Fresh Del Monte Produce Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark
One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934 |
OR
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 30, 2005
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 offices)
c/o Del Monte Fresh Produce Company
241 Sevilla Avenue, Coral Gables, FL 33134
(Address of U.S. executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Ordinary Shares, par value $0.01 per share
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New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
58,013,180 Ordinary Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
o Yes þ No
If this is an annual or transition report, indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 of 15(d) of the Securities and Exchange Act of 1934.
o Yes þ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark which financial statement item the registrant has elected to follow.
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Item 17 þ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
PART I
In this Annual Report (the 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 2003 through 2005 are to fiscal years ended December 26, 2003, December
31, 2004, and December 30, 2005, respectively.
This Report, information included in future filings by us and information contained in written
material, press releases and oral statements, issued by or on behalf of us contains, or may
contain, statements that constitute forward-looking statements. 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) our ability to successfully integrate acquisitions
into our operations, specifically the Del Monte Foods Europe acquisition; (iv) trends affecting our
financial condition or results of operations, including anticipated fresh produce sales price
levels and anticipated expense levels, (v) our plans for expansion of our business (including
through acquisitions) and cost savings, (vi) the impact of competition and (vii) 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
InformationRisk Factors and Operating and Financial Review and Prospects, identifies important
factors that could cause our actual results to differ materially from those in the forward-looking
statements.
The volume data included in this Report has been obtained from our records. Except for volume
data for Fresh Del Monte, the market share, volume and consumption data contained in this Report
have been compiled by us based upon data and other information obtained from third party sources,
primarily from the Food and Agriculture Organization of the United Nations (the FAO), and from
our surveys of customers and other company-compiled data. Except as otherwise indicated, volume
data contained in this Report is shown in millions of 40-pound equivalent boxes.
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
1
Item 3. Key information
Selected Financial Data
Our fiscal year end is the last Friday of the calendar year or the first Friday subsequent to
the end of the calendar year, whichever is closest to the end of the calendar year.
The following selected consolidated financial information for the years ended December 28,
2001, December 27, 2002, December 26, 2003, December 31, 2004 and December 30, 2005, 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 or
U.S.).
2
This data should be read in conjunction with the consolidated financial statements, related
notes and other financial information included elsewhere in this Report.
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Year ended |
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December 30, |
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December 31, |
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December 26, |
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December 27, |
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December 28, |
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2005 |
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2004 |
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2003 |
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2002 |
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2001 |
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(in millions, except share and per share data) |
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Income Statement Data: |
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Net sales |
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$ |
3,259.7 |
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$ |
2,906.0 |
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$ |
2,486.8 |
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$ |
2,090.5 |
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$ |
1,928.0 |
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Cost of products sold |
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2,948.2 |
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2,641.3 |
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2,158.6 |
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1,753.8 |
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1,645.1 |
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Gross profit |
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311.5 |
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264.7 |
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328.2 |
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336.7 |
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282.9 |
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Selling, general and administrative expenses |
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190.9 |
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131.0 |
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107.8 |
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102.7 |
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89.4 |
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Amortization of goodwill |
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3.4 |
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Provision for Kunia Well Site |
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7.0 |
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15.0 |
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Asset impairment charges |
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3.1 |
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5.4 |
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12.6 |
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10.2 |
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Operating income |
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117.5 |
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128.3 |
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220.4 |
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214.4 |
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164.9 |
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Interest expense, net |
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16.1 |
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8.2 |
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6.5 |
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15.0 |
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30.0 |
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Other income (expense), net |
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(3.1 |
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6.9 |
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28.4 |
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20.5 |
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(12.2 |
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Income before income taxes and cumulative
effect of change in accounting principle |
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98.3 |
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127.0 |
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242.3 |
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219.9 |
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122.7 |
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Provision for (benefit from) income taxes |
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(8.3 |
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(12.2 |
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15.9 |
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18.6 |
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26.5 |
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Income before cumulative effect of change
in accounting principle |
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106.6 |
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139.2 |
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226.4 |
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201.3 |
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96.2 |
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Cumulative
effect of change in accounting principle |
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(6.1 |
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Net income |
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$ |
106.6 |
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$ |
139.2 |
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$ |
226.4 |
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$ |
195.2 |
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$ |
96.2 |
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Basic per share amount: |
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Income before income taxes and cumulative
effect of change in accounting principle |
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$ |
1.84 |
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$ |
2.42 |
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$ |
4.00 |
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$ |
3.63 |
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$ |
1.79 |
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Cumulative effect of change in accounting principle |
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(0.11 |
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Net income per ordinary share Basic |
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$ |
1.84 |
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$ |
2.42 |
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$ |
4.00 |
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$ |
3.52 |
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$ |
1.79 |
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Diluted per share amount: |
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Income before income taxes and cumulative
effect of change in accounting principle |
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$ |
1.84 |
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$ |
2.41 |
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$ |
3.95 |
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$ |
3.56 |
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$ |
1.77 |
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Cumulative effect of change in accounting principle |
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(0.11 |
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Net income per ordinary share Diluted |
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$ |
1.84 |
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$ |
2.41 |
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$ |
3.95 |
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$ |
3.45 |
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$ |
1.77 |
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Dividends declared per ordinary share |
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$ |
0.80 |
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$ |
0.80 |
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$ |
0.45 |
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$ |
0.20 |
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$ |
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Weighted average number of ordinary shares: |
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Basic |
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57,926,466 |
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57,487,131 |
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56,539,691 |
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55,445,106 |
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53,856,392 |
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Diluted |
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58,077,282 |
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57,803,158 |
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57,346,377 |
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56,538,659 |
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54,414,868 |
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Balance Sheet Data (at period end): |
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Cash and cash equivalents |
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$ |
24.5 |
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$ |
42.1 |
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$ |
51.0 |
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$ |
9.5 |
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$ |
13.0 |
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Working capital |
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416.2 |
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299.9 |
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143.1 |
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103.4 |
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125.7 |
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Total assets |
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2,124.8 |
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2,076.5 |
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1,491.2 |
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1,262.8 |
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1,219.2 |
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Total debt |
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360.8 |
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363.5 |
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43.5 |
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87.3 |
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333.3 |
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Shareholders equity |
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1,152.9 |
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1,069.2 |
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942.2 |
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759.5 |
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550.5 |
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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 other fresh produce. In 2003, 2004 and 2005, 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 bananas relatively short
growing cycle and the limited capital investment required for banana growing. As a result of
imbalances in supply and demand and import regulations, banana prices fluctuate, consequently, our
operating results could be adversely affected.
Sales prices for bananas, pineapples and other fresh produce are difficult to predict. It is
possible that sales prices for bananas and pineapples will decline in the future, and sales prices
for other fresh produce may also decline. In recent years, there has been increasing consolidation
among food retailers, wholesalers and distributors. We believe the increasing consolidation among
food retailers may contribute to further downward pressure on our sales prices. In the event of a
decline in sales prices or sales volumes, we could realize significant losses, experience liquidity
problems and suffer a weakening in our financial condition. A significant portion of our costs is
fixed, so that fluctuations in the sales prices have an immediate impact on our profitability. Our
profitability is also affected by our production costs which may increase by factors beyond our
control.
Due to fluctuations in the supply of and demand for fresh produce, our results of operations
are seasonal, and we realize a greater portion of our net sales and gross profit during the first
two quarters of each year.
In part, as a result of seasonal sales price fluctuations, we have historically realized a
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. In North
American and European regions, we realize most of our sales and gross profit for melons, grapes and
non-tropical fruit from October to May. In the prepared food business, we realize the largest
portion of our net sales and gross profit in the third and fourth quarters of the year. During the
fourth quarter of 2005 we experienced unusually low demand for pineapples in the North America and
Europe regions which resulted in lower sales prices and had an adverse effect on our gross margins.
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 ® Extra Sweet pineapple
because a substantial portion
4
of our production is grown in one region in Costa Rica. Since a significant portion of our
costs are fixed and contracted in advance of each operating year, volume declines due to production
interruptions or other factors could result in increases in unit production costs, which could
result in substantial losses and weaken our financial condition. We have experienced crop disease,
insect infestation or severe weather conditions from time to time, including hurricanes, droughts
and floods in our sourcing locations. When crop disease, insect infestations or severe weather
conditions destroy crops planted on our farms or our suppliers farms, we may lose our investment
in those crops or our purchase fruit cost may increase.
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 most of our products are perishable. In banana and pineapple markets, we compete
principally with a limited number of multinational and large regional producers. In the case of
our other fresh fruit and vegetable products, we compete with numerous small producers, as well as
regional competitors. Our sales are also affected by the availability of seasonal and alternative
fresh produce. The extent of competition varies by product. To compete successfully, we must be
able to strategically source fresh produce 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 Del Monte Gold®ä Extra Sweet pineapples, intensified
competition in the production and sale of Del Monte Gold®ä Extra Sweet pineapples will
adversely affect our financial results. During 2005, we have experienced increased competition in
the production and sale of Del Monte Gold®ä Extra Sweet pineapples which has had an adverse
effect on 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 (45% in 2005) is denominated in non-dollar currencies, we incur a significant
portion of our costs in dollars. Although we periodically enter into currency forward contracts
and options as a hedge against currency exposures, we may not enter into these contracts during any
particular period or these contracts may not adequately offset currency fluctuations. We generally
are unable to adjust our non-dollar local currency sales prices to compensate for fluctuations in
the exchange rate of the dollar against the relevant local currency. In addition, there is normally
a time lag between our incurrence of costs and collection of the related sales proceeds.
Accordingly, if the dollar appreciates relative to the currencies in which we receive sales
proceeds, our operating results may be negatively affected.
Our strategy of diversifying our product line and increasing the value-added services that we
provide to our customers may not be successful.
We are diversifying our product line through acquisitions and internal growth. In addition,
we have expanded our service offerings to include a higher proportion of value-added services, such
as the preparation of fresh-cut produce, ripening, customized sorting and packing, direct-to-store
delivery and in-store merchandising and promotional support. This represents a significant
departure from our traditional business of delivering our products to our customers at the port. In
recent periods, we have made significant investments in distribution centers and fresh-cut
facilities through capital expenditures and acquisitions. We may not be successful in anticipating
the demand for these products and services, in establishing the requisite infrastructure to meet
customer demands or the provision of these value-added services. 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, resin and tin plate. We may be adversely affected if sufficient
quantities of these materials are not available to us. Any significant increase in the cost of
these items could also materially and adversely affect our operating results. Other than the cost
of our products (including packaging), sea and inland transportation costs represent the largest
component of cost of products sold. Our average cost of fuel increased by 24% in 2003 as compared
with 2002. During 2004, the cost of fuel and containerboard increased an additional 5% and 13%,
respectively, as compared with 2003 and during 2005, fuel costs increased a further 41% as compared
with 2004. These increases in the cost of fuel and containerboard have negatively impacted our
results of operations. In addition, we are subject to the volatility of the short-term charter
vessel market because approximately 28% 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 produce market. In addition, although the fresh-cut
produce market is not currently subject to any specific governmental regulations, we cannot predict
whether or when any regulation will be implemented or the scope of any possible regulation.
The United States Environmental Protection Agency (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 (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 and October 2002, and
approved by the EPA on April 22, 2003. On September 25, 2003, the EPA issued the Record of
Decision (ROD). The EPA estimates in the ROD that the remediation costs associated with the
clean up of our plantation will range from $12.9 million to $25.4 million. Certain portions of the
EPAs estimates have been discounted using a 5% interest rate. The undiscounted estimates are
between $14.8 million to $28.7 million. As of December 30, 2005, there is $22.8 million included
in other noncurrent liabilities for the Kunia well site clean-up. We expect to expend
approximately $2.0 million in cash per year for the next five years. See Legal Proceedings -
Kunia Well Site.
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 from 1965
to 1990 by exposure to a nematocide containing the chemical Dibromochloropropane (DBCP). See
Legal Proceddings.
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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 in 2006, however, various exemptions will allow its
use until 2010. 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 agencys 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 (EU) banana market and increased the cost of doing
business in the EU. This banana import license system expired on December 31, 2005. From January
1st, 2006, the quotas controlling import volumes of Latin American bananas coming into
the EU have been eliminated and replaced with a tariff of 176 euros per ton. The potential risks
of operating a multinational business may be greater in countries where our activities are a
significant factor in the countrys economy, which is particularly true of our banana, pineapple
and melon operations in Costa Rica and our banana and melon operations in Guatemala and our
pineapple operation in Kenya.
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 date of the termination of our contract with our Cameroon partner,
which is a government controlled entity. The Government of Cameroon commenced procedures for the
privatization of these banana plantations through an auction process, but the process resulted in
no bidders. The Government of Cameroon has declared again during 2005 its intention to start a new
privatization process in the future. Since bananas produced in Cameroon benefit from certain
banana import preferences and tax exemptions in the EU, privatization may have a negative effect on
our results of operations.
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 EU, Japan, Korea and China. Examples of
the types of regulation we face include:
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regulations governing pesticide use and residue levels; and |
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regulations governing packaging and labeling. |
If we fail to comply with applicable regulations, it could result in an order barring the sale
of part or all of a particular shipment of our products or, possibly, the sale of any of our
products for a specified period. Such a development could result in significant losses and could
weaken our financial condition.
The distribution of our fresh produce in Southern Europe could be adversely affected if we
fail to maintain our distribution arrangement.
We import and distribute a substantial portion of our fresh produce in Southern Europe through
a marketing entity with which we have an exclusive arrangement. If we were to discontinue this
exclusive arrangement, our ability to import and distribute our fresh produce products in Southern
Europe and the Mediterranean region may be affected.
Acts or omissions of other companies could adversely affect the value of the DEL
MONTE® brand.
We depend on the DEL MONTE® brand in marketing our products. We share the DEL
MONTE® brand with unaffiliated companies that manufacture, distribute and sell canned or
processed 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® brand. Our reputation and the value of the DEL MONTE®
brand may be adversely affected by negative consumer perception of this brand.
Our success depends on the services of our senior executives, the loss of who could disrupt
our operations.
Our ability to maintain our competitive position is dependent to a large degree on the
services of our senior management team. We may not be able to retain our existing senior management
personnel or attract additional qualified senior management personnel.
Our acquisition and expansion strategy may not be successful.
Our growth strategy is based in part on growth through acquisitions or expansion, which poses
a number of risks. We may not be successful in identifying appropriate acquisition candidates,
consummating acquisitions on satisfactory terms or integrating any newly acquired or expanded
business with our current operations. We may issue ordinary shares, incur long-term or short-term
indebtedness, spend cash or use a combination of these for all or part of the consideration paid in
future acquisitions or to expand our operations. In particular, we may not be able to operate and
manage the Del Monte Foods Europe business we acquired on October 1, 2004 on a profitable basis.
The execution of our acquisition and expansion strategy may entail repositioning or similar actions
that in turn requires us to record impairment charges. Any such charges would reduce our earnings.
Our indebtedness could limit our financial and operating flexibility and subject us to other
risks.
Our ability to obtain additional debt financing or refinance our debt in the future for
working capital, capital expenditures or acquisitions may be limited either by financial
considerations or due to covenants in existing loan agreements.
8
Our ability to meet our financial obligations will depend on our future performance, which
will be affected by prevailing economic conditions and financial, business and other factors, some
of which are beyond our control. Our ability to meet our financial obligations also may be
adversely affected by the seasonal nature of our business, the cyclical nature of agricultural
commodity prices, the susceptibility of our product sourcing to crop disease or severe weather
conditions and other factors.
Since we are an exempted holding company, our ability to meet our financial obligations
depends primarily on receiving sufficient funds from our subsidiaries. The payment of dividends or
other distributions to us by our subsidiaries may be restricted by the provisions of our credit
agreements and other contractual requirements and by applicable legal restrictions on payment of
dividends.
If we were unable to meet our financial obligations, we would be forced to pursue one or more
alternative strategies such as selling assets, restructuring or refinancing our indebtedness or
seeking additional equity capital, strategies which might not be successful. Additional sales of
our equity capital could substantially dilute the ownership interest of existing shareholders.
Our 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 51.9%
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 our 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
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 our ordinary shares by our principal shareholders, or the perception that such
sales could occur, could adversely affect the prevailing market price of our ordinary shares. Of
the 58,013,180 ordinary shares outstanding as of December 30, 2005, 30,091,400 ordinary shares are
owned by the principal shareholders and are restricted securities. These restricted ordinary
shares can be registered upon demand and are eligible for sale in the public market without
registration under the Securities Act of 1933, subject to compliance with the resale volume
limitations and other restrictions of Rule 144 under the Securities Act.
Our organizational documents contain a variety of anti-takeover provisions that could delay,
deter or prevent a change in control.
Various provisions of our organizational documents and Cayman Islands law may delay, deter or
prevent a change in control of us that is not approved by our board of directors. These
provisions include:
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a classified board of directors; |
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a prohibition on shareholder action through written consents; |
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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; |
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advance notice requirements for shareholder proposals and nominations; |
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limitations on the ability of shareholders to amend, alter or repeal our
organizational documents; and |
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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 and Articles of Association and by the Companies Law (As Revised) of the
Cayman Islands. Principles of law relating to matters such as the validity of corporate procedures,
the fiduciary duties of our management, directors and controlling shareholders and the rights of
our shareholders differ from those that would apply if we were incorporated in a jurisdiction
within the United States. Further, the rights of shareholders under Cayman Islands law are not as
clearly established as the rights of shareholders under legislation or judicial precedent
applicable in most U.S. jurisdictions. As a result, our public shareholders may have more
difficulty in protecting their interests in the face of actions by the management, directors or
controlling shareholders than they might have as shareholders of a corporation incorporated in a
U.S. jurisdiction. In addition, there is doubt as to whether the courts of the Cayman Islands would
enforce, either in an original action or in an action for enforcement of judgments of U.S. courts,
liabilities that are predicated upon the U.S. federal securities laws.
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 an exempted holding company, incorporated under the laws of the Cayman Islands on
August 29, 1996 and are 43.4% 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 8.5% of
the outstanding ordinary shares of Fresh Del Monte. Our principal executive office is located at
Walker House, Mary Street, P.O. Box 908 GT, Georgetown, Grand Cayman, Cayman Islands. Our U.S.
executive office is located at c/o Del Monte Fresh Produce Company, 241 Sevilla Avenue, Coral
Gables, Florida 33134. Our telephone number at our U.S. executive office is (305) 520-8400. Our
Internet address is http://www.freshdelmonte.com. The electronic version of this Annual Report on
Form 20-F, along with other information about us and our operations, financial information, other
documents filed with the Securities and Exchange Commission (the SEC) and other useful information about us can be
found on our website.
10
Our global business, conducted through subsidiaries, is primarily the worldwide sourcing,
transportation and marketing of fresh and fresh-cut produce together with prepared food products in
Europe, the Middle East and Africa. We source our products (bananas, pineapples, melons, tomatoes,
potatoes, onions, strawberries, grapes, citrus, apples, pears, peaches, plums, nectarines,
cherries, kiwi) 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, the Middle East and South America. Our products are sourced from
company-owned farms, through joint venture arrangements and through supply contracts with
independent growers.
On June 26, 2002, we acquired certain assets of U.K.-based Fisher Foods Limiteds chilled
division (U.K. Fresh-Cut) from the administrative receivers. The acquisition included three
facilities dedicated to chilled fresh-cut produce, bagged and prepared salads, such as coleslaw and
potato salad, and accelerated our growth in the fresh-cut category.
On December 13, 2002, we sold our 80% non-controlling interest in Internationale Fruchtimport
Gesellschaft Weichert & Co. (Interfrucht), a Northern European distributor of fresh fruit and
other produce. The sale of the 80% non-controlling interest in Interfrucht enabled us to control
the direct marketing of our products in the Northern European region.
On January 27, 2003, we acquired Standard Fruit and Vegetable Co., Inc. (Standard), a
Dallas, Texas based integrated distributor of fresh fruit and vegetables, which serviced retail
chains, foodservice distributors and other wholesalers in approximately 30 states. As a result of
this acquisition, we added tomatoes, potatoes, strawberries and onions to our product offering and
an additional four distribution centers in North America.
On June 18, 2003, we acquired the remaining 33% minority interest in Envases Industriales de
Costa Rica, S.A. (Envaco), a manufacturer of corrugated boxes. This acquisition provided us with
100% ownership of our corrugated box plant in Costa Rica.
On November 21, 2003, we acquired Poland-based Expans Sp. z o.o. (Expans), a leading
distributor of fresh fruit and vegetables who marketed a broad range of produce including bananas,
citrus, tomatoes, grapes and vegetables. This acquisition enabled us to leverage the strong brand
identity of Del Monte and to establish a strong foundation in Poland.
On December 22, 2003, we acquired the assets of Country Best Produce (Country Best) from
Agway, Inc. Country Best was a leading U.S. East Coast processor and packager of potatoes, onions,
sweet corn, and other fresh fruit and vegetables. The acquisition included processing and
packaging operations in Plant City, Florida; Winder, Georgia; and Syracuse, New York; in addition
to a buying operation in Idaho that facilitates sales between produce buyers and growers and
provides proximity to one of the nations largest supplies of quality potatoes.
On August 11, 2004, we acquired Can-Am Express, Inc. and RLN Leasing, Inc. (collectively,
Can-Am), a nationally-recognized refrigerated trucking operation based in Fargo, North Dakota.
Can-Am utilizes a suite of logistics and fleet management software to optimize transportation
services. With an owned fleet of 150 tractors and 200 trailers, and facilities in Fargo, North
Dakota; Denton, Texas; and Cincinnati, Ohio, Can-Am provides over-the-road trucking services. Our
acquisition of Can-Am has enabled us to provide comprehensive distribution services to our retail
and foodservice customers.
On October 1, 2004, we acquired Del Monte Foods Europe (Del Monte Foods), including its
operations in Europe, Africa and the Middle East. This acquisition was completed for approximately
$339.6
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million financed through cash on hand and drawings under our credit facility. Del Monte
Foods is a vertically integrated producer, marketer and distributor of prepared fruit and
vegetables, juices, beverages, snacks and desserts. The company holds a perpetual, royalty-free
license to use the Del Monte® brand for processed and/or canned foods in more than 100 countries
throughout Europe, Africa and the Middle East. Del Monte® is the leading brand for prepared fruit
and pineapple in many Western European markets and is a leading brand in the U.K. beverage market.
