC REGION:
North America $ 995.6 $ 922.2 $ 830.4
Europe 550.4 572.7 601.5
Asia-Pacific 328.5 324.5 280.7
Other 53.5 39.9 30.6
-------- -------- --------
TOTAL NET SALES $1,928.0 $1,859.3 $1,743.2
======== ======== ========
December 28, 2001 December 29, 2000
----------------- -----------------
PROPERTY PLANT AND EQUIPMENT:
North America $ 65.2 $ 55.9
Europe 41.9 49.0
Asia-Pacific 3.4 2.3
Central and South America 368.9 345.9
Maritime equipment (including
containers) 148.0 159.4
Corporate 30.7 23.1
------ ------
TOTAL PROPERTY, PLANT AND EQUIPMENT $658.1 $635.6
====== ======
F-36
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. BUSINESS SEGMENT DATA (CONTINUED)
IDENTIFIABLE ASSETS:
North America $ 223.4 $ 213.7
Europe 183.6 220.8
Asia-Pacific 43.7 34.3
Central and South America 502.8 507.0
Maritime equipment (including
containers) 148.0 159.4
Corporate 95.4 86.4
-------- --------
TOTAL ASSETS $1,196.9 $1,221.6
======== ========
Fresh Del Monte's earnings are heavily dependent on operations located
worldwide. These operations are a significant factor in the economies of some of
the countries in which Fresh Del Monte operates 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.
Fresh Del Monte has three principal sales agreements for the distribution of its
fresh produce, which principally cover sales in the European and Japanese
markets. Sales made through these agreements approximated 15%, 17% and 21% of
total net sales for 2001, 2000 and 1999, respectively.
Identifiable assets by geographic area represent those assets used in the
operations of each geographic area. Corporate assets consist of an allocation of
goodwill, leasehold improvements and furniture and fixtures.
23. SUBSEQUENT EVENT
On January 8, 2002, Fresh Del Monte announced that its Board of Directors
determined to pay a regular quarterly cash dividend of $0.05 per share to the
shareholders of the ordinary shares. The first quarterly dividend was declared
for payment on March 6, 2002 to shareholders of record as of February 11, 2002.
Pursuant to provisions of the Revolving Credit Facility, Fresh Del Monte may
declare and pay dividends and distributions in cash solely out of and up to 50%
of Fresh Del Monte's net income for the fiscal year immediately preceding the
year in which the dividend or distribution is paid.
F-37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Fresh Del Monte Produce Inc.
We have audited the consolidated financial statements of Fresh Del Monte Produce
Inc. and subsidiaries as of December 28, 2001 and December 29, 2000, and for
each of the three years in the period ended December 28, 2001, and have issued
our report thereon dated February 11, 2002 (included elsewhere in this Form
20-F). Our audits also included the financial statement schedule listed in Item
18 of this Form 20-F. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Miami, Florida
February 11, 2002
S-1
Schedule II - Valuation and Qualifying Accounts
Fresh Del Monte Produce Inc.
and Subsidiaries
(U.S. dollars in millions)
Col. A Col. B Col. C Col. D Col. E
------ ---------- ------------------------------- ---------- -------------
Additions
Balance at --------------------------------
Beginning Charged to Costs Charged to Balance at
Description of Period and Expenses Other Accounts Deductions End of Period
----------- --------- ---------------- -------------- ---------- -------------
Period ended December 28, 2001:
Deducted from asset accounts:
Valuation accounts:
Trade accounts receivable $ 12.5 $ 2.1 $ 0.0 ($ 0.7) $ 13.9
Advances to growers and other
receivables 4.9 11.6 0.0 (3.0) 13.5
Deferred tax asset valuation 27.8 8.7 (11.3) 0.0 25.2
Accrued liabilities:
Provision for Kunia Well Site 4.1 15.0 0.0 0.0 19.1
------- ------- ------- ------ -------
Total $ 49.3 $ 37.4 ($ 11.3) ($ 3.7) $ 71.7
======= ======= ======= ====== =======
Period ended December 29, 2000:
Deducted from asset accounts:
Valuation accounts:
Trade accounts receivable $ 9.9 $ 3.5 ($ 0.1) ($ 0.8) $ 12.5
Advances to growers and other
receivables 4.5 1.2 0.0 (0.8) 4.9
Deferred tax asset valuation 21.2 6.6 0.0 0.0 27.8
Accrued liabilities:
Provision for Kunia Well Site 4.1 0.0 0.0 0.0 4.1
------- ------- ------- ------ -------
Total $ 39.7 $ 11.3 ($ 0.1) ($ 1.6) $ 49.3
======= ======= ======= ====== =======
Period ended December 31, 1999:
Deducted from asset accounts:
Valuation accounts:
Trade accounts receivable $ 8.5 $ 2.8 $ 0.0 ($ 1.4) $ 9.9
Advances to growers and other
receivables 2.6 2.7 0.0 (0.8) 4.5
Deferred tax asset valuation 14.2 7.0 0.0 0.0 21.2
Accrued liabilities:
Provision for Kunia Well Site 1.0 3.1 0.0 0.0 4.1
------- ------- ------- ------ -------
Total $ 26.3 $ 15.6 $ 0.0 ($ 2.2) $ 39.7
======= ======= ======= ====== =======
S-2