This acquisition provides us with a myriad of new markets enhancing our ability to sell our branded
fresh and prepared products together under the Del Monte® name and strengthens our presence in
Europe and other key markets. Del Monte Foods juices, beverages and prepared fruit and vegetables
are processed at facilities in the United Kingdom, Greece, South Africa and Italy, while its
pineapple is cultivated and processed at its plantation and cannery in Kenya.
Our principal capital expenditures in 2005 consisted of expansion of production operations in
South America, the Philippines, Africa and the Middle East and for information technology
initiatives for a total of $58.0 million. Our principal capital expenditures in 2004 consisted of
expansion of distribution facilities and fresh-cut facilities in Europe and North America,
expansion of production facilities in South America and information technology initiatives in North
America, Europe and Asia-Pacific for a total of $81.3 million. Our principal capital expenditures
in 2003 consisted of expansion of distribution facilities and fresh-cut facilities in North
America, Europe and Asia-Pacific, expansion of production facilities in South America, the
acquisition of a pre-owned refrigerated vessel and information system initiatives for a total of
$41.5 million.
Principal capital expenditures planned for 2006 consist of approximately $84.8 million for
expansion of production facilities in South America, the Philippines, Africa and the Middle East
and information technology initiatives. We expect to fund our capital expenditures in 2006 through
operating cash flows and borrowings under our credit facility.
Business Overview
We are one of the worlds leading vertically integrated producers, marketers and distributors
of high-quality fresh and fresh-cut fruit and vegetables, as well as a leading producer and
distributor of prepared fruit and vegetables, juices, beverages, snacks and desserts in Europe, the
Middle East and Africa. We market our products worldwide under the DEL MONTE® brand, a
symbol of product quality, freshness and reliability since 1892. Our global sourcing and logistics
network allows us to provide regular delivery of consistently high quality fresh produce, juices,
beverages, processed fruit and vegetables and value-added services to our customers.
We have leading market positions in key fresh produce categories. We believe we are:
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the number one marketer of fresh pineapples worldwide, including our Del Monte
Gold ® Extra Sweet pineapple, with approximately 40% market share in 2005; |
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the number one marketer of branded melons in the United States and the United
Kingdom; |
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the largest marketer of fresh-cut fruit in the United States with a 24% market share
at the retail level; |
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the third largest marketer of bananas worldwide, with an estimated 14% market share
in 2005; |
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the largest re-packer of tomatoes in the United Sates with an estimated 5% market
share in 2005; |
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a leading year-round marketer of branded grapes in the United States; |
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a leading marketer of branded citrus, apples, pears and other non-tropical fruit in
selected markets; |
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a leading marketer for canned fruit and pineapple in many Western European markets; and |
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a leading marketer of ambient juices and juice drinks in the U.K. market. |
The fresh-cut produce market in the United States alone is believed to be one of the
fastest-growing categories in the fresh produce segment. 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 pineapples, melons, grapes and
other non-tropical fruit, and our fresh-cut vegetable products include lettuce, broccoli,
cauliflower, tomatoes, onions, bell peppers, celery and various greens. Our other fresh-cut
product offerings outside the United States also include bagged and prepared salads, such as
coleslaw and potato salad. We believe our global sourcing and logistics capabilities, combined
with the DEL MONTE® brand, will enable us to maintain our 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, Africa and the Philippines. We also source products from North America,
and Europe. Our products are sourced from company-controlled farms and independent growers. We
transport our fresh produce to markets using our fleet of 23 owned and 9 chartered refrigerated
vessels, and we operate four port facilities in the United States. At year-end 2005, we operated 43
distribution centers, generally with cold storage and ripening facilities in our key markets
worldwide, including the United States, the United Kingdom, Germany, Japan, Korea, Hong Kong,
Argentina and Poland. We also operate a total of 14 fresh-cut facilities in the United States, the
United Kingdom and Japan, some of which are located within our distribution centers. Through our
vertically integrated network, we manage the transportation and distribution of our products in a
continuous temperature-controlled environment. This enables us to preserve quality and freshness,
and to optimize product shelf life, while ensuring timely and year-round distribution. Furthermore,
our position as a volume producer and shipper of bananas allows us to lower our average per-box
logistics cost and to provide regular deliveries of our premium fresh fruit to meet the increasing
demand for year-round supply.
We market and distribute our products to retail stores, food clubs, wholesalers, distributors
and foodservice operators in more than 80 countries around the world. North America is our largest
market, accounting for 48% of our net sales in 2005. Europe and the Asia-Pacific region are our
other major markets, accounting for 37% and 12% of our net sales in 2005, respectively. Our
distribution centers and fresh-cut facilities address the growing demand from supermarket chains,
club stores, mass merchandisers and independent grocers to provide value-added services, including
the preparation of fresh-cut produce, ripening, customized sorting and packing, just-in-time and
direct-store-delivery and in-store merchandising and promotional support. Large national retail
chains are increasingly choosing fewer suppliers ones that can serve all of their needs on a
national basis and there is a significant opportunity for a company with a full fresh and
fresh-cut line, a well recognized brand, a consistent supply of quality produce and national
distribution network to become the preferred supplier to these large retail customers. We believe
that we are uniquely positioned to become this preferred supplier, and our goal is to achieve this
status by creating a leading position in fresh-cut produce and diversifying our fresh produce
selection. As a result of our Del Monte Foods acquisition, we have transformed our company from a fresh
and fresh-cut produce company into a multinational prepared food company with a product line that
now includes prepared fruit and vegetables, juices, beverages, snacks and desserts in Europe, the
Middle East and Africa.
13
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 worlds
largest banana markets, with annual imports of 15 and 10 billion pounds, respectively. The
Asia-Pacific region consumes approximately six billion pounds per year. Bananas are a key produce
department product due to their high turnover and the premium margins realized by grocers.
Bananas have a relatively short growing cycle and are grown in tropical locations with humid
climates and heavy rainfall, such as Central and South America, the Caribbean, the Philippines and
Africa. Bananas are grown throughout the year in these locations, although demand and prices
fluctuate based on the relative supply of bananas and the availability of seasonal and alternative
fruit.
Gold Pineapples
From 1994 to 2004, the volume of fresh pineapple imports increased by approximately 293% in
North America and 138% in Europe. In the Asia-Pacific region, the volume increased 43% during the
same period. In 2004, annual fresh pineapple consumption in the United States and Canada reached
approximately 1.3 billion pounds. Also in 2004, fresh pineapple volumes into Europe and the
Asia-Pacific region were approximately 1.9 billion pounds and 500 million pounds, respectively.
Pineapples are grown in tropical and sub-tropical locations, including the Philippines, Costa
Rica, Hawaii, Thailand, Malaysia, Brazil, Indonesia and various countries in Africa. In contrast to
bananas, pineapples have a long growing cycle of 18 months, and require re-cultivation after one to
three harvests. Pineapple growing thus requires a higher level of capital investment, as well as
greater agricultural expertise.
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. The success
of the premium pineapples, such as our Del Monte Gold® Extra Sweet pineapple, which
has enhanced taste, golden shell color, bright yellow flesh and higher vitamin C content has
replaced the traditional varieties and has led to increased competition.
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 items that are washed,
cut and packaged in a ready-to-use form. Market expansion has been driven largely by consumer
demand for fresh, healthy and ready-to-eat food alternatives, as well as significant demand from
foodservice operators. Within this market, we believe that there 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
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suppliers like us, who are better positioned to invest in fresh-cut
facilities and to service regional and national chains and foodservice operators, as well as
supercenters, mass merchandisers and club stores. We also believe that large branded suppliers 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.
Non-Tropical Fruit
Non-tropical fruit includes grapes, apples, pears, citrus, peaches, plums, nectarines,
apricots, avocados and kiwis. Generally, non-tropical fruit grows on trees, bushes or vines that
shed their leaves seasonally. Approximately 46% of our non-tropical fruit net sales are from the
sales of 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 cost and higher product value of fresh grapes result from
more intensive production practices than are required for grapes grown for processing. While
California supplies approximately 90% of total grape volumes, imports have made fresh grapes
available year-round in the United States, with shipments mostly from Chile. Most U.S. production
is marketed from May to October. From December to April, Chilean grapes dominate the market.
Melons
From 1994 to 2004, the volume of imports of cantaloupes and other melons increased by
approximately 64% in North America and 70% 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
North America and Europe, imports significantly increase, and melons command premium pricing from
October to May. Melons are grown in temperate and tropical locations and have a relatively short
growing cycle.
Tomatoes
The United States is one of the largest producers of tomatoes in the world, ranking second
only to China. Mexico and Canada are also important suppliers of fresh tomatoes within North
America. Annual per capita consumption of fresh tomatoes in the United States has increased by 11%
over the past decade to approximately 18 pounds per person. Fresh tomatoes remain a top performer
for food retailers, generating approximately 7% of a retailers produce departments sales.
Prepared Food
As a result of the Del Monte Foods acquisition, we have a royalty free perpetual license to
use the Del Monte Trademark in connection with the production, manufacture, sale and distribution
of processed foods and beverages in over 100 countries throughout Western, Eastern and Central
Europe, the Middle East and Africa. Del Monte has operated in Europe for over 75 years, is the
premier brand associated with fruit-based or fruit-derived products and is the leading brand for
canned fruit and pineapple in many Western European markets. Del Monte has had a presence in the
United Kingdom, the largest market, since 1926 and is perceived to be a quality brand with high
consumer awareness. Del Monte has a reputation with both consumers and retailers for value,
quality and reliability. As a consequence, the Del Monte brand in Europe has historically commanded a price premium over its competitors,
enabling both retailer and manufacturer to achieve superior margins.
15
PRODUCTS, SOURCING AND PRODUCTION
Our products are grown and sourced primarily in Central and South America, the Philippines and
Africa. We also source products from North America and Europe. In 2005, 36% of the fresh produce
we sold was grown on company-controlled farms and the remaining 64% was acquired through supply
contracts with independent growers.
We produce, source, distribute and market a broad array of fresh produce throughout the world,
primarily under the DEL MONTE® brand, as well as under other proprietary brands such as
UTC® and Rosy®. As a result of the Del Monte Foods acquisition of
October 1, 2004, we also produce, distribute and market prepared fruits and vegetables, juices,
beverages, snacks and desserts under the Del Monte® brand, as well as other proprietary
brands such as Just Juice®, Fruitini®, Fruit Express and other regional
trademarks in Europe, Africa and the Middle East.
The following table indicates our net sales by product for the last three fiscal years:
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Year ended |
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December 30, |
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December 31, |
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December 26, |
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2005 |
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2004 |
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2003 |
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(U.S. dollars in millions) |
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Net sales by product category: |
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Bananas |
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$ |
1,079.0 |
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33 |
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$ |
1,030.8 |
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|
36 |
|
|
$ |
969.6 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fresh produce: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold pineapples |
|
|
396.7 |
|
|
|
12 |
|
|
|
399.9 |
|
|
|
14 |
|
|
|
392.7 |
|
|
|
16 |
|
Fresh-cut produce |
|
|
351.6 |
|
|
|
11 |
|
|
|
267.4 |
|
|
|
9 |
|
|
|
213.5 |
|
|
|
9 |
|
Non-tropical fruit |
|
|
261.6 |
|
|
|
8 |
|
|
|
262.6 |
|
|
|
9 |
|
|
|
214.0 |
|
|
|
9 |
|
Melons |
|
|
225.6 |
|
|
|
7 |
|
|
|
204.4 |
|
|
|
7 |
|
|
|
201.8 |
|
|
|
8 |
|
Tomatoes |
|
|
192.6 |
|
|
|
6 |
|
|
|
194.3 |
|
|
|
7 |
|
|
|
131.9 |
|
|
|
5 |
|
Vegetables |
|
|
163.9 |
|
|
|
5 |
|
|
|
181.8 |
|
|
|
6 |
|
|
|
114.1 |
|
|
|
5 |
|
Other fruit |
|
|
101.9 |
|
|
|
3 |
|
|
|
128.3 |
|
|
|
4 |
|
|
|
130.1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other fresh produce |
|
|
1,693.9 |
|
|
|
52 |
|
|
|
1,638.7 |
|
|
|
56 |
|
|
|
1,398.1 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepared food |
|
|
316.5 |
|
|
|
10 |
|
|
|
88.8 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Other products and services |
|
|
170.3 |
|
|
|
5 |
|
|
|
147.7 |
|
|
|
5 |
|
|
|
119.1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,259.7 |
|
|
|
100 |
|
|
$ |
2,906.0 |
|
|
|
100 |
|
|
$ |
2,486.8 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bananas
We believe that we are the worlds third largest marketer of bananas with an estimated 14%
market share in 2005. Our banana sales in North America, Europe and the Asia-Pacific region
accounted for approximately 35%, 39% and 26% of our net sales of bananas in 2005, respectively. We
produced 29%of the banana volume we sold in 2005 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® bananas is important to maintaining our existing customer
relationships and attracting new customers. Our position as a volume shipper of bananas has also
allowed us to make regular shipments of a wide array of other fresh produce, such as pineapples,
melons and plantains, reducing our average per-box logistics costs and maintaining higher quality
produce with a longer shelf life.
We produce bananas on company-controlled farms in Costa Rica, Guatemala, Brazil, Cameroon, and
the Philippines and we purchase bananas from independent growers in Costa Rica, Ecuador, Colombia,
Guatemala and the Philippines. 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
16
minimum export prices for the sale of bananas, which are established by the respective governments.
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 69%
of our Philippine-sourced bananas is supplied by one grower, representing 20% of our total banana
volume in 2005. In the Philippines, we have leased approximately 1,500 hectares of land where we
are planting Highland bananas for the Asia-Pacific market and are in the process of leasing another
1,500 hectares.
Gold Pineapples
Since the introduction of our Del Monte Gold® Extra Sweet pineapple, our share of
the worldwide fresh pineapple market has grown significantly and currently we have approximaely 40%
share of the worldwide market share with slightly higher volumes this year. This market share
excludes the pineapple we sell in the fresh-cut format. Pineapple sales in North America, Europe
and the Asia-Pacific region accounted for 55%, 33% and 12% of our net sales of pineapples in 2005,
respectively. The gold pineapple market continues to expand significantly with a double-digit
increase in worldwide industry volume during 2005.
From 1996 to 2005, our volume of the Del Monte Gold® Extra Sweet pineapple
increased from two and a half million boxes to 20 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®
Extra Sweet pineapple. We expect to continue to increase the sales volume of our extra sweet
pineapples in the near future with extra sweet pineapples grown in Costa Rica, the Philippines and
South America. The Del Monte Gold® Extra Sweet pineapple has a number of highly
desirable characteristics such as enhanced taste, golden shell color, bright yellow flesh and
higher vitamin C content as compared to traditional varieties of pineapple.
The principal production and procurement areas for our gold pineapples are Costa Rica, Hawaii,
Brazil and the Philippines. Cultivating pineapples requires greater capital resources, significant
agricultural expertise, greater effort and longer growing time relative to bananas. As a result,
relative to our bananas, a higher percentage of the fresh pineapples we sell (70% by volume in
2005) are produced on company-controlled farms.
Fresh-Cut Produce
We believe that the fresh-cut produce market continues to be one of the fastest-growing
categories in the fresh produce segment, largely due to consumer trends favoring healthy and
conveniently packaged ready-to-eat foods. We established a platform in this industry through
acquisitions that we have completed in the past four 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® brand, will enable us to achieve
a leading position in this highly fragmented market. Based on the latest supermarket scan data, we
believe that we are now the market leader in fresh-cut fruit at the retail level with a 24% market
share. Our fresh-cut fruit products include pineapple, melons, grapes, citrus, apples, kiwi and
other fruit items. The fruit we use in our fresh-cut operations are sourced within our integrated
system of company-controlled farms and from independent growers. We also offer fresh-cut
vegetables, including lettuce, tomatoes, onions, carrots, broccoli, bell peppers, cauliflower,
celery, various greens and prepared salads such as coleslaw and potato salad. We
purchase most of our vegetables for these purposes from independent growers in the United
States and in Europe. Our purchase contracts for both fruit and vegetables are typically short-term
but vary by produce item. Substantially all of our fresh-cut products are sold in the United States
and the United Kingdom.
17
Non-Tropical Fruit
We sell a variety of non-tropical fruit including grapes, citrus, apples, pears, peaches,
plums, nectarines, apricots, avocados and kiwi. Non-tropical fruit sales in North America, Europe,
the Asia-Pacific region and South America accounted for approximately 69%, 18%, 8% and 5% of our
total net sales of non-tropical fruit in 2005, respectively. A large portion of our citrus is sold
in the Asia-Pacific region. We obtain our supply of non-tropical fruit from company-owned farms in
Chile and from independent growers in Chile, the United States, Mexico, Spain, Italy, Turkey,
Greece and New Zealand. In Chile, we purchase non-tropical fruit from independent growers and also
produce a variety of non-tropical fruit on approximately 7,500 acres of company-owned or leased
land. In the United States, the majority of our fruit is sourced from California. In Spain and New
Zealand, we have our own sourcing operations, ensuring a consistent supply of high quality
non-tropical fruit during the growing season. Purchase contracts for non-tropical fruit are
typically made on an annual basis.
Melons
We sell a variety of melons including cantaloupe, honeydew, watermelon and specialty melons,
which we introduced to meet the different tastes and expectations of consumers in Europe.
Cantaloupes represented over 78% of our melon sales volume in 2005. We have become a significant
producer and distributor of melons from October to May in North American and European regions by
sourcing melons from our company-controlled farms and independent growers in Central and South
America, where production generally occurs during this period. We believe we were the largest
marketer in the United States and the United Kingdom of branded melons in 2005. Melons sold in
North America and Europe from October to May generally command a premium price due to the relative
scarcity of melons and alternative fruit. Melon sales in North America and Europe accounted for 77%
and 23% of our net sales of melons in 2005, respectively. In terms of volume, we produced 81% of
the melons we sold in 2005 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,
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 melons from October to May, principally from 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.
Tomatoes
We source our fresh tomatoes mainly from the United States, Mexico and Canada. The tomato
category is highly fragmented with many suppliers, re-packers and wholesalers in various geographic
regions of the United States. We believe that we are one of the largest re-packers of fresh
tomatoes in the United States, with an approximate 5% market share in 2005. As a high volume item,
tomatoes are a perfect fit for our network of distribution and re-packing facilities. This new
product category allows us to add value through leveraging our purchase volumes to reduce costs and
perform the sorting, packaging and custom labeling locally, in addition to delivering just in time
to retail chains and foodservice customers. Foodservice absorbs over half of the field fresh
tomato crop in North America each year. With our fresh-cut fruit and vegetable facilities, we can
add additional value by further processing or incorporating tomatoes into our consumer packaged
products.
18
Vegetables
We produce and distribute a variety of vegetables. The principal vegetable products are
potatoes and onions. While we sell bulk product, we also use our size and distribution network to
find opportunities to add value. We add value from our ability to store, sort, process, pack or
deliver to a specific customers requirements. Also, we offer convenient products, such as pre
washed microwaveable individual fresh potatoes. We source our potatoes from independent growers in
North America. We operate a Vidaliaâ 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
Vidaliaâ sweet onion if it is grown in certain counties in Georgia.
Other Fruit
We produce, distribute and market a variety of other fruit, including Champaka pineapples,
strawberries, plantains and mangos, as well as various other varieties of fruit. We source these
other fruit items from company-controlled farms and independent growers in Costa Rica, Colombia,
Guatemala and the United States. Our other fruit business also includes our frozen pineapple
operations. Frozen pineapples are used in a variety of preparations, including fruit-based drinks,
such as fruit smoothies and frozen dessert products.
Prepared Food
As a result of the Del Monte Foods acquisition, we produce, distribute and market prepared
pineapple, peaches, apricots, fruit cocktail, pears, tomatoes and other fruits and vegetables. Our
deciduous prepared food products, which include peaches, apricots, pears and fruit cocktail are
principally sourced from our own facilities in Greece and South Africa. Our tomato products are
sourced from our own facilities in Italy and Greece together with independent producers in Italy.
Our prepared pineapple products are primarily sourced from our own facility in Kenya and are also
sourced under a long-term supply agreement with an independent producer in the Philippines. These
products are sold primarily under the Del Monte® label and under the buyers own label for major
retailers. We also produce, distribute and market beverages including ambient juices and juice
drinks as well as various snacks and desserts. The beverages are principally sourced from our own
facilities in the U.K. and Italy. In addition, we produce and market industrial products that are
composed of fruit that has been processed in our production facilities in the form of purees, pulps
and concentrates for further processing (yogurt, cake manufacture, pizza, etc.) and for sale to the
food service industry worldwide. In 2005 we introduced a number of new innovative products, such
as Del Monte Smoothies, Del Monte Gold Pineapple juice and Sunfresh fruit in jars, in key European
markets. We expect to continue investing in new products development which will allow us to
increase revenue, defend our premium price position and maintain market leadership in our product
categories.
Other Products and Services
Our other products and services include our third-party ocean freight and United States
trucking business, our third-party plastics and box manufacturing business, our Jordanian poultry
business and our Argentine grain business. Our third-party ocean freight business allows us to
generate incremental revenue on vessels return voyages to our product sourcing locations and when
space is available on outbound voyages to our major markets. This reduces our overall shipping
costs. 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. It is a leading provider to retail stores and foodservice operators in that country. In
addition, we grow grain on leased farms in Argentina, including
19
corn. We own and operate grain silos in Argentina for the storage of grain grown by third
parties and us, which may be held for future sales.
Logistics Operations
We market and distribute our products to retail stores, foodservice operators, wholesalers and
distributors in more than 100 countries around the world. As a result, we conduct complex logistics
operations on a global basis, transporting our products from the countries in which they are grown
to the many markets in which they are sold worldwide. Maintaining fruit at the appropriate
temperature is an important factor in preventing its premature ripening and optimizing product
quality and freshness. Consistent with our reputation for high quality fresh produce, we must
preserve our fresh fruit in a continuous temperature-controlled environment, beginning with the
harvesting of the fruit in the field through its distribution to our end markets.
We have a fully integrated logistics network, which includes land and sea transportation
through a broad range of refrigerated environments in vessels, port facilities, containers, trucks
and warehouses. Our objective is to maximize utilization of our logistics network to lower our
average per-box logistics cost, while remaining sufficiently flexible to redeploy capacity or
shipments to meet fluctuations in demand in our key markets. We believe that our control of the
logistics process is a competitive advantage because we are able to continuously monitor and
maintain the quality of our produce and ensure timely and regular distribution to customers on a
year-round basis. Because logistics costs are also our largest expense other than our cost of
products, we devote substantial resources to managing the scheduling and availability of various
means of reliable transportation.
We transport our fresh produce to markets worldwide using our fleet of 23 owned and 9
chartered refrigerated vessels. In recent years, we have sought to rationalize our chartered fleet
through opportunistic acquisitions of vessels. We believe that our fleet of owned vessels has been
a cost-effective means of reducing our exposure to the volatility of the charter market. All of the
9 vessels we charter are chartered on a one to three year 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 North America and the
United Kingdom, we implemented a logistics system built on a suite of transportation software
solutions. The system optimizes our transportation by identifying and creating network synergies,
customer consolidations and real-time visibility. It provides the capabilities to control our
transportation costs and create value-added programs. As a vertically integrated food company,
managing the entire distribution chain from the field to the customer requires the technology and
infrastructure to be able to meet our customers complex delivery needs. In 2003, we created a
separate transportation company to pro-actively manage our inland transportation expenses and
provide the flexibility to meet customer demands and increase our level of service. In August 2004,
we acquired Can-Am, a nationally recognized refrigerated trucking operation. This acquisition
allows us to provide comprehensive distribution services to our retail and foodservices customers
in North America. As of December 30, 2005 we operate a fleet of 330 trucks.
20
SALES AND MARKETING
Our sales and marketing activities are conducted by our sales force located at our sales
offices worldwide and at each of our distribution centers. Our commercial efforts are supported by
marketing professionals located in key markets and regional offices. A key element of our sales
and marketing strategy is to use our distribution centers as a means of providing value-added
services for our customers. As a result, we have made significant investments in our network of
distribution centers and plan additional investments through 2006. Our planned investments are
concentrated in North America, Europe, the Middle East and Asia-Pacific, where we believe that a
strong presence will allow 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, re-packing 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 for fresh produce emphasize trade advertising
and in-store promotions.
The level of marketing investment necessary to support the new prepared food
business is significantly higher than that required for the fresh produce and
fresh-cut fruit and vegetable business. In 2005, we utilized a variety of mass media and
promotional tools to build the Del Monte brand and engage consumers in key markets in Europe, the
Middle East and Africa. We plan to increase our investment in consumer promotions and continue to
build the Del Monte brand in our key markets for prepared food products. In addition we plan to
grow our prepared food business by entering new markets in Eastern Europe and the Middle East with
innovative products.
North America
In 2005, 48% of our net sales were made in North America. In North America, we have
established a highly integrated sales and marketing network that builds on our ability to control
all transportation and distribution throughout our extensive logistics network. At December 30,
2005, we operated a total of 25 distribution centers and fresh-cut facilities in the United States.
Our distribution centers have ripening capabilities and other value-added services. We also
operated four port facilities, which include cold storage facilities.
Our logistics network provides us with a number of sales and marketing advantages. For
example, because we are able to maintain the quality of our fresh produce in a continuous
temperature-controlled environment, we are under less pressure to fully sell a shipment prior to
its arrival at port. We are thus 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.
21
Europe
We
distribute our products throughout Europe. In the United Kingdom,
where we operate six
distribution centers and fresh-cut facilities, our products are distributed to leading retail
chains, smaller regional customers as well as to wholesalers and distributors through direct sales
and distribution centers. In Northern Europe, we distribute our products through our own marketing
entities with offices located in Germany, The Netherlands and Belgium. These entities distribute
our products in Germany, Austria, Benelux, Denmark, Scandinavia, Switzerland, Hungary and Russia.
In Germany we operated one distribution center during 2005 and have opened two additional
distribution centers in January of 2006. In Poland, we operate two distribution centers. In
Southern Europe, we distribute our fresh produce through an independent marketing company. As a
result of the Del Monte Foods acquisition, we added distribution operations in the United Kingdom,
Italy, Belgium and France, Spain, Greece and sales offices in the United Kingdom, Belgium, Germany,
France, Italy, as well as Kenya and South Africa for prepared food.
Middle East and North Africa
In the Middle East and North Africa markets, we distribute our products through independent
distributors. We have recently increased our sales of Philippines sourced bananas in the Middle
East market through distributors and plan on establishing our own direct sales initiatives in 2006.
In addition, we market and distribute prepared food in the United Arab Emirates, Jordan
and Saudi Arabia and various North African markets.
Asia-Pacific
We distribute our products in the Asia-Pacific region, through direct marketing and large
distributors. Our principal markets in this region are Japan, Korea, China and Hong Kong. In Japan
we distributed approximately 82% of our products in 2005 through direct sales and the remainder
through Japans largest fresh produce wholesaler, 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. We have one distribution center and banana
ripening facility in Hong Kong. In Korea, we have two distribution centers, utilizing state-of-the
art ripening technology not available anywhere else in that market. This increases our ability to
offer value-added services to our customers.
South America
We also distribute our products in South America. We have direct sales and marketing
activities in strategic markets in this region, operating a distribution center in Argentina. Our
sales in these markets focus mainly on non-tropical fruit including grapes, bananas, melons and
pineapples.
QUALITY ASSURANCE
To ensure the consistent high quality of our products, we have a quality assurance group that
maintains detailed quality specifications for all our products so that they meet or exceed minimum
regulatory requirements. Our specifications require extensive sampling of our fresh produce at each
stage of the production and distribution processes to ensure high quality and proper sizing, as
well as to identify the primary sources of any defects. Our fresh produce is evaluated based on
both external appearance and internal quality, using size, color, porosity, translucence and
sweetness as criteria. Only fresh produce
22
meeting our stringent quality specifications is sold under the DEL MONTE® brand.
We are able to maintain the high quality of our products by growing our own produce and
working closely with our independent growers. We insist that all produce supplied by our
independent growers meet the same stringent quality requirements as produce grown on our farms.
Accordingly, we monitor our independent growers to ensure that their produce will meet agricultural
and quality control standards, offer technical assistance on certain aspects of production and
packing and, in some cases, manage the farms. The quality assurance process begins on the farms and
continues as harvested products enter our packing facilities. Where appropriate, we cool the fresh
produce at our packing facilities to maximize quality and optimize shelf life. As an indication of
our commitment to quality, many of our operations have received certificates of compliance from the
International Standards of Operation (ISO), in environmental compliance (14001) and production
processes (9001). In 2003, we became the worlds first multinational fresh produce company to
receive Eurepgap certification. This certification, the toughest and most prestigious in
existence, signals European retailers and consumers that the fresh produce from our certified
operations are of the highest quality and that it meets the strictest food safety standards.
GOVERNMENT REGULATION
Agriculture and the sale and distribution of fresh produce are subject to extensive regulation
by government authorities in the countries where the produce is grown and the countries where such
produce is marketed. We have internal policies and procedures to comply with the most stringent
regulations applicable to our products, as well as a technical staff to monitor pesticide usage and
compliance with applicable laws and regulations. We believe we are in material compliance with
these laws and regulations.
We are also subject to various government regulations in countries where we market our
products. The countries in which we market a material amount of our products are the United States,
the countries of the European Union, Japan, China and Korea. These government regulations include:
|
|
|
sanitary regulations, particularly in the United States and the countries of the
European Union; |
|
|
|
|
regulations governing pesticide use and residue levels, particularly in the United
States, United Kingdom, Germany and Japan; and |
|
|
|
|
regulations governing traceability, packaging and labeling, particularly in the
United States and the countries of the EU. |
Any failure to comply with applicable regulations could result in an order barring the sale of
part or all of a particular shipment of our products or, in an extreme case, the sale of any of our
products for a specified period. In addition, we believe there has been an increasing emphasis on
the part of consumers, as well as retailers, wholesalers, distributors and foodservice operators,
on food safety issues, which could result in our business and operations being subject to
increasingly stringent food safety regulations or guidelines.
Although the fresh-cut produce industry is not currently subject to any specific governmental
regulations, we cannot predict whether or when any regulation will be implemented or the scope of
any possible regulation.
23
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 EU with the United States government on April
11, 2001. The new system became effective on July 1, 2001 and maintained the use of banana import
licenses within the tariff quotas determined by the European Commission until December 31, 2005.
In late November 2005, the EU agreed to reform its controversial banana import license regime.
Latin America banana exporters and the United States long have complained that the EUs banana
trading system favored African, Caribbean and Pacific countries (ACP) in violation of global
trade rules. From January 1, 2006, the quotas controlling import volumes of third country
(almost exclusively Latin American) bananas coming into the EU have been eliminated. Importers are
now only required to pay a 176 euros per ton tariff and a small guarantee of 15 euros per ton.
Import licenses have been eliminated, but an import certificate is still required. The EU agreed
to retain a duty-free quota of 775,000 tons per annum for bananas from ACP countries. Until March
2006, import licenses for ACP countries will be issued according to historical trading patterns.
From that date however, 60% of the ACP banana quotas will be imported under the first-come
first-served system and 40% under the license system based on historical reference.
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 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, makes it relatively difficult to enter the
market. However, in recent years we have experienced an increase in competition to Del Monte
Gold® Extra Sweet pineapple. In addition, historically there has 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
24
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 bananas 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 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.
The fresh-cut produce market is highly fragmented, and we compete with a wide variety of local
and regional distributors of branded and unbranded fresh-cut produce and, in the case of certain
fresh-cut vegetables, a small number of large, branded producers and distributors. In this market,
however, we believe that our principal competitive challenge is to capitalize on the growing trend
of retail chains and independent grocers to outsource their own on-premises fresh-cut operations.
We believe that our sales strategy, which emphasizes not only our existing sources of fresh
produce, but also a full range of value-added services and national distribution, positions us to
gain an increasing share of this market.
The processed fruit and beverage markets are mature markets characterized by high levels of
competition and consumer awareness. Consumer choices are driven by price and or quality. Large
retailers with their buyers own label (BOL) products appeal to price conscious consumers while
brand names are the key differentiator for quality-focused consumers. In the processed food and
beverage markets in Europe, Middle East and Africa we compete with various local producers, large
retailers with their BOL, as well as with large international branded companies. It is in the
branded section that our processed foods products, specifically ambient juices and juice drinks in
the United Kingdom and canned fruit and pineapple in many European countries maintain a leading
position in the markets. Del Monte is the premier brand in many of these markets. It is
frequently the only brand stocked by the major retailers in canned fruit and pineapples and is
ideally placed to continue this competitive advantage over the long-term. The mature state of the
market in Western Europe, together with the strength and sophistication of the large retailers
explain the increasing presence of BOL products in many food categories. Del Monte is able to
defend its leading position with consumers through the launch of innovative products and
promotional support of the brand.
25
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 |
Corporación de Desarrollo Agrícola Del Monte S.A.
|
|
Costa Rica |
Compañía 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.
|
|
U.K. |
Fresh Del Monte Ship Holdings Ltd.
|
|
Cayman Islands |
Fresh Del Monte Japan Company Ltd.
|
|
Japan |
Del Monte (Germany) GmbH
|
|
Germany |
Del Monte Fresh Produce (Korea) Ltd.
|
|
Korea |
Del Monte Europe Ltd.
|
|
U.K. |
Del Monte Kenya Ltd.
|
|
Kenya |
Del Monte Hellas S.A.
|
|
Greece |
Del Monte Foods (Italia) S.p.A.
|
|
Italy |
Del Monte South Africa (Propietary) Ltd.
|
|
South Africa |
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 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres Under Production |
|
|
Location |
|
Acres Owned |
|
Acres Leased |
|
Products |
Costa Rica |
|
|
22,100 |
|
|
|
3,400 |
|
|
Bananas, Pineapples |
Guatemala |
|
|
7,500 |
|
|
|
5,500 |
|
|
Bananas, Melons |
Brazil |
|
|
8,500 |
|
|
|
|
|
|
Bananas, Melons, Pineapples |
Chile |
|
|
7,700 |
|
|
|
800 |
|
|
Non-Tropical Fruit |
Kenya |
|
|
|
|
|
|
10,100 |
|
|
Pineapples |
Hawaii |
|
|
|
|
|
|
3,400 |
|
|
Pineapples |
Contiguous United States |
|
|
|
|
|
|
5,200 |
|
|
Melons, Vidalia® Sweet Onions |
We also lease land in Argentina on a seasonal basis for our grain operations. Our significant
properties include the following:
North America
We operate a total of 25 distribution centers in the United States, of which ten are also
fresh-cut facilities. We own seven of our distribution centers, including a 200,000 square foot
distribution center in Dallas, Texas, a distribution center in Plant City, Florida and Winder,
Georgia. The remaining 15 distribution centers are leased from third parties. All of our
distribution centers have ripening capabilities and other value-added services. Also included are
two stand-alone fresh-cut facilities that we own in Kankakee, Illinois and Portland, Oregon. In
addition, we lease four port facilities which include cold storage capabilities.
26
Europe
We operate four distribution centers, mostly under leases from third parties, in the United
Kingdom and own a distribution center in Germany, where our products are distributed to leading
retail chains. We also own and operate three fresh-cut facilities in the United Kingdom. In
Poland, we operate two distribution centers that are leased from third parties and include ripening
facilities and other value added services. As a result of our Del Monte Foods acquisition, we own
and operate a production facility for ambient juices and juice drinks in Kings Lynn, United
Kingdom, a production facility for prepared fruit and vegetables, tomato products and snacks in
Larissa, Greece, and a warehouse and a production facility for ambient juices, juice drinks, tomato
products and fruit purees and pulps in San Felice, Italy.
Asia-Pacific
We operate four distribution centers, which include cold storage and banana ripening
facilities in ports in Japan. In addition, we own two distribution centers in Korea and lease a
distribution center in Hong Kong. Our Korean distribution centers include state-of-the art
ripening technology and other value added services. We also own and operate one fresh-cut facility
in Japan.
South America
We own and operate a distribution center in Buenos Aires, Argentina. We also own and operate
grain silos in Argentina.
Africa
As a result of our Del Monte Foods acquisition, we own and operate a warehouse and cannery in
Thika, Kenya. In Tulbagh, South Africa we own and operate a production facility for prepared
non-tropical fruit and in Firgrove, South Africa we own a warehouse and administrative offices.
The total amount of land owned in South Africa is approximately 1,100 acres.
Maritime and Other Equipment (including Containers)
We own a fleet of 23 and currently charter another 9 refrigerated vessels. In addition, we
own or lease other related equipment including approximately 3,700 refrigerated container units and
330 trucks and refrigerated trailers used to transport our fresh produce.
Other properties
We own our U.S. executive headquarters building in Coral Gables, Florida and our Central
America regional headquarters building in San Jose, Costa Rica. We also own our South America
regional headquarters building in Santiago, Chile. We own our office space in Guatemala City,
Guatemala and Amman, Jordan. Our remaining office space in North America, Europe, the Middle East,
Asia-Pacific, Central and South America is principally leased from third parties.
We believe that our property, plant and equipment are well maintained, in good operating
condition and adequate for their present needs. Except as noted in Legal Proceedings Kunia Well
Site, we know of no other environmental issues that may affect the utilization of our property
plant and equipment. For further information with respect to our property, plant and equipment, see
Note 8, Property, Plant and Equipment in the Notes to Consolidated Financial Statements filed as
part of this Report.
Principal capital expenditures planned for 2006 consist of approximately $84.8 million for
27
expansion of production facilities in South America, the Philippines, Africa and the Middle
East and information technology initiatives. We expect to fund our capital expenditures in 2006
through operating cash flows and borrowings under our new credit facility.
Item 4A. Unresolved Staff Comments
There are no unresolved SEC staff comments regarding our periodic reports.
Item 5. Operating and Financial Review and Prospects
Item 5A. Operating Results
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 and non-tropical fruit, including grapes, growing crops are
valued at the lower of cost or market and are deferred and charged to cost of products sold when
the related crop is harvested and sold. The deferred growing costs consist primarily of land
preparation, cultivation, irrigation and fertilization costs. The deferred growing crop
calculation is dependent on an estimate of harvest yields and future crop expenditures. If there is
an unexpected decrease in estimated harvest yields, a write-down of deferred growing costs may be
required.
Purchase Accounting
We estimate the fair value of assets acquired in a business combination based on appraisals
from third parties and on certain internally generated information. We also record exit costs and
related liabilities in connection with business combinations. We estimate the economic lives of
certain acquired assets and these lives are used to calculate depreciation and amortization expense
in periods subsequent to acquisitions. Estimates are revised, if necessary, in subsequent periods,
not exceeding one year, if more accurate and reliable information becomes available.
Goodwill and Indefinite-Lived Intangible Assets
Our goodwill represents the excess of the purchase price over the fair value of the net assets
of acquired businesses. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 142,
Accounting for Goodwill and Other Intangible Assets, we ceased amortizing goodwill effective
December 29, 2001.
We assess goodwill for impairment with the assistance of an independent valuation firm on an
annual basis on the first day of the fourth quarter of each fiscal year, or sooner if events
indicate such a review is necessary. Based on this valuation, we determined that no impairment of
this asset existed as of December 30, 2005. As of December 30, 2005, we are not aware of any items
or events that would cause us to adjust the recorded value of goodwill for impairment. Potential
impairment exists if the fair value of a reporting unit to which goodwill has been allocated, is
less than the carrying value of the reporting unit. The amount of the impairment to recognize, if
any, is calculated as the amount by which the carrying value of goodwill exceeds its implied value.
We assess goodwill at the component level, which is one level below
28
our operating segments. Future changes in the estimates used to conduct the impairment
review, including revenue projection, market values and changes in the discount rate used, could
cause the analysis to indicate that our goodwill is impaired in subsequent periods and result in a
write-off of a portion or all of goodwill. The discount rate used is based on independently
calculated risks, our capital mix and an estimated market risk premium. The assumptions used in
estimating revenue projections are consistent with those used in internal planning.
The 2005 fourth quarter impairment review indicated that, when compared to its carrying value,
although higher, the fair value of one of our components is highly sensitive to differences between
estimated and actual cash flows and changes in the related discount rate used to evaluate the fair
value of the component. We estimate that, a 5% decrease in the expected future cash flows of the
component and a one-percentage point increase in the discount rate used would have resulted in an
approximate $10.5 million impairment loss related to this component.
As part of the Del Monte Foods acquisition we acquired a perpetual, royalty-free license to
use the Del Monte® brand for processed and/or canned foods in more than 100 countries throughout
Europe, Africa and the Middle East. Included in other non-current assets at December 30, 2005 is
an indefinite-lived intangible asset of $80.9 million related
to this license. This indefinite-lived intangible asset is not being amortized but is reviewed for
impairment consistent with SFAS No. 142. The 2005 fourth quarter review of this asset indicated
that, when compared to its carrying value, although higher, the fair value of this indefinite-lived
intangible asset is highly sensitive to differences between estimated and actual cash flows and
changes in the related discount rate used to evaluate the fair value of this asset. We estimate
that, a 5% decrease in the expected future cash flows of this indefinite-lived intangible asset and
a one-percentage point increase in the discount rate used would have resulted in an approximate
$12.7 million impairment loss related to this asset.
Impairment of Long-Lived Assets
We account for the impairment of long-lived assets in accordance with Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (SFAS No. 144). SFAS No. 144 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. There was no impairment of long-lived assets in 2003. In 2004 based on continued
operating losses and discontinued product lines in the United Kingdom, the United States and
Brazil, related to the other fresh produce and banana categories, certain machinery and equipment
was written-down to its estimated fair value. Consistent with SFAS No. 144, we recorded as asset
impairment charge of $5.4 million in 2004. In 2005, based on the
under utilization of a facility in
North America related to the other fresh produce segment and as a result of damages sustained from
Hurricane Katrina at the New Orleans distribution center, asset impairment charges of $3.1 million
were recorded. In assessing potential impairment, we consider the operating performance and
projected undiscounted cash flows of these assets. If the projected cash flows are estimated to be
less than the assets carrying value, we may have to record additional impairment charges. The
fair value of these assets is determined based on discounted future cash flows or independent
appraisals from third parties.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting amounts at each year
end, based on enacted tax laws and statutory tax rates applicable to the year in which the
differences are expected to affect taxable income. Valuation allowances are established when it is
deemed more likely than not that 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
29
require adjustments to our deferred tax assets. We have established tax accruals as a result
of various tax audits currently in process. The amount of income taxes due as a result of the
eventual outcome of these audits could differ from the amount of the estimated tax accruals.
Contingencies
Estimated losses from contingencies are expensed if it is probable that an asset has been
impaired or a liability has been incurred at the date of the financial statements and the amount of
the loss can be reasonably estimated. Gain contingencies are not reflected in the financial
statements until realized. We use judgment in assessing whether a loss contingency is probable and
estimable. Actual results could differ from these estimates.
Environmental Remediation Liabilities
Losses associated with environmental remediation obligations are accrued when such losses are
probable and can be reasonably estimated. We have recorded provisions for the Kunia Well Site
related to the expected environmental remediation. The related liability is based on the Record
of Decision, which was issued by the EPA on September 25, 2003. Certain portions of the EPAs
estimates have been discounted using a 5% interest rate. Interest expense of $0.6 million was
accrued during 2005. In 2004, we commenced certain remediation and further testing activities. At
December 31, 2004 and December 30, 2005, the total liability for the Kunia Well Site was $24.1
million and $22.8 million, respectively. We expect to expend approximately $2.0 million in
cash per year for the next five years. The ultimate amount of the cost for the expected
environmental remediation of the Kunia Well Site is dependent on the actual cost. Actual
remediation costs could significantly differ from our estimates.
Derivative Financial Instruments
We recognize derivative financial instruments as either assets or liabilities on the
accompanying consolidated balance sheets at fair value and account for those derivatives financial
instruments designated as hedging instruments 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 financial instrument be offset against the change in the fair value of the underlying
asset, liability, or firm commitment being hedged through earnings. A cash flow hedge requires that
the effective portion of the change in the fair value of a derivative instrument be recognized in
other comprehensive income, a component of shareholders equity, and reclassified into earnings in
the same period or periods during which the hedged transaction affects earnings. The ineffective
portion of a derivative financial instruments change in fair value is immediately recognized in
earnings. Terminations of derivative financial instruments designated as hedges are immediately
recognized in earnings.
Operating Results
Overview
We are one of the worlds leading vertically integrated producers, marketers and distributors
of high-quality fresh and fresh-cut fruit and vegetables, as well as a leading producer and
distributor of prepared fruit and vegetables, juices, beverages, snacks and desserts in Europe, the
Middle East and Africa. We market our products worldwide under the DEL MONTE® 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.
30
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. Also in the European Union, the banana import license
system was replaced with a tariff-only banana import system effective January 1, 2006. We support
the European Union decision to adopt this new banana tariff-only import regime as of January 1,
2006 that includes a tariff of 176 euros per ton for bananas imported from Latin American
countries. In the processed foods business, we realize the largest portion of our net sales and
gross profit in the third and fourth quarters of the year.
Since our financial reporting currency is the U.S. dollar, our net sales are significantly
affected by fluctuations in the value of the currency in which we conduct our sales versus the
dollar, with a strong dollar versus such currencies resulting in reduced net sales in dollar terms.
Our net sales for 2005 were positively impacted by approximately $61.5 million, as compared to
2004, as a result of a stronger euro, British pound, Japanese yen and Korean won versus the U.S.
dollar.
Our net sales growth in recent years has been achieved primarily through increased sales
volume in existing markets of other fresh produce, primarily pineapples, melons and non-tropical
fruit and favorable pricing on our Del Monte Gold®Extra Sweet pineapple. Also contributing to
our sales growth has been the new products that resulted from our recent acquisitions including
tomatoes, potatoes and onions combined with expansion of value-added services such as banana
ripening and prepared food. Our net sales growth in recent years is also attributable to a
broadening of our product line with the expansion of our fresh-cut produce business. We expect our
net sales growth to continue to be driven by increased sales volumes in our other fresh produce
segment and acquisitions. In Europe, we expect our net sales to increase due to the
new prepared food product offerings that resulted from our recent acquisition of Del Monte Foods.
In addition, we expect to increase our sales in Europe by developing new products in the fresh and
prepared food product lines and enter new markets in Eastern Europe, the Middle East and Africa.
In European countries where we have both fresh and prepared food operations, we are undertaking
efforts to cross-market fresh products to supermarkets that once carried only our prepared food,
and to market prepared food to our fresh produce customers. We also expect our net sales of Del
Monte Gold®ä Extra Sweet pineapple to approximate last years levels.
Cost of Products Sold
Cost of products sold is principally composed of two elements, product and logistics costs.
Product cost for our produce is primarily composed of cultivation (the cost of growing crops),
harvesting, packaging, labor, depreciation and farm administration. Product cost for produce
obtained from independent growers is composed of produce and packaging costs. Logistics costs
include land and sea transportation and expenses related to port facilities and distribution
centers. Sea transportation cost is the most significant component of logistics costs and is
comprised of the cost of vessel operating expenses and chartering refrigerated vessels. Vessel
operating expenses for our 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. Fuel prices
increased significantly and containerboard prices increased slightly in 2003 as compared to 2002.
During 2004, fuel prices and containerboard both increased again. During 2005 fuel costs increased
an additional 41% and containerboard increased slightly. This increase in containerboard and fuel
prices has added approximately $24.0 million to our cost of sales in 2005 as compared to 2004.
31
In general, changes in our volume of products sold can have a disproportionate effect on our
gross profit. Within any particular year, a significant portion of our cost of products sold is
fixed, both with respect to our operations and with respect to the cost of produce purchased from
independent growers from whom we have agreed to purchase all the products they produce.
Accordingly, higher volumes produced on company-owned farms directly reduce the average per-box
cost, while lower volumes directly increase the average per-box cost. In addition, because the
volume that will actually be produced on our farms and by independent growers in any given year
depends on a variety of factors, including weather, that are beyond our control or the control of
our independent growers, it is difficult to predict volumes and per-box costs.
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,
professional fees, general corporate overhead and other related
administrative functions. The prepared food business requires a significant marketing effort, which is included in selling, general
and administrative expenses and as a result we expect marketing and promotional expenses to
increase slightly during 2006.
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. In 2005, as a result of the Del Monte Foods acquisition at the beginning of the
fourth quarter of 2004, our average outstanding debt level has increased which combined with higher
interest rates, resulted in higher interest expense. In 2006, we expect our increased borrowing
levels under our credit facility and higher interest rates to result in higher interest expense.
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
such as insurance recoveries and gain and losses from sales of investments and property, plant and
equipment.
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 and fresh-cut 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 contingency accruals as a result of
various tax audits currently in process. The amount of income taxes due as a result of the
eventual outcome of these audits may differ from the amount of estimated tax accruals.
Results of Operations
The following table presents, for each of the periods indicated, certain income statement data
expressed as a percentage of net sales:
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Gross profit |
|
|
9.6 |
|
|
|
9.1 |
|
|
|
13.2 |
|
Selling, general and
administrative expenses |
|
|
5.9 |
|
|
|
4.5 |
|
|
|
4.3 |
|
Operating income |
|
|
3.6 |
|
|
|
4.4 |
|
|
|
8.9 |
|
Interest expense |
|
|
0.5 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Net income |
|
|
3.3 |
|
|
|
4.8 |
|
|
|
9.1 |
|
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 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(U.S. dollars in millions) |
|
Net sales by geographic region: |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
1,566.6 |
|
|
|
48 |
|
|
$ |
1,497.4 |
|
|
|
52 |
|
|
$ |
1,339.0 |
|
|
|
54 |
|
Europe |
|
|
1,219.7 |
|
|
|
37 |
|
|
|
940.5 |
|
|
|
32 |
|
|
|
714.8 |
|
|
|
29 |
|
Asia |
|
|
376.6 |
|
|
|
12 |
|
|
|
385.8 |
|
|
|
13 |
|
|
|
373.3 |
|
|
|
15 |
|
Other |
|
|
96.8 |
|
|
|
3 |
|
|
|
82.3 |
|
|
|
3 |
|
|
|
59.7 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,259.7 |
|
|
|
100 |
|
|
$ |
2,906.0 |
|
|
|
100 |
|
|
$ |
2,486.8 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(U.S. dollars in millions) |
|
Net sales by product category: |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bananas |
|
$ |
1,079.0 |
|
|
|
33 |
|
|
$ |
1,030.8 |
|
|
|
35 |
|
|
$ |
969.6 |
|
|
|
39 |
|
Other fresh produce |
|
|
1,693.9 |
|
|
|
52 |
|
|
|
1,638.7 |
|
|
|
57 |
|
|
|
1,398.1 |
|
|
|
56 |
|
Prepared food |
|
|
316.5 |
|
|
|
10 |
|
|
|
88.8 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Other products and services |
|
|
170.3 |
|
|
|
5 |
|
|
|
147.7 |
|
|
|
5 |
|
|
|
119.1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,259.7 |
|
|
|
100 |
|
|
$ |
2,906.0 |
|
|
|
100 |
|
|
$ |
2,486.8 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit by product category: |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bananas |
|
$ |
37.5 |
|
|
|
12 |
|
|
$ |
23.0 |
|
|
|
9 |
|
|
$ |
69.2 |
|
|
|
21 |
|
Other fresh produce |
|
|
216.6 |
|
|
|
70 |
|
|
|
216.1 |
|
|
|
82 |
|
|
|
249.5 |
|
|
|
76 |
|
Prepared food |
|
|
46.7 |
|
|
|
15 |
|
|
|
16.3 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
Other products and services |
|
|
10.7 |
|
|
|
3 |
|
|
|
9.3 |
|
|
|
3 |
|
|
|
9.5 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
311.5 |
|
|
|
100 |
|
|
$ |
264.7 |
|
|
|
100 |
|
|
$ |
328.2 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Compared with 2004
Net Sales
Net sales in 2005 were $3,259.7 million compared with $2,906.0 million in 2004. The increase
in net sales of $353.7 million was primarily attributed to higher net sales of prepared food,
other fresh produce, bananas and other products and services. Net sales of prepared food
increased $227.7 million during 2005 due to the acquisition of Del Monte Foods business during the
fourth quarter of 2004. Net sales of other fresh produce increased $55.2 million due to higher net
sales of fresh-cut fruit and vegetables,
33
avocados and melons, partially offset by reduced net sales
of non-tropical fruit, vegetables and other fruit as a result of lower sales volume. Net sales of
fresh-cut fruit and vegetables increased 32% due to higher volumes sold to an expanding customer
base and net sales of avocados and melons increased due to higher sales volume and per unit sales
prices. The increase in net sales of bananas of $48.2 million was attributed to higher sales
volume in the Asia-Pacific Region combined with a 21% increase in per unit selling prices in
Europe, partially offset by lower sales volume in the North American and European Regions. The
increase in net sales of other products and services of $22.6 million was principally due to
increased net sales in our third party freight service as a result of higher freight volume and
increased rates combined with increased net sales from our Jordanian poultry operations.
Net sales were positively affected by a weaker dollar versus the euro, British pound, Japanese
yen and Korean won. The net effect of foreign exchange in 2005 compared with 2004 was an increase
in net sales of $61.5 million of which approximately $25.8 million was attributed to the euro,
$18.4 million to the British pound, $4.9 million to the Japanese yen and $12.4 million to the
Korean won.
During 2005, one customer, Wal-Mart, Inc., accounted for approximately 11% of our total net
sales. These sales are reported in our banana, other fresh produce and prepared foods segments.
No other customer accounted for 10% or more of our net sales. In 2005, the top ten customers
accounted for approximately 32% of our net sales.
Cost of Product Sold
Cost of product sold was $2,948.2 million in 2005 compared with $2,641.3 million in 2004, an
increase of $306.9 million. This increase is primarily attributed to the new prepared food
business in Europe combined with higher fruit procurement, containerboard, ocean freight, inland
transportation and other operating costs, including a 41% increase in fuel costs. These cost
increases are expected to continue in 2006.
Gross Profit
Gross profit was $311.5 million in 2005 compared with $264.7 million for the same period in
2004. The increase in gross profit of $46.8 million is principally due to the new prepared food
business in Europe, which contributed $30.4 million of the increase combined with higher gross
profit on bananas and other products and services. Gross profit for other fresh produce during
2005 was relatively the same as in 2004 as a result of higher gross profit on melons, fresh-cut
fruit and vegetables, other fruit and vegetables which resulted from increased per unit selling
prices were offset by reduced gross profit on gold pineapples, tomatoes and non-tropical fruit.
Gross profit on gold pineapples decreased 14% due to increased competition which resulted in lower
per unit selling prices. As a percentage of net sales, gross profit margins increased to 9.6% in
2005 as compared with 9.1% in 2004.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $59.9 million to $190.9 million in 2005
compared with $131.0 million in 2004. The increase is primarily due to the new prepared food
business in Europe, which contributed $39.5 million of the increase. Also contributing to the
increase in selling, general
and administrative expenses were higher professional fees including costs associated with
implementing the requirements of Sarbanes-Oxley and information technology costs.
Asset Impairment charges
Asset impairment charges were $3.1 million in 2005 as compared with $5.4 million in 2004, a
decrease of $2.3 million. Based on the underutilization of a facility in North America related to
the other
34
fresh produce segment and as a result of damages sustained from Hurricane Katrina at the
New Orleans distribution center, an asset impairment charge of $3.1 million was recorded in 2005.
Based on continued operating losses and discontinued product lines in the United Kingdom, the
United States and Brazil related to the other fresh produce and banana categories, certain
machinery and equipment was written down to its estimated fair value. As a result, an asset
impairment charge of $5.4 million was recorded in 2004.
Operating Income
Operating income in 2005 was $117.5 million compared with $128.3 million in 2004, a decrease
of $10.8 million. The decrease in operating income is primarily attributable to higher selling,
general and administrative expenses partially offset by higher gross profit and lower asset
impairment charges.
Interest Expense
Interest expense increased $8.1 million to $17.1 million in 2005 compared with $9.0 million in
2004 primarily as a result of higher average debt balances that resulted from the Del Monte Foods
Europe acquisition made during the fourth quarter of 2004 combined with higher interest rates.
Other Income (Expense), Net
Other income (expense), net was an expense of $3.1 million in 2005 compared with income of
$6.9 million in 2004. The decrease of $10.0 was principally due to foreign exchange losses incurred
in 2005 combined with equity losses from unconsolidated subsidiaries, partially offset by increased
royalty income as a result of the new prepared food business in Europe.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes was a benefit of $8.3 million in 2005, compared with
a benefit of $12.2 million in 2004. The benefit from income taxes in 2005 includes increases in
net deferred tax assets as a result of net operating losses expected to be utilized against future
taxable income in certain jurisdictions as well as reversals of
certain contingency accruals. The
benefit from income taxes for 2004 includes a net benefit of $20.6 million, primarily due to the
reversal of tax contingency accruals net of changes in deferred tax assets for the settlement of a
United States tax audit for the years 1997 through 2001. Our effective tax rate for 2006 is
expected to be 5% to 6%.
2004 Compared with 2003
Net Sales
Net sales in 2004 were $2,906.0 million compared with $2,486.8 million in 2003. The increase
in net sales of $419.2 million was primarily attributable to higher net sales of other fresh
produce, the Del Monte Foods acquisition, bananas and other products and services. Net sales of
other fresh produce increased $240.6 million principally due to higher sales volume of tomatoes and
vegetables in North America, higher sales volume and per unit net sales prices of tomatoes,
fresh-cut fruit and vegetables, and non-tropical fruits in North America and Europe. The Del Monte
Foods acquisition contributed $88.8
million of the increase in net sales. The increase in banana net sales of $61.2 million is
principally attributable to higher per unit sales prices and a 17% increase in sales volume in
Europe partially offset by lower per unit sales prices and sales volume in North America. The
increase in net sales of other products and services is principally attributable to increases in
third-party cargo services.
Net sales were positively affected by a weaker dollar versus the euro, the British pound and
the Japanese yen. The net effect of foreign exchange in 2004 compared with 2003 was an increase in
net sales
35
of approximately $70.5 million of which approximately $47.9 million is attributable to
the euro, $8.0 million to the British pound and $14.6 million to the Japanese yen.
During 2004, one customer, Wal-Mart, Inc., accounted for approximately 14% of our total net
sales. These sales are reported in our banana and other fresh produce segments. No other customer
accounted for 10% or more of our net sales. In 2004, the top ten customers accounted for
approximately 35% of our net sales.
Cost of Product Sold
Cost of products sold was $2,641.3 million in 2004 compared with $2,158.6 million in 2003, an
increase of $482.7 million. This increase is primarily due to higher sales volume and per unit
fruit costs of other fresh produce and higher banana per unit fruit costs as the result of adverse
growing conditions in Costa Rica, combined with higher containerboard and higher fuel and
distribution costs. The increase in cost of product sold related to the Del Monte Foods
acquisition is $72.5 million.
Gross Profit
Gross profit was $264.7 million in 2004 compared with $328.2 million for the same period in
2003. The decrease of $63.5 million was primarily attributable to a 67% decrease in banana gross
profit that resulted from higher production costs including higher commodity costs, Sigatoka
disease and poor weather conditions in Costa Rica. Higher production, fruit procurement and
transportation costs in the other fresh produce category also contributed to the decrease in gross
profit. The Del Monte Foods acquisition contributed $16.3 million to gross profit in 2004. As a
percentage of net sales, gross profit margins decreased to 9.1% in 2004 as compared with 13.2% in
2003. This decrease in gross profit margin was primarily attributable to increased production
costs combined with higher containerboard, fuel and distribution costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $23.2 million to $131.0 million in 2004
compared with $107.8 million in 2003. The increase was primarily due to the Del Monte Foods
acquisition, which accounted for $13.1 million, higher administrative expenses related to
professional fees in connection with the on-going initiatives to implement the Sarbanes-Oxley Act
combined with information technology services and higher sales and marketing expenses in Europe.
Asset Impairment Charge
Based on continued operating losses and discontinued product lines in the United Kingdom, the
United States and Brazil related to the other fresh produce and banana categories, certain
machinery and equipment was written down to its estimated fair value. As a result, an asset
impairment charge of $5.4 million was recorded in 2004.
Operating Income
Operating income in 2004 was $128.3 million compared with $220.4 million in 2003, a decrease
of $92.1 million. The decrease in operating income is attributable to lower gross profit, higher
selling, general and administrative expenses combined with the asset impairment charge that was
incurred in 2004.
Interest Expense
Interest expense increased $1.7 million to $9.0 million in 2004 compared with $7.3 million in
2003,
36
primarily as a result of higher average debt balances that resulted from recent acquisitions.
Other Income (Expense), Net
Other income (expense), net was $6.9 million in 2004 compared with $28.4 million in 2003. The
decrease of $21.5 million is primarily attributable to insurance recoveries of $11.5 million
related to Hurricane Mitch in 1998 and a gain on the sale of the 50% interest in Compania
Industrial Corrugadora Guatemala S.A., a manufacturer of corrugated boxes of $5.5 million both
recorded in 2003. In addition, lower equity in earnings of unconsolidated companies during 2004
and higher other miscellaneous expenses incurred during 2004 also contributed to the decrease in
other income (loss), net as compared with 2003.
Provision for (Benefit from) Income Taxes
Provision
for (benefit from) income taxes decreased from a provision of $15.9 million in 2003 to a benefit of
$12.2 million for 2004. Income tax benefit for 2004 includes a net benefit of $20.6 million,
primarily due to the reversal of tax contingency accruals net of changes in deferred tax assets for
the settlement of a United States tax audit for the years 1997 through 2001. Excluding this
benefit of $20.6 million, the provision for income taxes would be $8.4 million for 2004 as compared
with $15.9 in 2003. This reduction of $7.5 million is primarily due to lower taxable income in the
United States.
Seasonality
In part as a result of seasonal sales price fluctuations, we have historically realized most
of our net sales and a majority of our gross profit during the first two calendar quarters of the
year. The sales price of any fresh produce item fluctuates throughout the year due to the supply
of and demand for that particular item, as well as the pricing and availability of other fresh
produce items, many of which are seasonal in nature. For example, the production of bananas is
continuous throughout the year and production is usually higher in the second half of the year, but
the demand for bananas varies because of the availability of other fruit. As a result, demand for
bananas is seasonal and generally results in higher sales prices during the first six months of the
calendar year. We make most of our sales of non-tropical fruit from October to May. In the melon
market, the entry of many growers selling unbranded or regionally branded melons during the peak
North American and European melon growing season results in greater supply, and therefore lower
sales prices, from June to October. As a result of greater demand during the fourth quarter, the
prepared food business is expected to have higher net sales and gross profit during this period.
These seasonal fluctuations are illustrated in the following table, which presents certain
unaudited quarterly financial information for the periods indicated:
37
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Net sales: |
|
|
|
|
|
|
|
|
First quarter |
|
$ |
838.5 |
|
|
$ |
713.8 |
|
Second quarter |
|
|
922.8 |
|
|
|
763.6 |
|
Third quarter |
|
|
740.5 |
|
|
|
610.4 |
|
Fourth quarter |
|
|
757.9 |
|
|
|
818.2 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,259.7 |
|
|
$ |
2,906.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
First quarter |
|
$ |
117.0 |
|
|
$ |
77.2 |
|
Second quarter |
|
|
103.5 |
|
|
|
89.1 |
|
Third quarter |
|
|
50.5 |
|
|
|
30.8 |
|
Fourth quarter |
|
|
40.5 |
|
|
|
67.6 |
|
|
|
|
|
|
|
|
Total |
|
$ |
311.5 |
|
|
$ |
264.7 |
|
|
|
|
|
|
|
|
Item 5B.
Liquidity and Capital Resources
Net cash provided by operating activities for 2005 was $110.0 million, a decrease of $47.0
million from 2004. The decrease in net cash provided by operating activities was principally
attributable to lower net income combined with funding higher levels of working capital in 2005
compared with 2004, partially offset by an increase in depreciation and amortization expense. Net
cash provided by operating activities for 2004 was $157.0 million, a decrease of $107.0 million
from 2003. The decrease in net cash provided by operating activities was primarily attributable to
a decrease in net income when considering the reversal of tax contingency and asset impairment
charges incurred during 2004 combined with increases in receivables that result from higher net
sales for fresh produce and prepared food partially offset by other changes in operating
assets and liabilities.
Working capital was $416.2 million at December 30, 2005, compared with $299.9 million at
December 31, 2004, an increase of $116.3 million. This increase in working capital is principally
attributed to higher levels of finished goods inventory and accounts receivables related to
prepared food.
Net cash used in investing activities was $78.1 million for 2005, $412.0 million for 2004 and
$159.4 million for 2003. Net cash used in investing activities for 2005 consisted principally of
capital expenditures of $81.1 million partially offset by proceeds from sale of assets of $3.7
million. Capital expenditures in 2005 consisted primarily of expansion of production operations in
South America, the Philippines, Africa and the Middle East and for information technology
initiatives.
Net cash used in investing activities for 2004 consisted primarily of purchase of
subsidiaries, net of cash acquired and capital expenditures. Purchase of subsidiaries consisted of
the acquisition of Del Monte Foods for $302.3 million, which is net of $24.0 million of assumed
debt and $13.3 million of cash acquired combined with the acquisition of Can-Am for $18.6 million,
net of $0.2 million of cash acquired. Capital expenditures in 2004 consisted primarily of
expansion of our distribution facilities and fresh-cut facilities in Europe and North America,
expansion of production facilities in South America and information technology initiatives in North
America, Europe and Asia-Pacific.
On October 1, 2004, we acquired Del Monte Foods, including its operations in Europe, Africa
and
38
the Middle
East. We acquired Del Monte Foods for $339.6 million financed
primarily through cash on hand and borrowings under our credit facility. Del Monte Foods is a
vertically integrated producer, marketer and distributor of prepared fruit and vegetable, juices,
beverages, snacks and desserts. Through this acquisition we will add an attractive array of
products and brands to our existing portfolio of fresh and fresh-cut produce. The company holds a
perpetual, royalty-free license to use the Del Monte
® brand for prepared and/or canned foods in
more than 100 countries throughout Europe, Africa and the
Middle East. Del Monte® is the leading brand for canned fruit and pineapple in many Western
European markets and is a leading brand in the U.K. beverage market. This acquisition provides us
with a myriad of new markets enhancing our ability to sell our branded fresh and processed products
together under the Del Monte® name and strengthens our presence in Europe and other key markets.
Del Monte Foods juices, beverages and prepared fruit and vegetables are processed at facilities in
the United Kingdom, Greece, South Africa and Italy, while its pineapple is cultivated and processed
at its plantation and cannery in Kenya.
On August 11, 2004, we acquired Can-Am Express, Inc. and RLN Leasing, Inc. (collectively,
Can-Am), a nationally-recognized refrigerated trucking operation based in Fargo, North Dakota.
Can-Am utilizes a suite of logistics and fleet management software to optimize transportation
services. With an owned fleet of 150 tractors and 200 trailers, and facilities in Fargo, North
Dakota; Denton, Texas; and Cincinnati, Ohio, Can-Am provides over-the-road trucking services. Our
acquisition of Can-Am has enabled us to provide comprehensive distribution services to our retail
and foodservice customers.
Net cash used in investing activities for 2003 consisted primarily of the acquisition of
Standard for $99.7 million, the acquisition of the remaining 33% interest in Envaco for $3.0
million, the acquisition of Expans for $0.8 million and the acquisition of Country Best for $12.2
million, combined with capital expenditures of $58.1 million, partially offset by $12.8 million of
proceeds from sale of an equity investment. Capital expenditures in 2003 were primarily for the
expansion of production facilities in South America, distribution centers and fresh-cut facilities
in North America and the United Kingdom and for information technology. Standard, acquired on
January 27, 2003, was a Dallas, Texas based integrated distributor of fresh fruit and vegetables,
which services retail chains, foodservice distributors and other wholesalers in approximately 30
states. The acquisition included four distribution facilities, which increases our presence in key
markets in the United States and allows us to increase our product offering to include tomatoes,
potatoes, strawberries, onions, and an extensive line of specialty items. On June 18, 2003, we
acquired the remaining interest in Envaco, providing us with 100% ownership of our corrugated box
plant in Costa Rica. Expans, acquired on November 21, 2003, was a leading distributor of fresh
fruit and vegetables in Poland. This acquisition enabled us to leverage the strong brand identity
of Del Monteâ and establish a strong foundation in Poland. Country Best, acquired on
December 22, 2003, was a leading U.S. east coast processor and packager of potatoes, onions and
other fresh fruit and vegetables. This acquisition includes processing and packaging operations in
Florida, Georgia and New York. Proceeds from sale of an equity investment was due to the sale, on
April 24, 2003, of our 50% equity interest in Compania Industrial Corrugadora Guatemala, S.A., a
manufacturer of corrugated boxes.
Net cash used in financing activities of $51.0 million for 2005 was principally attributed to
payment of cash dividends of $46.3 million combined with net repayment of long-term debt of $8.3
million, partially offset by proceeds from stock options exercised of $3.6 million. In 2006, we
expect to pay cash dividends of approximately $46.5 million.
Net cash provided by financing activities of $240.7 million for 2004 was principally
attributable to proceeds from long-term debt of $545.1 and proceeds from stock options exercised of
$4.4 million, partially offset by payments on long-term debt of $238.8 million, payments of debt of
acquired subsidiary of $24.0 million and payment of dividends of $46.0 million.
39
Net cash used in financing activities of $66.2 million for 2003 was principally for the net
repayment of long-term debt of $52.7 million and for the payment of our cash dividends of $25.5
million partially offset by the proceeds from stock options exercised of $12.0 million.
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. On March 21, 2003, Fresh Del Monte, and certain wholly-owned subsidiaries
entered into a $400.0 million, four-year syndicated revolving credit facility (the New Credit
Facility), with Rabobank Nederland, New York Branch, as administrative agent, which replaced the
then existing $450.0 million revolving credit facility (Revolving Credit Facility) including the
$135.0 million five-year term loan maturing on May 10, 2005 (Term Loan). The Revolving Credit
Facility contained covenants, which required us to maintain certain minimum financial ratios and
limited the payment of future dividends. In connection with the Revolving Credit Facility, we
entered into an interest rate swap agreement, which expired in January 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 decreased 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 were accrued and recognized as adjustments to interest expense. Interest expense related
to the swap agreement amounted to $0.1 million for 2003. With drawdowns from the New Credit
Facility, all amounts outstanding under the Revolving Credit Facility, including the remaining
unpaid balance of the Term Loan of $25.0 million were paid off. On November 9, 2004, the New
Credit Facility was amended to increase the total commitment to $600.0 million, a term loan
commitment of up to $400.0 million was added and the maturity date was extended to November 10,
2009.
At December 30, 2005, we had $243.8 million available under committed working capital
facilities, all of which is represented by the New Credit Facility. The New Credit Facility also
includes a swing line facility and a letter of credit facility. At December 30, 2005, $27.9
million of available credit was applied towards the issuance of letters of credit principally
related to the Del Monte Foods acquisition which requires us to guarantee certain contingent
obligations under the purchase agreement. The New Credit Facility as amended permits borrowings
with an interest rate based on a spread over the London Interbank Offered Rate (LIBOR) and
expires on November 10, 2009. There was $330.1 million outstanding under the New Credit Facility
at December 30, 2005.
The New 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. See Financial Information Description of New Credit Facility.
As of December 30, 2005, we had $360.8 million of long-term debt and capital lease
obligations, including the current portion, consisting of $330.1 million of long-term debt related
to the New Credit Facility, $0.3 million of long-term debt related to refrigerated vessel loans,
$8.2 million of other long-term debt and $22.2 million of capital lease obligations.
Principal capital expenditures planned for 2006 consist of approximately $84.8 million for
expansion of production facilities in South America, the Philippines, Africa and the Middle East
and information technology initiatives. We expect to fund our capital expenditures in 2006 from
operating cash flows and borrowings under our New Credit Facility. We believe that cash generated
from operations and available borrowings will be adequate to cover our cash needs in 2006. We
generated cash from operations of $110.0 million in 2005 and had $243.8 million available under our
New Credit Facility as of December 30, 2005. Based on our operating plan and borrowing capacity of
our New Credit Facility, we believe we have sufficient cash to meet our obligations in 2006. This
belief is based on our positive operating results
40
and cash flow in recent years.
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.
Recent Development
On February 1, 2006, we announced our decision to cease pineapple planting operations at our
Kunia, Hawaii location effective February 19, 2006. This decision is a result of increased
planting of pineapple at lower costs in other parts of the world and our belief that it will not be
economically feasible to continue to produce pineapple in Hawaii. Pineapple has a crop cycle of
approximately three years and our current crop cycle will produce quality fruit through mid-2008.
We expect to continue harvesting and packing pineapple in Hawaii through that time. As a result of
this decision, we expect to record a restructuring charge during the first quarter of 2006, the
amount of which is currently being finalized.
On March 3, 2006, our Board of Directors authorized an initial stock repurchase program of up
to $300 million of our common stock. The timing and actual number of shares that will be
repurchased in the open market will depend on a number of factors including the prevailing share
price, market conditions and alternative investment opportunities. The share repurchases are
expected to be funded primarily through operating cash flows and borrowings under our credit
facility. We expect to complete this repurchase program within the next three years. As of
February 14, 2006, we have amended our credit agreement to increase the allowable repurchase of our
own stock in an aggregate amount not to exceed $300 million.
Item 5C.
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 production facilities and in the United
States, and we provide our growers with access to improved technologies and practices. We operate
research and development facilities in the San Francisco Bay area of California and Costa Rica
where we conduct various research activities relating to the development of new fruit varieties.
Some of the research and development projects include:
|
|
|
the development of the Del Monte Gold® Extra Sweet pineapple; and the
Del Monte Honey Goldä pineapple; |
|
|
|
|
improved irrigation methods and soil preparation for melon planting |
41
Our total corporate research and development expenses were $2.9 million, $2.8 million and $2.8
million for 2005, 2004 and 2003, respectively, and are included in selling, general and
administrative expenses.
Item 5D.
Trademarks and Licenses
We have the exclusive right to use the DEL MONTE® 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® trademark. Del Monte Corporation and several other unaffiliated companies
manufacture, distribute and sell under the DEL MONTE® brand canned or processed fruit,
vegetables and other produce, as well as dried fruit, snacks and other products. Our licenses allow
us to use the trademark DEL MONTE® and the words DEL MONTE® in
association with any design or logotype associated with the brand, 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, other fresh produce and certain other specified products. In
addition, the licenses allow us to use certain patents and trade secrets in connection with the
production, manufacture, sale and distribution of our fresh fruit, fresh vegetables, other fresh
produce and certain other specified products.
As a result of the Del Monte Foods acquisition, we have a royalty-free perpetual license to
use the Del Monte trademark in connection with the production, manufacture, sale and distribution
of prepared food and beverages in over 100 countries throughout Western, Eastern and Central
Europe, the Middle East and Africa.
We also sell produce under several other brands for which we have obtained registered
trademarks, including
UTC® and Rosy®, Fruitini®, Fruit
Express, Just Juice® and other regional brands.
Item 5(E) Off-Balance Sheet Arrangements not applicable
Item 5(F) Tabular Disclosure of Contractual Obligations
The following details information with respect to our contractual obligations as of December
30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(U.S. dollars in millions) |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Payments by period: |
|
Total |
|
|
1 year |
|
|
1 - 3 years |
|
|
3 - 5 years |
|
|
5 years |
|
Fruit purchase agreements |
|
$ |
3,118.0 |
|
|
$ |
546.6 |
|
|
$ |
796.3 |
|
|
$ |
656.3 |
|
|
$ |
1,118.8 |
|
Purchase obligations |
|
|
444.8 |
|
|
|
253.3 |
|
|
|
114.8 |
|
|
|
24.6 |
|
|
|
52.1 |
|
Operating leases |
|
|
115.5 |
|
|
|
22.4 |
|
|
|
35.9 |
|
|
|
24.5 |
|
|
|
32.7 |
|
Capital lease obligations (including interest) |
|
|
24.0 |
|
|
|
10.7 |
|
|
|
9.7 |
|
|
|
3.5 |
|
|
|
0.1 |
|
Long-term debt |
|
|
338.6 |
|
|
|
2.0 |
|
|
|
3.4 |
|
|
|
332.9 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
4,040.9 |
|
|
$ |
835.0 |
|
|
$ |
960.1 |
|
|
$ |
1,041.8 |
|
|
$ |
1,204.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have agreements to purchase the entire production of certain products of our
independent growers in Costa Rica, Guatemala, Ecuador, Cameroon, Colombia, Chile, Brazil and the
Philippines. Total purchases under these agreements amounted to $585.9 million, $571.4 million and
$505.6 million for 2005, 2004 and 2003, respectively.
42
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 Executive Officer |
|
December 20, 1996 |
Hani El-Naffy |
|
President, Director and Chief Operating Officer |
|
December 20, 1996 |
John F. Inserra |
|
Executive Vice President and Chief Financial Officer |
|
December 7, 1994 |
Bruce A. Jordan |
|
Vice President, General Counsel and Secretary |
|
September 3, 2002 |
Emanuel Lazopoulos |
|
Senior Vice President, North America and Product Management |
|
June 16, 2005 |
Paul Rice |
|
Senior Vice President, North America Operations |
|
June 16, 2005 |
Jean-Pierre Bartoli |
|
Senior Vice President, Europe, Africa and Middle East |
|
April 1, 1997 |
José Antonio Yock |
|
Senior Vice President, Central America |
|
July 20, 1994 |
Sergio Mancilla |
|
Senior Vice President, Shipping Operations |
|
January 4, 1997 |
David J. Anderson |
|
Vice President, Asia-Pacific |
|
February 1, 2004 |
José Luis Bendicho |
|
Vice President, South America |
|
March 30, 2000 |
Linda Conway |
|
Vice President, Integration and Special Projects |
|
November 1, 2002 |
Marissa R. Tenazas |
|
Vice President, Human Resources |
|
May 1, 1999 |
Dr. Thomas R Young |
|
Vice President, Research
Development & Agricultural Services |
|
January 15, 2001 |
Antolin D. Saiz |
|
Vice President, Internal Audit |
|
May 24, 1999 |
Amir Abu-Ghazaleh |
|
Director |
|
December 20, 1996 |
Maher Abu-Ghazaleh |
|
Director |
|
December 20, 1996 |
Salvatore H. Alfiero |
|
Director |
|
December 6, 2002 |
Edward L. Boykin |
|
Director |
|
November 1, 1999 |
John H. Dalton |
|
Director |
|
May 11, 1999 |
Kathryn E. Falberg |
|
Director |
|
December 6, 2002 |
(1) Officers who held positions with us prior to December 20, 1996 held those positions with Fresh
Del Monte Produce 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 is also the Chairman 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 Managing Director of Metico from 1967 to 1986.
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
43
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.
Bruce A. Jordan Vice President, General Counsel and Secretary. Mr. Jordan joined us in 1990
and served as our Assistant General Counsel. In 1994, he was appointed Vice President, General
Counsel and Secretary, a position he held until April 1997. When he left us, he served as General
Counsel for Pediatrix Medical Group, a publicly traded South Florida-based provider of pediatric
subspecialty physician services. In November 2001, he became General Counsel for Steiner Leisure
Limited, a publicly traded worldwide provider of spa and salon products and services for cruise
lines, luxury resorts and day spas. In September 2002, Mr. Jordan re-joined us as Vice President,
General Counsel and Secretary.
Emanuel Lazopoulos Senior Vice President, North America and Product Management. Mr.
Lazopoulos has served as our Senior Vice President, North America and Product Management since June
2005. Prior to that time, he served as our Vice President Fresh-Cut operations in North America
from 2003 to 2005. Mr. Lazopoulos career in the fresh foods industry included past experience as
Managing Director of NewStar Fresh Foods, as Vice President of DNA Plant Technology and as Vice
President of Dole Fresh Vegetable operations.
Paul Rice Senior Vice President, North America Operations. Mr. Rice has served as our
Senior Vice President, North America Operations since June 2005. Prior to that time, he served as
Vice President Distribution Center/Repack & Fresh-Cut Operations from 2001 to 2005. Before that,
he held various senior management positions within Fresh Del Monte from 1988 to 2001.
Jean-Pierre Bartoli Senior Vice President, Fresh (Europe, Africa and Middle East). Mr.
Bartoli has served as our Senior Vice President, Fresh (Europe, Africa and Middle East) 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.
José Antonio Yock Senior Vice President, Central America. Mr. Yock has served as our Senior
Vice President, Central America since July 1994. Prior to that time, he was our Vice
President-Finance for the Latin American region from 1992 to July 1994. Mr. Yock joined us in 1982
and has served in several financial management positions.
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 1990 to 1996. From 1981 through 1991, Mr. Mancilla was
Deck Officer with several Chilean shipping companies.
David J. Anderson Vice President, Asia Pacific. Mr. Anderson has served as our Vice
President, Asia-Pacific since February 2004, following his position as Vice President, North
America. Production from 2001 to January 2004. Prior to that time, he was an agribusiness
development consultant for Development Alternatives, Inc. of Bethesda, Maryland from 1991 to 1993
and 1996 to 2001 in Ecuador, Sri Lanka, and Bolivia. From 1993 to 1995, Mr. Anderson was President
and Chief Operating Officer of Brasfrutas, S.A., a private fresh pineapple exporter in Northeast
Brazil. Prior to 1991, Anderson was employed by Del Monte Fresh Produce as General Manager of its
Costa Rican pineapple operation and also worked for Chiquita Brands and Dole in Thailand, the
Philippines and The Dominican Republic.
44
José 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 in 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
Linda Conway Vice President, Integration and Special Projects. Mrs. Conway has served as
our Vice President, Integration and Special Projects since November 2002. Prior to that time she
served as Vice President, Corporate Planning from 2000 to 2002 and Vice President, Planning and
Information Technology from 1998 to 2000. Mrs. Conway held various senior management positions in
finance and information technology for Fresh Del Monte from 1976 to 1998.
Marissa R. Tenazas Vice President, Human Resources. Ms. Tenazas has served as our Vice
President, Human Resources since May 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.
Dr. Thomas R Young Vice President, Research, Development and Agricultural Services. Dr.
Young has served as our Vice President, Research, Development and Agricultural Services since
January 2001. From 1975 to 2000, he served in a variety of Research and Development positions with
Syngenta Corporation, formerly Novartis Crop Protection coordinating national and international
research programs involving plant disease control on vegetable, field, fruit and ornamental crops.
Antolin D. Saiz Vice President, Internal Audit. Mr. Saiz has served as our Vice President,
Internal Audit since May 1999. From 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 of Abu-Ghazaleh International Company and has held this
position since 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.
Salvatore H. Alfiero Director. Mr. Alfiero has served as our Director since December 2002.
In May 2001, Mr. Alfiero founded Protective Industries, LLC and currently serves as its Chairman
and Chief Executive Officer. In March 1969, Mr. Alfiero founded Mark IV Industries, Inc. and
served as its Chairman and Chief Executive Officer until its sale in September 2000. Mr. Alfiero
also serves on the Board of Directors of The Phoenix Companies, HSBC Bank USA, HSBC North America
Holdings and Southwire Company.
Edward L. Boykin Director. Mr. Boykin has served as our Director since November 1999.
Following a 30-year career with Deloitte & Touche, Mr. Boykin retired in 1991 and is currently a
private consultant. Mr. Boykin also serves on the Board of Directors of Blue Cross and Blue Shield
of Florida, Inc.
John H. Dalton Director. Mr. Dalton has served as our Director since May 1999. He is the
President of the Housing Policy Council of the Financial Service Roundtable. Formerly, he was
President
45
of IPG Photonics Corporation. 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 1981. 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 Trans Technology, Inc., eSpeed, Inc., and IPG Photonics Corporation.
Kathryn E. Falberg Director. Ms. Falberg has served as our Director since December 2002.
She was a senior executive at Amgen, a leading biotechnology company, from 1995 to 2001, serving in
various financial capacities including Senior Vice President and Chief Financial Officer from 1998
to 2001. From October 2001 to April 2002 she was a financial consultant for Inamed, a medical
device company, and from May 2002 to July 2002 she served as its Chief Financial Officer. Prior to
joining Amgen, Ms. Falberg was a financial executive with Applied Magnetics Corporation, serving as
Chief Financial Officer and Treasurer.
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.
Compensation
The aggregate compensation expense with respect to services rendered by all directors and
senior management of our Company as a group during 2005 was $10.0 million. In addition, there was
$3.0 million in stock option compensation to the directors and senior management during 2005 as a
result of stock option exercises. Included in the $10.0 million was an incentive payment made
under an agreement that provides for annual incentive payments equal to the sum of (i) 2% of the
amount of our consolidated net income up to $20 million, and
(ii) 1½% of the amount of our
consolidated net income above $20 million. Starting in fiscal year 2003 and subsequent years,
aggregate compensation expense includes (1) an incentive payment made under a program providing for
annual incentive payments of up to 150% of annual compensation based on earnings per share, return
on equity and revenue growth and (2) performance incentive payments providing for payment of up to
25% in 2003 and 30% in 2004 (and subsequent years thereafter) of annual compensation based on
achievement of performance objectives.
In 2005, we contributed or accrued an aggregate of $75,000 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 employees compensation.
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 years annual general meeting of shareholders (annual
meeting). Mr. Maher Abu-Ghazaleh and Ms. Kathryn E. Falberg are in the class of directors whose
term expires at the 2008 annual meeting. Mr. Mohammad Abu-Ghazaleh, Mr. Hani El-Naffy and Mr. John
H. Dalton are in a class of directors whose term expires at the 2006 annual meeting. Mr. Amir
Abu-Ghazaleh, Mr. Edward L. Boykin and Mr. Salvatore H. Alfiero are in the class of directors whose
term expires at the 2007 annual meeting. At each annual meeting, 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.
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
46
reviews our general compensation structure, reviews and recommends the compensation and benefits of
directors and the chief executive officer, 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 L. Boykin (audit committee financial expert), Mr. John H. Dalton and Ms. Kathryn E. Falberg.
The compensation committee members are Mr. Salvatore H. Alfiero, Ms. Kathryn E. Falberg and Mr.
John H. Dalton. There are no contracts providing benefits upon termination to any director.
Employees
At year-end 2005, we employed approximately 37,000 persons worldwide, substantially all of
whom are year-round employees. Approximately 84% of these persons are employed in production
locations, of which the majority, are unionized. In addition, we employed approximately 3,000
temporary workers during 2005, primarily in our U.S. fresh-cut operations.
We believe that our overall relationship with our employees and unions is satisfactory.
Share Ownership
Share Ownership of Directors and Senior Management
As of February 17, 2006, the aggregate number of our ordinary shares owned by our directors
and senior management was 4,146,125. This number includes vested and exercisable options to
purchase an aggregate of 366,100 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 (including for these purposes, ordinary shares subject to currently
exercisable options to purchase ordinary shares).
47
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
(eligible persons) in order to provide the eligible persons with incentives to continue with us
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. On May 1, 2002, the 1999 Plan was amended to increase the options to purchase
ordinary shares to an aggregate of 4,000,000. 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 and 1999 Plans).
The following table shows all options for ordinary shares outstanding as of February 17, 2006
under the 1997 and 1999 Plans:
|
|
|
|
|
|
|
|
|
|
Number of Options |
|
|
|
|
Outstanding |
|
Exercise Price Per Share |
|
Expiration Date |
20,000 |
|
|
$ |
14.22 |
|
|
May 2009 |
15,000 |
|
|
$ |
15.69 |
|
|
March 2009 |
12,000 |
|
|
$ |
8.38 |
|
|
November 2009 |
6,000 |
|
|
$ |
9.28 |
|
|
November 2009 |
41,750 |
|
|
$ |
5.95 |
|
|
April 2011 |
60,000 |
|
|
$ |
22.01 |
|
|
December 2012 |
198,700 |
|
|
$ |
19.76 |
|
|
February 2013 |
20,000 |
|
|
$ |
25.83 |
|
|
February 2014 |
161,000 |
|
|
$ |
23.82 |
|
|
April 2014 |
37,500 |
|
|
$ |
32.28 |
|
|
February 2015 |
1,392,000 |
|
|
$ |
29.84 |
|
|
April 27, 2015 |
48
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 58,013,180 shares
were issued and outstanding as of February 17, 2006, and 50,000,000 preferred shares having a par
value of $0.01 per share, none of which have been issued. Major shareholders do not have different
voting rights than other shareholders.
The following table sets forth certain information as of February 17, 2006, 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 our directors and officers 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) |
|
|
25,180,636 |
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
Sumaya Abu-Ghazaleh (2)(3)(5) |
|
|
25,180,636 |
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
Mohammad Abu-Ghazaleh (2)(4)(5) |
|
|
27,575,541 |
|
|
|
47.5 |
% |
|
|
|
|
|
|
|
|
|
Oussama Abu-Ghazaleh (2)(4)(5) |
|
|
25,963,875 |
|
|
|
44.8 |
% |
|
|
|
|
|
|
|
|
|
Maher Abu-Ghazaleh (2)(3)(5) |
|
|
25,853,875 |
|
|
|
44.6 |
% |
|
|
|
|
|
|
|
|
|
Amir Abu-Ghazaleh (2)(3)(5) |
|
|
26,240,017 |
|
|
|
45.2 |
% |
|
|
|
|
|
|
|
|
|
Fatima Abu-Ghazaleh(2)(3)(5) |
|
|
25,180,636 |
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
Nariman Abu-Ghazaleh(2)(3)(5) |
|
|
25,180,636 |
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
Maha Abu-Ghazaleh(2)(3)(5) |
|
|
25,180,636 |
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
Wafa Abu-Ghazaleh(2)(3)(5) |
|
|
25,180,636 |
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
Hanan Abu-Ghazaleh(2)(3)(5) |
|
|
25,180,636 |
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
All directors and officers as a group
(19 persons) (6) |
|
|
29,692,861 |
|
|
|
51.2 |
% |
|
|
|
|
|
|
|
|
|
FMR Corporation (7) |
|
|
6,150,000 |
|
|
|
10.6 |
% |
|
|
|
(1) |
|
The registered office address of IAT Group Inc. is c/o Walker, Walker House, Mary Street,
P.O. Box 908 GT, 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 |
49
|
|
|
|
|
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 25,180,636 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 (i) 25,180,636 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., (ii) an aggregate of
4,146,125 shares owned directly by certain directors and officers and (iii) an aggregate of
366,100 ordinary shares subject to vested and currently exercisable options held by certain
directors and officers. |
|
(7) |
|
The business address of FMR Corporation is 82 Devanshire Street, Boston, MA 02109. |
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.
We purchase melons, pineapples and related services from unconsolidated subsidiaries in the
ordinary course of business. These transactions were conducted at arms-length. In 2005, 2004 and
2003, purchases from these unconsolidated companies totaled $55.4 million, $54.7 million and $57.6
million, respectively.
Sales to Ahmed Abu-Ghazaleh & Sons Company and Suma Fruit International, related parties
through common ownership, were $37.9 million, $33.5 million and $28.7 million in 2005, 2004 and
2003, respectively.
During 2005, 2004 and 2003, we incurred expenses of $1.5 million, $1.0 million and $1.2
million, respectively, for air transportation services for chartering of an aircraft that is
indirectly owned by our chief executive officer. The rates charged for these transportation
services were comparable to the market rates charged to other unrelated companies for the use of a
similar aircraft. We plan to continue to charter this aircraft in 2006.
50
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 New Credit Facility
The following is a summary of the New Credit Facility entered into by Fresh Del Monte and
certain of its subsidiaries, as amended to date. The summary does not purport to be complete and
is subject to, and qualified by reference to, the provisions of the New Credit Facility, which we
have filed with the SEC. Capitalized terms used but not defined below, have the meanings indicated
in the New Credit Facility.
|
|
|
Borrowers:
|
|
Fresh Del Monte Produce Inc.; Del Monte Fresh Produce
International Inc.; Del Monte Fresh Produce N.A., Inc.,
Fresh Del Monte Ship Holdings Ltd., Del Monte B.V., Del
Monte Fresh Produce (UK) Ltd., Del Monte Foods
International Ltd., Del Monte International Inc., and Del
Monte Europe Ltd. |
|
|
|
Lenders:
|
|
Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
Rabobank Nederland, New York Branch (Rabobank); Union
Bank of California, N.A.; Nordea Bank Finland PLC, New
York Branch; Wachovia Bank; Bank of America; Harris Trust
and Savings Bank; ING Capital LLC; CoBank, ACB;
JPMorganChase Bank; AG First Farm Credit Bank; SunTrust
Bank N.A.; U.S. Bank N.A.; Farm Credit of Wichita; Farm
Credit Services of America PCA; FCS Commercial Finance
Group; Farm Credit West, PCA; First Farm Credit Services,
FPCA; Farm Credit Services of Mid America, PCA, Greenstone
Farm Credit Services, ACA/FLCA; American AgCredit, PCA;
and PCA Farm Credit Bank of Texas. |
|
|
|
Agent:
|
|
Rabobank. |
|
|
|
Facility:
|
|
$600 million revolving credit facility including a letter
of credit facility of up to $100 million; a swing line
facility of up to $15 million; and a Hedge Agreement and
foreign exchange contract facility; and an Incremental
Term loan commitment of $400 million. |
|
|
|
Purpose:
|
|
For general corporate purposes. |
|
|
|
Guarantors:
|
|
Obligations under the facility are guaranteed by Fresh Del
Monte Produce N.V.; Del Monte B.V.; Del Monte Fresh
Produce (Asia-Pacific) Limited; Del Monte BVI Limited;
Compañia de Desarrollo Bananero de Guatemala, S.A.; Del
Monte Fresh Produce Company; FDM Holdings Limited;
Corporación de Desarrollo Agricola Del Monte S.A.; Fresh
Del Monte Produce (Canada), Inc.; Del Monte Fresh Produce
(Southeast) Inc.; Del Monte Fresh Produce (West Coast),
Inc. , |
51
|
|
|
|
|
Del Monte Fresh Produce (Texas), Inc., Del Monte
Fresh Produce (Kansas City) Inc.; Del Monte Fresh Packaged
Produce (UK) Ltd.; Global Reefer Carriers, Ltd.; Wafer
Limited; Del Monte Fresh Produce (Chile) S.A.; Fresh Del
Monte Japan Company Ltd.; Del Monte Fresh Produce Brasil
Ltda.; Del Monte Foods Northern Europe Ltd. and each
Borrower. |
|
|
|
Maturity Date:
|
|
Earlier of (1) November 10, 2009 or (2) termination of the
facility commitment pursuant to the New Credit Facility. |
|
|
|
Interest Rate:
|
|
Base Rate advances bear interest at the greater of (1)
Rabobanks base rate from time to time and (2) 0.50% per
annum above the Federal Funds Rate plus a spread that
varies between 0.0% and 0.750%. LIBOR advances bear
interest at a rate based on the Official BBA LIBOR fixings
plus a spread that varies between 0.500% and 1.750%. The
spread for LIBOR advances is determined quarterly based on
the level of our leverage ratio at the end of each fiscal
quarter along with the three immediately preceding fiscal
quarters and was [0.875%] for the fourth quarter of 2005. |
|
|
|
Commitment Fee:
|
|
Varies between 0.125% and 0.350% per annum on the average
daily unused commitment, payable quarterly 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 of our assets 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 completed
fiscal quarters, of not more than
3.40 to 1.0. |
|
|
|
|
|
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) $640,554,000
plus (2) 50% of our cumulative
Consolidated Net Income for fiscal
quarters ending on and after
September 24, 2004. |
|
|
|
|
|
Minimum Interest Coverage.
Maintenance of a ratio of
Consolidated EBITDA to Consolidated
Interest Expense for each fiscal
quarter along with the three
immediately preceding completed
fiscal quarters, of not less than
2.5 to 1.0. |
|
|
|
|
|
Minimum Fixed Charges Coverage
Ratio. Maintenance of a Fixed
Charges Coverage Ratio for each
fiscal quarter along with the three
immediately preceding completed
fiscal quarters, of not less than
1.15 to 1.0 for fiscal quarters
ending on and after March 28, 2003. |
|
|
|
Certain Other Covenants:
|
|
Other covenants applicable to the
Borrowers include limitations on |
52
|
|
|
|
|
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 requirement to pledge
the inventory, receivables and
intellectual property of and equity
interests in any subsidiary that
becomes a Material Subsidiary;
pre-acquisition compliance
certification with certain
financial and other covenants on
Investments in excess of
US$100,000,000; and a negative pledge. |
|
|
|
Events of Default:
|
|
Events of Default include
non-payment, material
misrepresentation, covenant
default, cross-default,
unenforceability of Security or
Loan documents, 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 New Credit Facility as amended, the Borrowers and their subsidiaries generally
are prohibited from:
|
|
|
incurring debt and related liens, with certain limited exceptions; |
|
|
|
|
declaring or making Restricted Payments including direct or indirect distribution,
dividend, payment of a management or similar fee, or other payment to any Person on
account of any interest in, or shares of Stock or other securities, of such Person; or |
|
|
|
|
declaring or making any Restricted Purchase, including any payment by any Person on
account of the purchase, redemption, or other acquisition or retirement of any shares
of Stock or other securities of such Person; |
provided however, that, (i) so long as there is no continuing default under the New Credit
Facility as amended and no default would result, we may declare and pay dividends and distributions
in cash solely out of and up to 70% of our net income (computed on a non-cumulative, consolidated
basis in accordance with U.S. generally accepted accounting principles, or GAAP) for the fiscal
year immediately preceding the year in which the dividend or distribution is paid; and (ii) 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; (iii) any
subsidiary that is not a wholly owned subsidiary may declare and pay cash dividends consistent with
past practices; and (iv) we may repurchase our own Stock in an aggregate amount not to exceed
US$100,000,000, subsequently increased to US$300,000,000 on
February 16, 2006. See Item 5B, Recent
Developments.
Legal Proceedings
DBCP Litigation
Beginning in December 1993, certain of our U.S. subsidiaries were named among the defendants
in a number of actions in courts in Texas, Louisiana, Hawaii, California and the Philippines
involving 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 from 1965
to 1990.
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 was brought by the Banana Workers Association (the 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 the
53
alleged DBCP use. Our subsidiaries filed motions to dismiss and for reconsideration on
jurisdictional grounds, which were denied. Accordingly, our subsidiaries answered the complaint
denying all of the plaintiffs allegations. Our subsidiaries believe substantial defenses exist to
the claims asserted by the Association. On October 3, 2002, the Philippine Court of Appeals ruled
that the method of service used by the Association to serve the defendants was improper and
dismissed the Associations complaint. As a result of this decision, the trial court suspended the
proceedings indefinitely. In 2002, the Association filed a motion for reconsideration of the
dismissal of its complaint, which remains pending.
In 1997, plaintiffs from Costa Rica and Guatemala named certain of our U.S. subsidiaries in a
class action in Hawaii. The action was dismissed by a federal district court on grounds of forum
non conveniens in favor of the courts of the plaintiffs home countries and the plaintiffs appealed
this decision. As a result of the dismissal of the Hawaiian action, several Costa Rican and
Guatemalan individuals filed the same type of actions in those countries. The Guatemalan action
was dismissed for plaintiffs failure to prosecute the action. On April 22, 2003, the plaintiffs
appeal of the dismissal was affirmed by the Supreme Court of the United States, thereby remanding
the action to the Hawaiian State Court. The plaintiffs have taken no further action.
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 our U.S. subsidiaries along with
several other defendants in the District Court for the Parish of St. Charles, Louisiana, asserting
injuries due to the alleged exposure to DBCP. Our subsidiary answered the complaint and asserted
substantial defenses, eventually settling with all but 13 of the Canales Martinez plaintiffs in
federal court. On October 25, 2001, defendants filed a motion to dismiss the action on grounds of
forum non conveniens in favor of plaintiffs home countries. On July 16, 2002, the district court
denied that motion and the defendants filed a motion requesting immediate review by the Court of
Appeals, which was denied by the district court on August 21, 2002. On August 28, 2002, defendants
filed a petition for a writ of mandamus before the Court of Appeals with respect to the district
courts denial of defendants motion to dismiss the action on grounds of forum non conveniens. As
a result of the Supreme Courts decision in the Hawaiian action, the district court remanded these
actions to state court in Louisiana. The plaintiffs have taken no further action.
On November 15, 1999, one of our subsidiaries was served in two actions entitled, Godoy
Rodriguez, et al. v. AMVAC Chemical Corp., et al. and Martinez Puerto, et al. v. AMVAC Chemical
Corp., et al., in the 29th Judicial District Court for the Parish of St. Charles,
Louisiana. These actions were removed to federal court, where they have been consolidated. As a
result of the Supreme Courts decision in the Hawaiian action, the district court remanded these
actions to state court in Louisiana. At this time, it is not known how many of the 2,962 Godoy
Rodriguez and Martinez Puerto plaintiffs are making claims against our subsidiary.
On October 14, 2004, two of our subsidiaries were served with a complaint in an action styled
Angel Abarca, et al. v. Dole Food Co., et al. filed in the Superior Court of the State of
California for the County of Los Angeles on behalf of more than 2,600 Costa Rican banana workers
who claim injury from exposure to DBCP. On October 8, 2004 (prior to service on our subsidiaries),
a co-defendant removed the action to the United States District Court for the Central District of
California. An initial review of the plaintiffs in the Abarca action denotes that a substantial
number of the plaintiffs were claimants in prior DBCP actions in Texas and may have participated in
the settlement of those actions. On December 9, 2004, plaintiffs counsel served notices
of voluntary dismissal pursuant to Federal Rule 41(a)(1) to all defendants except for The Dow
Chemical Co (Dow). The same day, the District Court granted plaintiffs motion to remand. We
and the other defendants other than Dow, jointly moved to quash service before the state court on
the grounds that they have been dismissed from the action. The state court denied the motion on
September 2, 2005, and the California Court of Appeals subsequently rejected defendants petition
for a writ of mandate.
54
On April 25, 2005, two of our subsidiaries were served with a complaint styled Juan Jose
Abrego, et.al. v. Dole Food Company, et al. filed in the Superior Court of the State of California
for the County of Los Angeles on behalf of 955 Guatemalan residents who claim injury from exposure
to DBCP. An initial review of the Plaintiffs in the Abrego action denotes that a substantial number
of the plaintiffs released their claims with prejudice as part of the December 1998 settlement with
our subsidiaries as well as in prior settlement with other defendants. On May 13, 2005,
co-defendant Dow removed the action to the United States District Court for the Central District of
California. Plaintiffs filed a motion to remand on June 15, 2005, which Dow opposed. On October
6, 2005, the District Court remanded the action to the state court of California. Dow has appealed
the remand order to the U.S. Court of Appeals for the Ninth Circuit, which was granted and will be
heard on March 7, 2006.
On April 25, 2005, two of our subsidiaries were served in a complaint styled Antonio Abrego,
et al. v. Dole Food Company, et al. filed in the Superior Court of California for the County of Los
Angeles on behalf of 612 Panamanian residents who claim injury from exposure to DBCP. On May 6,
2005, plaintiffs amended the complaint to add an additional 548 plaintiffs, for a total of 1,160.
We have never owned, managed or otherwise been involved with any banana growing operations in
Panama. On May 13, 2005, co-defendant Dow removed the action to the United States District Court
for the Central District of California. On June 10, 2005, the Court directed Dow to show cause in
writing as to why the amount in controversy requirement had been sufficiently met to invoke federal
jurisdiction, which Dow subsequently filed on June 17, 2005. On October 11, 2005, the District
Court remanded the action to the state court of California. As in Juan Jose Abrego, Dow has
appealed the remand order to the U.S. Court of Appeals for the Ninth Circuit, which remains
pending.
On April 25, 2005, two of our subsidiaries were served with a complaint styled Miguel Jose
Acosta et al. v. Dole Food Company, et al. filed in the Superior Court of the State of California
for the County of Los Angeles on behalf of 633 Honduran residents who claim exposure to DBCP. We
have never owned, managed or otherwise been involved with any banana growing operations in
Honduras. The complaint was subsequently amended to add an additional 469 plaintiffs (for a total
of 1,102), and re-styled Prospero Aceituno Linares, et al. v. Dole Food Company, et al. On May 13,
2005, co-defendant Dow removed the action to the United States District Court for the Central
District of California. The District Court sua sponte remanded the action on May 16, 2005, and
subsequently rejected an amended notice of removal on May 27, 2005. On May 31, 2005, Dow filed a
petition before the Court of Appeals for the Ninth Circuit seeking permission to appeal the
District Courts remand order. The petition was denied on September 19, 2005.
The state court in the Abarca action has found all four of the above California actions to be
related and has transferred all four actions to the California state court department normally
responsible for hearing complex litigations, where the assignment of a judge remains pending.
Former Shareholders Litigation
On December 30, 2002, we were served with a complaint filed on December 18, 2002 in the
Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida by
seven Mexican individuals and corporations, who claim to have been former indirect shareholders of
our predecessor. In addition to being filed against us, the complaint was also filed against
certain of our current and former directors, officers and shareholders and that of our predecessor
(the Florida Complaint).
The Florida Complaint alleges that instead of proceeding with a prospective buyer who offered
superior terms, the former chairman of our predecessor and its majority shareholder, agreed to sell
our predecessor to its current majority shareholder at a below market price as the result of
commercial bribes allegedly paid by our current majority shareholder and chief executive officer to
our predecessors former chairman. On February 20, 2003, we filed a motion to dismiss the Florida
Complaint and the oral argument
55
was heard on June 19, 2003. On July 22, 2003, the court granted in part and denied in part our
motion to dismiss the Florida Complaint, dismissing two of the 11 counts. Mediation of the Florida
Complaint occurred on September 9, 2005, but was unsuccessful. On February 9, 2006, the court set
a trial date of May 15, 2006. We believe that the allegations of the remaining Florida complaint
are entirely without merit.
Class Action Litigation
a. Pineapple Class Actions
On April 16, 2004, four fruit wholesalers filed a consolidated complaint against two of our
subsidiaries in the United States District Court for the Southern District of New York. The
plaintiffs claim to have purchased Del Monte Gold®ä pineapples from our subsidiaries. This
consolidated action is brought as a putative class action on behalf of all direct purchasers of Del
Monte Gold®ä pineapples from March 1, 1996 through the present. The court directed the
plaintiffs to file a new consolidated complaint, which was filed on August 2, 2004 and consists of
the four fruit wholesalers and two individual consumers who had filed their complaints in the
federal court for the Southern District of New York. In addition to these six actions, other class
actions against us were transferred to the United States District Court for the Southern District
of New York by the Judicial Panel on Multidistrict Litigation (JPML) and then remanded as
described below. The new consolidated complaint alleges claims for: (1) monopolization and
attempted monopolization; (2) restraint of trade; (3) unfair and deceptive trade practices; and (4)
unjust enrichment. On May 27, 2005, we filed a motion to dismiss the indirect and direct
purchasers claims for unjust enrichment which remains pending.
On March 5, 2004, an alleged individual consumer filed a putative class action complaint
against our subsidiaries in the state court of Tennessee on behalf of consumers who purchased
(other than for resale) Del Monte Gold® pineapples in Tennessee from March 1, 1996 to May 6, 2003.
The complaint alleges violations of the Tennessee Trade Practices Act and the Tennessee Consumer
Protection Act. On April 14, 2004, our subsidiaries removed this action to federal court. The
plaintiffs filed a motion for remand to state court which was granted by the court on July 7, 2004.
This action will now proceed in the state court of Tennessee. On February 18, 2005, our
subsidiaries filed a motion to dismiss the complaint which remains pending.
Between March 17, 2004 and March 18, 2004, three alleged individual consumers filed putative
class action complaints against us in the state court of California on behalf of residents of
California who purchased (other than for re-sale) Del Monte Gold® pineapples between March 1, 1996
and May 6, 2003. The complaints allege violations of the Cartwright Act, common law
monopolization, unfair competition in violation of the California Business and Professional Code,
unjust enrichment and violations of the Consumer Legal Remedies Act. On April 19, 2004, we removed
these actions to federal court. The plaintiffs filed a motion for remand to the state court of
California which was granted by the court on July 8, 2004 in one of the actions and on July 12,
2004 in the other two actions. These actions will now proceed in the state court of California.
In one of the three actions, we filed a motion to dismiss the plaintiffs complaint which was
granted in part and denied in part. On November 9, 2005, the three actions were consolidated under
one amended complaint with a single claim for unfair competition in violation of the California
Business and Professional Code. We have filed a motion to dismiss this one remaining claim, which
was denied on January 6, 2006. On January 23, 2006, the court granted our petition for leave to
file an interlocutory appeal of the denial.
On April 19, 2004, an alleged individual consumer filed a putative class action complaint
against our subsidiaries in the state court of Florida on behalf of Florida residents who purchased
(other than for re-sale) Del Monte Gold® pineapples between March 1, 1996 and May 6, 2003. The
complaint alleges fraudulent concealment/tolling of statute of limitations, violations of the
Florida Deceptive and Unfair Trade
56
Practices Act and unjust enrichment. On May 11, 2004, our subsidiaries removed this action to
federal court. The plaintiff filed a motion for remand to state court and our subsidiaries opposed
that motion. The court granted plaintiffs motion to remand. The case will now proceed in state
court of Florida. On October 27, 2004, we filed a motion to dismiss the plaintiffs complaint,
which motion was granted on January 23, 2006 with leave for plaintiff to amend. Plaintiff filed an
amended complaint on February 13, 2006.
On April 29, 2004, an alleged individual consumer filed a putative class action complaint
against our subsidiaries in the state court of Arizona on behalf of residents of Arizona who
purchased (other than for re-sale) Del Monte Gold® pineapples between November 1997 and January
2003. The complaint alleges monopolization and attempted monopolization in violation of the
Arizona Consumer Fraud Act, and unjust enrichment in violation of common law. On May 24, 2004, our
subsidiaries removed this action to federal court. The plaintiffs filed a motion for remand and our
subsidiaries opposed that motion. Our subsidiaries are not required to respond to the complaint
until 20 days after the resolution of plaintiffs motion to remand. On October 25, 2004, this
action was transferred to the United States District Court for the Southern District of New York by
the JPML. The plaintiffs filed a motion for remand which was granted by the court on April 20,
2005. This action will now proceed in Arizona state court. On July 25, 2005, we filed a motion to
dismiss which remains pending. On July 25, 2005, we filed a motion to dismiss the claim for
violation of the Arizona Consumer Fraud Act which was granted by the state court on February 16,
2006 with leave for the plaintiffs to amend.
On July 2, 2004, an alleged individual consumer filed a putative class action which was served
on August 24, 2004 against our subsidiaries in the state court of Nevada on behalf of residents of
Nevada who purchased (other than for re-sale) Del Monte Gold® pineapples between November 1997 and
January 2003. The complaint alleges restraint of trade in violation of Nevada statutes, common law
monopolization and unjust enrichment. On September 13, 2004, our subsidiaries removed this action
to federal court. On November 15, 2004, this action was transferred to the United States District
Court for the Southern District of New York by the JPML. The plaintiffs filed a motion for remand
which was granted by the court on April 20, 2005. This action will now proceed in Nevada state
court.
b. Banana Class Actions
Between July 25, 2005 and August 22, 2005, several plaintiffs served putative class action
complaints against us and several other corporations, all in the United States District Court for
the Southern District of Florida on behalf of all direct purchasers of bananas for the period from
May 2003 to the present. The complaints allege that the defendants engaged in a continuing
agreement, understanding and conspiracy to restrain trade by artificially raising, fixing and
maintaining the prices of, and otherwise restricting the sale of, bananas in the United States in
violation of Section 1 of the Sherman Act. A similar action was brought by a New York corporation
for the period from July 2001 to the present.
Additionally, between October 21, 2005 and November 10, 1005, Arizona, California, Minnesota,
New York, Tennessee and Kansas residents filed putative class action complaint against us and
several other corporations in the United States District Court for the Southern District of Florida
on behalf of all indirect purchasers of bananas in their respective states for the period from May
2003 to the present. That complaint alleges violations of numerous state antitrust, competition,
and unjust enrichment statutes. A similar action was brought by a California resident for the
period from July 2001 to the present.
The cases on behalf of the direct purchasers have been consolidated in the U.S. District Court
for the Southern District of Florida. The cases on behalf of the indirect purchasers have been
transferred to the same judge in the U.S. District Court for the Southern District of Florida, but
are not consolidated at present.
In the consolidated direct purchaser cases, the court has entered a case management order and
a
57
scheduling order under which trial in this matter has been set for the two week trial period
commencing October 1, 2007 and discovery on the merits of the action is scheduled to take place
before discovery on class certification. On November 16, 2005, the direct purchaser plaintiffs
filed an amended, consolidated complaint. On December 22, 2005, we filed a motion to dismiss the
complaint, which motion remains pending. The plaintiffs have served discovery requests on us.
An amended complaint is due from the indirect purchaser plaintiffs by March 3, 2006. No
discovery or motion proceedings have commenced in the indirect purchaser action.
Germanys European Union Antitrust Investigation
On June 2, 2005, one of our German subsidiaries was visited by Germanys European Union (EU)
antitrust authority which is investigating our subsidiary for possible violations of the EUs
competition laws. On February 17, 2006, we received a request for additional information from
Germanys EU antitrust authority and are in the process of gathering and providing the requested
information. We are fully cooperating and will continue to fully cooperate with the investigation.
We intend to vigorously defend ourselves in all of the above matters. At this time, we are not
able to evaluate the likelihood of a favorable or unfavorable outcome in any of the above-described
matters. Accordingly, we are not able to estimate the range or amount of loss, if any, from any of
the above-described matters and no accruals or expenses have been recorded as of December 30, 2005,
except as related to the Kunia Well Site discussed below.
Kunia Well Site
In 1980, elevated levels of certain chemicals were detected in the soil and ground-water at a
plantation leased by one of our U.S. subsidiaries in Honolulu, Hawaii (Kunia Well Site). Shortly
thereafter, our subsidiary discontinued the use of the Kunia Well Site and provided an alternate
water source to area well users and the subsidiary commenced its own voluntary cleanup operation.
In 1993, the Environmental Protection Agency (EPA) identified the Kunia Well Site for potential
listing on the National Priorities List (NPL) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended. On December 16, 1994, the EPA issued a final
rule adding the Kunia Well Site to the NPL. On September 28, 1995, our subsidiary entered into an
order (the Order) with the EPA to conduct the remedial investigation and the feasibility study of
the Kunia Well Site. Under the terms of the Order, our subsidiary submitted a remedial
investigation report in November 1998 and a final draft feasibility study in December 1999 (which
was updated from time to time) for review by the EPA. The EPA approved the remedial investigation
report in February 1999 and the feasibility study on April 22, 2003.
As a result of communications with the EPA in 2001, we recorded a charge of $15.0 million in
the third quarter of 2001 to increase the recorded liability to the estimated expected future
cleanup cost for the Kunia Well Site to $19.1 million. Based on conversations with the EPA in the
third quarter of 2002 and consultation with our legal counsel and other experts, we recorded a
charge of $7.0 million during the third quarter of 2002 to increase the accrual for the expected
future clean up costs for the Kunia Well Site to $26.1 million. As of December 30, 2005, $22.8
million is included in other long-term liabilities for the Kunia Well Site clean-up.
On September 25, 2003, the EPA issued the Record of Decision (ROD). The EPA estimates in
the ROD that the remediation costs associated with the clean up of the Kunia Well Site will range
from $12.9 million to $25.4 million and will last approximately 10 years. Certain portions of the
EPAs estimates have been discounted using a 5% interest rate. The undiscounted estimates are
between $14.8 million and $28.7 million. On January 13, 2004, the EPA deleted a portion of the
Kunia Well Site (Northeast section)
58
from the NPL. On May 2, 2005, our subsidiary signed a Consent Decree with the EPA for the
performance of the clean up work for the Kunia Well Site. On September 27, 2005, the U.S. District
Court for Hawaii approved and entered the consent decree. Based on findings from remedial
investigations at the Kunia Well Site, our subsidiary continues to evaluate with the EPA the clean
up work currently in progress in accordance with the Consent Decree.
Other
In addition to the foregoing, we are involved from time to time in various claims and legal
actions incident to our operations, both as plaintiff and defendant. In our opinion, after
consulting with legal counsel, none of these other claims are currently expected to have a material
adverse effect on the results of our operations, our financial position or our cash flows.
Dividend Policy
In 2005, we paid regular quarterly cash dividends of $0.20 per share for a total of $0.80 per
share for the year. Because we are an exempted holding company, our ability to pay dividends and
to meet our debt service obligations depends primarily on receiving sufficient funds from our
subsidiaries. Pursuant to our New Credit Facility, we may declare and pay dividends and
distributions in cash solely out of and up to 50% of our net income for the fiscal year immediately
preceding the year in which the dividend or distribution is paid; provided that we may declare
dividends in cash solely out of and up to 70% of our net income for the fiscal year immediately
preceding the year in which the dividend or distribution is paid if after giving effect to such
dividend payment we have a leverage ratio of 2.50 to 1.00 for such fiscal year. It is possible that
countries in which one or more of our subsidiaries are located could institute exchange controls,
which could prevent those subsidiaries from remitting dividends or other payments to us.
59
Item 9. The Offer and Listing
Ordinary Share Prices and Related Matters
Our ordinary shares are traded solely on the New York Stock Exchange, under the symbol FDP,
and commenced trading on October 24, 1997, the date of our initial public offering.
The following table presents the high and low sales prices of our ordinary shares for the
periods indicated as reported on the New York Stock Exchange Composite Tape:
|
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
Five most recent financial years |
|
|
|
|
|
|
|
|
Year ended December 28, 2001 |
|
$ |
15.95 |
|
|
$ |
4.56 |
|
Year ended December 27, 2002 |
|
$ |
29.20 |
|
|
$ |
13.70 |
|
Year ended December 26, 2003 |
|
$ |
28.35 |
|
|
$ |
15.12 |
|
Year ended December 31, 2004 |
|
$ |
29.63 |
|
|
$ |
22.62 |
|
Year ended December 30, 2005 |
|
$ |
33.94 |
|
|
$ |
21.90 |
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|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
First quarter |
|
$ |
27.99 |
|
|
$ |
23.33 |
|
Second quarter |
|
$ |
25.98 |
|
|
$ |
22.62 |
|
Third quarter |
|
$ |
27.65 |
|
|
$ |
24.36 |
|
Fourth quarter |
|
$ |
29.63 |
|
|
$ |
24.77 |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
First quarter |
|
$ |
33.94 |
|
|
$ |
28.31 |
|
Second quarter |
|
$ |
31.99 |
|
|
$ |
25.80 |
|
Third quarter |
|
$ |
27.82 |
|
|
$ |
25.16 |
|
Fourth quarter |
|
$ |
28.56 |
|
|
$ |
21.90 |
|
|
|
|
|
|
|
|
|
|
Most recent six months |
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|
|
|
|
|
|
|
September 2005 |
|
$ |
27.22 |
|
|
$ |
25.49 |
|
October 2005 |
|
$ |
28.56 |
|
|
$ |
25.34 |
|
November 2005 |
|
$ |
26.35 |
|
|
$ |
24.50 |
|
December 2005 |
|
$ |
27.02 |
|
|
$ |
21.90 |
|
January 2006 |
|
$ |
23.00 |
|
|
$ |
21.66 |
|
February 2006 |
|
$ |
21.82 |
|
|
$ |
20.02 |
|
As of December 30, 2005, there were 58,013,180 ordinary shares outstanding. As of February
17, 2006, we believe that holders in the United States held approximately 41% of the outstanding
ordinary shares.
Item 10. Additional Information
Memorandum and Articles of Association
Corporate Governance
We are an exempted company incorporated in the Cayman Islands and are subject to the laws of
that jurisdiction. The legislative framework in the Cayman Islands which applies to exempted
companies is flexible. Generally, corporate governance matters are thus left to the discretion of
each exempted
60
company. While Cayman Islands exempted companies are required to have a board of directors
responsible for managing the companys affairs, by contrast to NYSE requirements, they are not, as
a matter of law, required to (i) appoint independent directors to their boards; (ii) hold regular
meetings of non-management directors; (iii) establish audit, nominating and governance or
compensation committees; (iv) have shareholders approve equity compensation plans; (v) adopt
corporate governance guidelines; or (vi) adopt a code of business conduct and ethics.
We are also subject to the NYSE listing standards, although, because we are a foreign private
issuer, those standards are considerably different from those applied to U.S. companies. Under the
NYSE rules, we need only (i) establish an independent audit committee that has specified
responsibilities as described in the following table; (ii) provide prompt certification in writing
by our chief executive officer after any executive officer becomes aware of any material
non-compliance with any corporate governance rules; (iii) submit annual and interim written
affirmations (in a form determined by the NYSE) with respect to our audit committee and (iv)
provide a brief description of significant differences between our corporate governance practices
and those followed by U.S. companies. We do, in fact, conform to many of the requirements
applicable to U.S. companies. The following table compares our practices to those required of U.S.
companies.
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Standard for U.S. Listed Companies |
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Fresh Del Monte Practice |
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Director Independence |
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|
A majority of the board must
consist of independent directors.
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|
Four of our eight directors are independent within the
meaning of the NYSE standards. |
Independence is defined by various
criteria including the absence of a
material relationship between the
director and the listed company.
Directors who (i) are or have been
employees within the last three years;
(ii) are immediate family of the chief
executive officer; or (iii) receive or
have received, or have immediate
family members who have received,
within the last three years, over
$100,000 per year in direct
compensation from the listed company
are not independent. Directors who
are employees of or otherwise
affiliated through immediate family
with the listed companys independent
auditor are also not independent. |
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The non-management directors
of each company must meet at regularly
scheduled executive sessions without
management.
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|
Our independent directors meet
periodically without management directors. |
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|
Compensation Committee |
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|
Listed companies must have a
compensation committee composed
entirely of independent board members
as defined by the NYSE listing
standards.
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|
Our compensation committee has three
members, all of whom are independent within
the meaning of the NYSE standards. |
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|
The committee must have a
written charter that addresses its
purpose and responsibilities.
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|
Our compensation committee (i)
reviews the Companys general compensation structure; |
61
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|
Standard for U.S. Listed Companies |
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|
Fresh Del Monte Practice |
These responsibilities include (i)
reviewing and approving corporate
goals and objectives relevant to CEO
compensation; (ii) evaluating CEO
performance and compensation in light
of such goals and objectives for the
CEO; (iii) based on such evaluation,
reviewing and approving CEO
compensation levels; (iv) recommending
to the board non-CEO compensation,
incentive compensation plans and
equity-based plans; and (v) producing
a report on executive compensation as
required by the SEC to be included in
the companys annual proxy statement
or annual report. The committee must
also conduct an annual performance
self-evaluation. |
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|
and (ii) reviews and recommends
the compensation and benefits of directors
and the chief executive officer, subject to
ratification by the board of directors. The
compensation committee also acts as the
administrator for our 1997 and 1999 Share
Incentive Plans and reviews and recommends
approval of all periodic filings in respect
of executive and other compensation required
to be made by us with the SEC. |
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Audit Committee |
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Listed companies must have an
audit committee that satisfies the
requirements of Rule 10A-3 under the
Securities Exchange Act. The rule
requires that the audit committee (i)
be comprised entirely of independent
directors; (ii) be directly
responsible for the appointment,
compensation and oversight of the
independent auditor; (iii) adopt
procedures for the receipt and
treatment of complaints with respect
to accounting and auditing issues;
(iv) be authorized to engage
independent counsel and other advisors
it deems necessary in performing its
duties; and (v) be given sufficient
funding by the board of directors to
compensate the independent auditors
and other advisors as well as for the
payment of ordinary administrative
expenses incurred by the committee.
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We have an audit committee meeting
the requirements of Rule 10A-3. |
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The audit committee must
consist of at least three members, and
each member must be independent within
the meaning established by the NYSE.
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Our audit committee consists of three
members, all of whom are independent within
the meaning of the NYSE standards. |
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The audit committee must have
a written charter that addresses the
committees purpose and
responsibilities.
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Our audit committee has a charter
outlining the committees purpose and
responsibilities, which are similar in scope to those required of U.S. companies. |
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At a minimum, the committees purpose
must be to assist the board in the
oversight of the integrity of the
companys financial statements, the
companys compliance with legal and
regulatory requirements, the
independent auditors qualifications
and independence and the performance
of the companys internal audit
function and independent |
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62
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Standard for U.S. Listed Companies |
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Fresh Del Monte Practice |
auditors. |
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The audit committee is also required
to review the independent auditing
firms annual report, describing the
firms internal quality control
procedures, any material issues raised
by the most recent internal quality
control review or peer review of the
firm or by governmental inquiry or
investigation and any steps taken to
address such issues. The audit
committee is also to assess the
auditors independence by reviewing
all relationships between the company
and its auditor. It must establish the
companys hiring guidelines for
employees and former employees of the
independent auditor. |
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The committee must also discuss the
companys annual audited financial
statements and quarterly financial
statements with management and the
independent auditors, the companys
earnings press releases, as well as
financial information and earnings
guidance provided to analysts and
rating agencies, and policies with
respect to risk assessment and risk
management. It must also meet
periodically with the internal
auditors and the independent auditors
and report regularly to the board of
directors. |
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Each listed company must have
an internal audit function.
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We have an internal audit function. |
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Nominating/Corporate Governance
Committee |
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Listed companies must have a
nominating /corporate governance
committee composed entirely of
independent board members.
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We do not have a nominating/corporate
governance committee. |
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The committee must have a written
charter that addresses its purpose and
responsibilities, which include (i)
identifying qualified individuals to
become board members; (ii) selecting,
or recommending that the board select,
the director nominees for the next
annual meeting of shareholders; (iii)
developing and recommending to the
board a set of corporate governance
principles applicable to the company;
(iv) overseeing the evaluation of the
board and management; and (v)
conducting an annual performance
evaluation of the committee. |
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Equity-Compensation Plans |
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63
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Standard for U.S. Listed Companies |
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Fresh Del Monte Practice |
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Shareholders must be given the
opportunity to vote on all
equity-compensation plans and material
revisions thereto, with limited
exceptions.
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We do as a regular practice have our
shareholders approve equity-compensation
plans. |
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Corporate Governance Guidelines |
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Listed companies must adopt
and disclose corporate governance
guidelines.
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We do not have a formal set of
corporate governance guidelines. |
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Code of Business Conduct and Ethics |
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All listed companies, U.S. and
foreign, must adopt and disclose a
code of business conduct and ethics
for directors, officers and employees,
and promptly disclose any waivers of
the code for directors or executive
officers.
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We have adopted a Code of Conduct and
Business Ethics Policy. It has been posted
on our website at www.freshdelmonte.com. |
Registered Office
The registration number assigned to us by the registrar of companies in the Cayman Islands is
CR-68097. Our 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)
945-3727.
Object and Purpose
Paragraph 3 of our Amended and Restated Memorandum of Association (Memorandum of
Association) provides that the objects for which we have been established are unrestricted and we
have full power and authority to carry out any object not prohibited by any law as provided by The
Companies Law (As Revised).
Directors
Articles 82 and 83 of our Amended and Restated Articles of Association (Articles of
Association) requires that a director shall declare the nature of any interest in a contract or
proposed contract with us and provides that a director may vote in respect of any contract or
proposed contract or arrangement, notwithstanding such directors interest and that such an
interested director will not be liable to account to us for any profit realized through any such
contract or arrangement. Article 60 provides that directors renumeration 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 of our powers to
borrow money and to mortgage or charge our 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 of our debts, liabilities or obligations or of any third party. Article 74 can
only be altered through an amendment of the Articles of Association. Article 61 provides that our
directors are not required to own our shares in order to serve as our directors unless fixed by us
at a shareholders meeting.
Ordinary Shares
Our Memorandum of Association authorizes the issuance of 200,000,000 ordinary shares with a
par value of $0.01 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 us from any holder of the
ordinary shares outstanding.
64
Under Cayman Islands 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 (2004
Revision) and the Articles of Association. No Cayman Islands laws or regulations restrict the
export or import of capital, or affect the payment of dividends to non-resident holders of the
ordinary shares.
Some provisions of our Articles of Association may have the effect of delaying, deterring or
preventing a change in control not approved by our board of directors and contain 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, and if declared out of legally
available funds, dividends in cash or specie. We may in a general meeting declare dividends but no
dividend shall exceed the amount recommended by our directors. Our directors may from time to time
pay to the shareholders such interim dividends as appear to the directors to be justified from our
profits. Subject to the rights of persons, if any, entitled to shares with special rights as to
dividends, all dividends shall be declared and paid according to the amounts paid on the shares.
Voting
Except as provided by statute or the Articles of Association, holders of our 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 our 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 will be paid ratably to our shareholders subject to the
rights of any preferred shareholders.
Election and Removal of Directors
Our shareholders 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
Our Memorandum of Association authorizes the issuance of 50,000,000 preferred shares with a
par value of $0.01 per share. Our board of directors may, from time to time, direct the allotment
or disposal of preferred shares and may, at the time of issue, determine the rights, privileges and
preferences of such shares. Satisfaction of any dividend preferences of outstanding preferred
shares will reduce the amount of funds available for the payment of dividends on ordinary shares.
The holders of our 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 our
ordinary shares. Holders of our 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.
65
Certain Provisions of the Articles of Association Having the Effect of Delaying, Deferring or
Preventing a Change in Control
Our 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. Our
Articles of Association provide that, except as otherwise required by law, general meetings of our
shareholders may only be called pursuant to a resolution adopted by a majority of our board of
directors or by the chairman of our board of directors. Our shareholders are not permitted to call
for a general meeting or require our board of directors to call for a meeting.
Our Articles of Association establish an advance notice procedure for shareholder proposals to
be brought before a general meeting of our shareholders, including proposed nominations of persons
for election to the board of directors.
Our shareholders at a general meeting may only consider proposals or nominations specified in
the notice of meeting or brought before the meeting (i) by or at the direction of our board of
directors or (ii) by a shareholder who was a shareholder of record on the record date of the
meeting and who has given our directors timely written notice, in proper form, of the shareholders
intention to bring that business before the meeting.
Although our Articles of Association do not provide our board of directors the power to
approve or disapprove shareholder nominations of candidates or proposals regarding other business
to be conducted at our general meeting, they may have the effect of precluding the conduct of some
business at our meeting if the proper procedures are not followed or may discourage or deter a
potential acquirer 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 our general meeting is required
to amend, alter, change or repeal provisions of our Articles of Association. This requirement of a
special resolution to approve amendments to our Articles of Association could enable a minority of
our shareholders to exercise veto power over any such amendment.
Our Articles of Association provide for our 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 of Association authorizes us to issue an aggregate of 200,000,000 ordinary shares
with a par value of $0.01 per share and 50,000,000 preferred shares with a par value of $0.01 per
share. Of those 200,000,000 authorized ordinary shares, 58,013,180 shares were issued and
outstanding as of December 30, 2005, all of which are fully paid or credited as fully paid. Of the
50,000,000 preferred shares, none are issued or outstanding. 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 our ordinary shares in the same manner as
Cayman Islands residents, subject to the provisions of the Companies Law (As Revised) and our
Articles of Association. No Cayman Islands laws or regulations restrict the export or import of
capital or affect the payment of dividends to non-resident
66
holders of ordinary shares.
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 such Cayman Islands taxes.
Accordingly, U.S. holders of ordinary shares (the U.S. Holders) are not presently subject to
Cayman Islands income or withholding taxes with respect to such interest, dividends and gains. 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 Cayman Islands Tax Concessions Law (Revised). That
undertaking provides inter alia that for a period of 20 years from April 22, 1997 (a) that no law
which is thereafter enacted in the Cayman Islands imposing any tax to be levied on profits, income,
gains or appreciations shall apply to us or our operations and (b) that no tax 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, debentures or other obligations.
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:
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an individual who is a citizen or resident of the United States; |
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a U.S. domestic corporation; or |
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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.
Distributions 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 (Taxable
Dividends) will be taxable to you as ordinary income at the time that you receive such amounts.
Taxable Dividends generally will be foreign source income and will not be eligible for the
dividends-received deduction available to domestic corporations. To the extent amounts paid as
distributions on ordinary shares were to exceed our current and accumulated earnings and profits,
those amounts would not be Taxable Dividends but instead would be treated first as a tax-free
return of capital reducing your basis in your ordinary shares until such basis is reduced to zero,
and then as gain from the sale of your ordinary shares. This reduction in basis would increase any
capital gain, or reduce any capital loss, realized by you upon the subsequent sale, redemption or
other taxable disposition of your ordinary shares.
We believe we had sufficient current earnings and profits in our 2005 taxable year and that
distributions paid with respect to ordinary shares during 2005 therefore should be treated as
Taxable
Dividends. Although we currently can provide no assurance as to whether we will make
distributions on ordinary shares during 2006 or later years, we expect that in the event we make
any such distributions, we will have current or accumulated earnings and profits and that any such
distributions will be Taxable Dividends.
Subject to certain exceptions and for so long as ordinary shares continue to be listed on the
New York Stock Exchange or otherwise readily tradable on an established securities market in the
United States within the meaning of section 1(h)(11)(C)(ii) of the Internal Revenue Code of 1986,
as amended, Taxable Dividends received by an individual in respect of ordinary shares before
January 1, 2009 will be subject to taxation at a maximum rate of 15 percent. This lower rate
applies to a Taxable Dividend only if the ordinary share in respect of which such Taxable Dividend
is paid has been held for at least 61 days during the 121 day period beginning 60 days before the
ex-dividend date. Periods during which you hedge a position in ordinary shares or related property
may not count for purposes of the holding period test. Taxable Dividends also would not be
eligible for the lower rate if you elect to take the Taxable Dividends into account as investment
income for purposes of limitations on deductions for investment interest. In addition, this lower
rate will not apply to a Taxable Dividend if (i) within our taxable year in which such Taxable
Dividend is paid, or within our preceding taxable year, we are, or were, a passive foreign
investment company (PFIC). Based on our audited financial statements and relevant market and
shareholder data, we believe that we were not a PFIC, FPHC or FIC for U.S. federal income tax
purposes with respect to our 2004 or 2005 taxable years. In addition, based on our audited
financial statements and current expectations regarding the value and nature of our assets, the
sources and nature of our income, and relevant market data, we do not anticipate becoming a PFIC
for our 2006 taxable year, although we can provide no assurances in this regard. You should
consult your own tax adviser regarding the availability of the reduced dividend rate in light of
your own particular circumstances.
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 are disposed. 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 before January 1, 2009 generally
will be subject to taxation at a maximum rate of 15 percent. The deductibility of net capital
losses is subject to limitations. Any gain generally will be treated as U.S. source income.
You may be subject to backup withholding with respect to dividends paid on ordinary shares or
the proceeds of a sale, exchange or other disposition of ordinary shares, unless you:
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are a corporation or come within another exempt category, and, when
required, you demonstrate this fact; or |
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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 adviser regarding your qualification for exemption from
backup withholding and the procedure for obtaining such an exemption if applicable.
Documents on Display
Our Memorandum of Association and our Articles of Association have both been previously filed
with the SEC and are attached as exhibits to this Form 20-F (incorporated by reference from our
Registration Statement on Form F-1 (File No. 333-7708)). Shareholders may send requests for
hard
68
copies of these documents to the attention of Investor Relations c/o Del Monte Fresh Produce
Company, 241 Sevilla Avenue, Coral Gables, FL 33134.
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 45% of our net sales in 2005 were received in currencies other
than the U.S. dollar. We generally are unable to adjust our non-dollar local currency sales prices to
reflect changes in exchange rates between the dollar and the relevant local currency. As a result,
changes in exchange rates between the euro, Japanese yen, British pound or other currencies in
which we receive sale proceeds and the dollar have a direct impact on our operating results. There
is normally a time lag between our sales and collection of the related sales proceeds, exposing us
to additional currency exchange rate risk.
To reduce currency exchange rate risk, we generally exchange local currencies for dollars
promptly upon receipt. We periodically enter into currency forward contracts and options as a hedge
against a portion of our currency exchange rate exposures; however, we may decide not to enter into
these contracts during any particular period. As of December 30, 2005, we had several foreign
currency cash flow hedges outstanding. The fair value of these hedges as of that date was an
asset of $37.2 million.
The results of a hypothetical 10% strengthening in the average value of the dollar during 2004
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 $124 million for the year ended
December 31, 2004. 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 13 of the notes to our audited consolidated financial statements, our
indebtedness is both variable and fixed rate.
At December 30, 2005, our variable rate long-term debt had a carrying value of $331.3 million.
The fair value of the debt approximates the carrying value because the variable rates
approximate market
69
rates. A 10% increase in the interest rate for 2005 would have resulted in a
negative impact of approximately $1.7 million on our results of operations for the year ended
December 30, 2005.
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 have been 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 have been no material modifications to the rights of security holders that are required
to be disclosed.
Item 15. Controls and Procedures
As of December 30, 2005, we carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and procedures. There are
inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that as of December 30, 2005, our
disclosure controls and procedures are effective in providing reasonable assurance that information
relating to us that is required to be included in our periodic filings with the SEC is recorded,
processed, summarized and reported as and when required. There has been no change in our internal
control over financial reporting during the last fiscal year that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that Edward L. Boykin is our audit committee financial
expert within the meaning of applicable law.
70
Item 16B. Code of Ethics
We have adopted a Code of Conduct and Business Ethics Policy (Code of Conduct) that applies
to our principal executive officer, principal financial officer and principal accounting officer as
well as all our directors, other officers and employees. This Code of Conduct can be found on our
website, at www.freshdelmonte.com.
Item 16C. Principal Accountant Fees and Services
Fees and Services
The following table discloses the aggregate fees paid to our principal independent auditor for
each of the last two fiscal years and briefly describes the services performed:
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(U.S. dollars in millions) |
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2004 |
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2005 |
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Description of Services |
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Audit Fees |
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$ |
2.6 |
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$ |
2.9 |
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Audit of consolidated financial statements and statutory audits of subsidiaries |
Audit-Related Fees |
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0.6 |
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0.4 |
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Employee benefits plans and mergers and acquisitions due diligence |
Tax Fees |
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0.1 |
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0.1 |
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Tax return preparation and tax planning |
All other fees |
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Total Fees |
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$ |
3.3 |
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$ |
3.4 |
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Pre-Approval Policies and Procedures
Our audit committee is charged with the responsibility of pre-approving all audit and
non-audit services provided to us and our subsidiaries by our independent auditor and any other
auditing firm. In performing this duty, the audit committee is guided by the following
pre-approval policies and procedures:
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The audit committee must pre-approve services performed by our independent auditor
for us or our subsidiaries, which may include audit, review, attest and non-audit
services permitted under applicable law, such as the rules and regulations of the SEC,
the Public Company Accounting Oversight Board (PCAOB) and any other regulatory or
self-regulatory body (the covered services); |
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The audit committee must pre-approve all covered services provided by other firms
besides our independent auditor to the extent our independent auditor expressly relies
on the audit report of these other firms in preparing its own audit report; and |
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The audit committee may delegate its authority to pre-approve the covered services
to one or more members of the audit committee. |
In considering whether to grant approval, the audit committee considers the nature and scope
of the service as proposed in light of applicable law, as well as the principles and other guidance
of the SEC and the PCAOB with respect to auditor independence. The audit committee also considers
whether the overall level of non-audit services is compatible with the independence of the
independent auditor. In general, predictable and recurring services are approved by the audit
committee on an annual basis at or about the start of each fiscal year.
71
While the audit committee may delegate its authority to pre-approve any audit or permitted
non-audit services, the delegate may only approve services with aggregate estimated fees of no more
than $25,000 for all fiscal periods in which the service is being rendered. Additionally, the
delegate must report any pre-approval granted at the next scheduled meeting of the audit committee.
While our policies and procedures acknowledge the de minimus exception granted by SEC
regulations, which allows certain services to be exempt from pre-approval, we do not normally rely
on this exception. Our chief financial officer is responsible for bringing to the audit
committees attention any instance in which services may have been provided without prior approval.
Substantially all of the above fees paid to, and services performed by Ernst & Young were subject
to our pre-approval policies and procedures.
Item 16D. Exemption from the Listing Standards for Audit Committees Not applicable.
Item 16E. Purchases of Equity Securities There have been no purchases of equity securities.
PART III
Item 17. Financial Statements
Our Consolidated Financial Statements have been prepared in accordance with Item 18 hereof.
Item 18. Financial Statements
Our Consolidated 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
herein by this reference. Such Consolidated Financial Statements and schedule are filed as part of
this Report.
Consolidated Financial Statements
Supplemental Financial Statement Schedule
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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm |
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S-1 |
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Schedule II Valuation and Qualifying Accounts |
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S-2 |
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72
Item 19. Exhibits
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1.1
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Amended and Restated Memorandum of Association of Fresh Del Monte Produce Inc. (incorporated
by reference from Exhibit 3.6 to our Registration Statement on Form F-1 (File No. 333-7708)). |
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1.2
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Amended and Restated Articles of Association of Fresh Del Monte Produce Inc. (incorporated by
reference from Exhibit 3.7 to our Registration Statement on Form F-1 (File No. 333-7708)). |
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1.3
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Specimen Certificate of ordinary shares of Fresh Del Monte Produce Inc. (incorporated by
reference from Exhibit 4.1 to our Registration Statement on Form F-1 (File No. 333-7708)). |
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2.1
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$350,000,000 Revolving Credit Agreement dated as of May 19, 1998 among Del Monte Fresh
Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte Fresh
Produce N.A., Inc., Fresh Del Monte Produce Inc. and Global Reef Carriers Ltd. as Borrowers,
the Initial Lenders, Initial Issuing Bank and Swing Line Bank, as Initial Lenders, Initial
Issuing Bank and Swing Line Bank, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
Rabobank Nederland, New York Branch, as Administrative Agent and Collateral Agent
(incorporated by reference from Exhibit 2.1 to our 1998 Annual Report on Form 20-F). |
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2.2
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Amendment and Consent dated as of December 15, 1998 to the Revolving Credit Agreement among
Del Monte Fresh Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce International Inc.,
Del Monte Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc., Global Reefer Carriers,
Ltd., the banks, financial institutions and other institutional lenders a party to the
Revolving Credit Agreement (incorporated by reference from Exhibit 2.2 to our 1998 Annual
Report on Form 20-F). |
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2.3
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Second Amendment dated as of January 5, 1999 to the Revolving Credit Agreement among Del
Monte Fresh Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce International Inc., Del
Monte Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd.,
and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York
Branch, as agent for the other banks, financial institutions and other institutional lenders
party to the Revolving Credit Agreement (incorporated by reference from Exhibit 2.3 to our
1998 Annual Report on Form 20-F). |
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2.4
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Amendment and Consent dated as of January 8, 1999 to the Revolving Credit Agreement among Del
Monte Fresh Produce (UK) Ltd., Wafer Limited, Del Monte Fresh Produce International Inc., Del
Monte Fresh Produce N.A., Inc., Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd.,
the banks, financial institutions and other institutional lenders a party to the Revolving
Credit Agreement (incorporated by reference from Exhibit 2.4 to our 1998 Annual Report on Form
20-F). |
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2.5
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Fourth Amendment and Consent dated as of May 1999 among Del Monte Fresh Produce (UK) Ltd.,
Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A., Inc.,
Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., the banks, financial institutions
and other institutional lenders a party to the Revolving Credit Agreement dated as of May 19,
1998 (incorporated by reference from Exhibit 2.1 to our 1999 Annual Report on Form 20-F filed
by Fresh Del Monte Produce Inc.) |
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2.6
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Fifth Amendment and Consent dated as of May 1999 among Del Monte Fresh Produce (UK) Ltd.,
Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A., Inc.,
Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., the Increasing Lenders therein and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch,
as agent for the other banks, financial institutions and other institutional lenders a party
to the Revolving Credit Agreement dated as of May 19, 1998 (incorporated by reference from
Exhibit 2.2 to our 1999 Annual Report on Form 20-F filed by Fresh Del Monte Produce Inc.) |
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2.7
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Sixth Amendment and Consent dated as of June 1999 among Del Monte Fresh Produce (UK) Ltd.,
Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A., Inc.,
Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., the Increasing Lenders therein and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch,
as agent for the other banks, financial institutions and other institutional lenders a party
to |
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the Revolving Credit Agreement dated as of May 19, 1998 (incorporated by reference from
Exhibit 2.3 to our 1999 Annual Report on Form 20-F filed by Fresh Del Monte Produce Inc.) |
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2.8
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Seventh Amendment and Consent dated as of July 1999 among Del Monte Fresh Produce (UK) Ltd.,
Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A., Inc.,
Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., the Increasing Lenders therein and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch,
as agent for the other banks, financial institutions and other institutional lenders a party
to the Revolving Credit Agreement dated as of May 19, 1998 (incorporated by reference from
Exhibit 2.4 to our 1999 Annual Report on Form 20-F filed by Fresh Del Monte Produce Inc.) |
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2.9
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Eighth Amendment dated as of October 29, 1999 among Fresh Produce (UK) Ltd., Wafer Limited,
Del Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A., Inc., Fresh Del
Monte Produce Inc., Global Reefer Carriers, Ltd., the banks, financial institutions and other
institutional lenders a party to the Revolving Credit Agreement dated as of May 19, 1998
(incorporated by reference from Exhibit 4.17 to our 2000 Annual Report on Form 20-F). |
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2.10
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Ninth Amendment and Consent dated as of May 10, 2000 among Del Monte Fresh Produce (UK) Ltd.,
Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A., Inc.,
Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., the banks, financial institutions
and other institutional lenders a party to the Revolving Credit Agreement dated as of May 19,
1998 (incorporated by reference from Exhibit 4.18 to our 2000 Annual Report on Form 20-F). |
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2.11
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Tenth Amendment and Consent dated as of September 25, 2000 among Del Monte Fresh Produce (UK)
Ltd., Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte Fresh Produce N.A.,
Inc., Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., banks, financial
institutions and other institutional lenders a party to the Revolving Credit Agreement dated
as of May 19, 1998 (incorporated by reference from Exhibit 4.19 to our 2000 Annual Report on
Form 20-F). |
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2.12
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Eleventh Amendment and Consent dated as of November 15, 2002 among Del Monte Fresh Produce
(UK) Ltd., Wafer Limited, Del Monte Fresh Produce International Inc., Del Monte Fresh Produce
N.A., Inc., Fresh Del Monte Produce Inc., Global Reefer Carriers, Ltd., banks, financial
institutions and other institutional lenders a party to the Revolving Credit Agreement dated
as of May 19, 1998. |
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4.1
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License Agreement, dated as of December 5, 1989, between Del Monte Corporation and Wafer
Limited (the DMC-Wafer License) (incorporated by reference from Exhibit 10.3 to our
Registration Statement on Form F-1 (File No. 333-7708)). |
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4.2
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License Agreement, dated as of December 5, 1989, between Del Monte Corporation and Del Monte
Tropical Fruit Company, North America (the NAJ License) (incorporated by reference from
Exhibit 10.4 to our Registration Statement on Form F-1 (File No. 333-7708)). |
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4.3
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License Agreement, dated as of December 5, 1989, between Del Monte Corporation and Del
Monte Fresh Fruit International, Inc. (incorporated by reference from Exhibit 10.5 to our
Registration Statement on Form F-1 (File No. 333-7708)). |
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4.4
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Amendment No. 1 to DMC-Wafer License, dated as of October 12, 1992, between Del Monte
Corporation and Wafer Limited (incorporated by reference from Exhibit 10.6 to our Registration
Statement on Form F-1 (File No. 333-7708)). |
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4.5
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Amendment No. 1 to NAJ License, dated as of October 12, 1992, between Del Monte Corporation
and Del Monte Fresh Produce N.A., Inc. (incorporated by reference from Exhibit 10.7 to our
Registration Statement on Form F-1 (File No. 333-7708)). |
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4.6
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Amendment No. 1 to Direct DMC-DMFFI License, dated as of October 12, 1992, between Del Monte
Corporation and Del Monte Fresh Produce International, Inc. (incorporated by reference from
Exhibit 10.8 to our Registration Statement on Form F-1 (File No. 333-7708)). |
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4.7
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Registration Rights Agreement dated as of October 15, 1997 by and between Fresh Del Monte and
FG Holdings Limited (incorporated by reference from Exhibit 10.9 to our Registration Statement
on Form F-1 (File No. 333-7708)). |
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4.8
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Strategic Alliance Agreement dated as of August 29, 1997 by and between the Registrant and
IAT |
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Group Inc. (incorporated by reference from Exhibit 10.10 to Registration Statement on Form
F-1 (File No. 333-7708) filed by Fresh Del Monte Produce Inc.) |
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4.9
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Fresh Del Monte Produce Inc. 1997 Share Incentive Plan (incorporated by reference to Exhibit
4.1 to the Companys Registration Statement on Form S-8 (File No. 333-7870)). |
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4.10
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Fresh Del Monte Produce Inc. Post-Effective Amendment No. 1 to Form S-8 (File No. 333-7870). |
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4.11
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Fresh Del Monte Produce Inc. 1999 Share Incentive Plan (incorporated by reference to Exhibit
4 to the Companys Registration Statement on Form S-8 (File No. 333-10400)). |
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4.12
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Amendment No. 1 to the Fresh Del Monte Produce Inc. 1999 Share Incentive Plan (incorporated
by reference to Exhibit 4 to the Companys Registration Statement on Form S-8 (File No.
333-87606). |
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4.13
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Standard Fruit and Vegetable Co., Inc. Stock Purchase Agreement, dated as of January 27,
2003, between Del Monte Fresh Produce N.A., Inc and Standard Fruit and Vegetable Co., Inc. et
al. (incorporated by reference from Exhibit 4.13 to our 2002 Annual Report on Form 20-F). |
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4.14
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Amended and Restated Credit Agreement dated as of March 21, 2003 by and among Fresh Del Monte
Produce Inc. and certain subsidiaries named herein, as borrowers, the lenders named herein, as
lenders, Harris Trust and Savings Bank,as syndication agent, Ing Capital LLC, as documentation
agent and Cooperatieve Centrale Raiffeisen-Bocrenleenbank B.A., Rabobank Nederland New York
Branch as administrative agent. (incorporated by reference as the exhibit to our first quarter
2002 report on form 6-K). |
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4.15
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First Amendment to Amended and Restated Credit Agreement Effective as of January 27, 2004.
(incorporated by reference from Exhibit 4.15 of our Annual Report on Form 20-F for the year
ended December 26, 2003). |
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4.16
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Second Amendment to Amended and Restated Credit Agreement Effective as of June 24, 2004.
(incorporated by reference from Exhibit 4.16 of our Annual Report on Form 20-F/A for the year
ended December 31, 2004). |
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4.17
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Third Amendment to Amended and Restated Credit Agreement dated as of November 9, 2004.
(incorporated by reference from Exhibit 4.17 of our Annual Report on Form 20-F/A for the year
ended December 31, 2004). |
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4.18
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Preliminary Sales snd Purchase Agreement dated between Cirio Del Monte N.V., Cirio Del Monte
Italia S.p.A. and Fresh Del Monte Produce N.V. dated July 15, 2004. (incorporated by reference
from Exhibit 4.18 of our Annual Report on Form 20-F/A for the year ended December 31, 2004). |
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4.19
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Fourth Amendment to Amended and Restated Credit Agreement dated as of June 15, 2005.* |
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4.20
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Fifth Amendment to Amended and Restated Credit Agreement dated as of February 14, 2006.* |
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8.1
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List of Subsidiaries.* |
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12.1
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Certification of Chief Executive Officer filed pursuant to 17 CFR 240.13a-14(a).* |
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12.2
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Certification of Chief Financial Officer filed pursuant to 17 CFR 240.13a-14(a).* |
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13.1
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Certification of Chief Executive Officer and Chief Financial Officer furnished pursuant to 17
CFR 240.13a-14(b) and 18 U.S.C. Section 1350.* |
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15.1
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Consent of Independent Registered Public Accounting Firm.* |
75
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant
hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly
caused and authorized this Annual Report on Form 20-F or amendments thereto to be signed on its
behalf by the undersigned.
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FRESH DEL MONTE PRODUCE INC.
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Date: March 6, 2006 |
By: |
/s/ HANI EL-NAFFY
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Hani El-Naffy |
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President and Chief Operating Officer |
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By: |
/s/ JOHN F. INSERRA
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John F. Inserra |
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Executive Vice President and
Chief Financial Officer |
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76
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Fresh Del Monte Produce Inc.
We have audited the accompanying consolidated balance sheets of Fresh Del Monte Produce Inc. (the
Company) and subsidiaries as of December 30, 2005 and December 31, 2004, and the related
consolidated statements of income, cash flows and shareholders equity for each of the years ended
December 30, 2005, December 31, 2004 and December 26, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated 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 30, 2005 and December 31, 2004, and the consolidated results of their
operations and their cash flows for each of the years ended December 30, 2005, December 31, 2004
and December 26, 2003, in conformity with United States generally accepted accounting principles.
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/s/ Ernst & Young LLP |
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Certified Public Accountants |
Miami, Florida
February 27, 2006
except for the second paragraph of Note 24,
as to which the date is March 3, 2006
F-1
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions, except share and per share data)
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December 30, |
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December 31, |
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2005 |
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2004 |
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As Restated |
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24.5 |
|
|
$ |
42.1 |
|
Trade accounts receivable, net of allowance of
$20.1 and $20.2, respectively |
|
|
288.9 |
|
|
|
276.0 |
|
Advances to growers and other receivables, net of
allowance of $20.4 and $20.7, respectively |
|
|
59.1 |
|
|
|
54.7 |
|
Inventories |
|
|
388.7 |
|
|
|
347.3 |
|
Deferred income taxes |
|
|
6.5 |
|
|
|
3.8 |
|
Prepaid expenses and other current assets |
|
|
56.1 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
823.8 |
|
|
|
742.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in and advances to unconsolidated companies |
|
|
13.8 |
|
|
|
15.5 |
|
Property, plant and equipment, net |
|
|
893.0 |
|
|
|
914.7 |
|
Deferred income taxes |
|
|
38.0 |
|
|
|
38.6 |
|
Other noncurrent assets |
|
|
106.9 |
|
|
|
103.4 |
|
Goodwill |
|
|
249.3 |
|
|
|
262.0 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,124.8 |
|
|
$ |
2,076.5 |
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
Liabilities and shareholders equity |
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|
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|
|
Current liabilities: |
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|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
371.1 |
|
|
$ |
398.3 |
|
Current portion of long-term debt and capital lease obligations |
|
|
11.7 |
|
|
|
15.8 |
|
Deferred income taxes |
|
|
16.1 |
|
|
|
14.1 |
|
Income taxes payable |
|
|
8.7 |
|
|
|
14.2 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
407.6 |
|
|
|
442.4 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations |
|
|
349.1 |
|
|
|
347.7 |
|
Retirement benefits |
|
|
95.7 |
|
|
|
96.0 |
|
Other noncurrent liabilities |
|
|
43.4 |
|
|
|
41.7 |
|
Deferred income taxes |
|
|
65.9 |
|
|
|
71.5 |
|
|
|
|
|
|
|
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Total liabilities |
|
|
961.7 |
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|
|
999.3 |
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|
|
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Minority interests |
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|
10.2 |
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8.0 |
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Commitments and contingencies |
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Shareholders equity: |
|
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|
Preferred shares, $0.01 par value; 50,000,000 shares
authorized; none issued or outstanding |
|
|
|
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|
Ordinary shares, $0.01 par value; 200,000,000 shares
authorized; 58,013,180 and 57,690,074 issued and outstanding |
|
|
0.6 |
|
|
|
0.6 |
|
Paid-in capital |
|
|
380.5 |
|
|
|
376.9 |
|
Retained earnings |
|
|
774.9 |
|
|
|
714.6 |
|
Accumulated other comprehensive loss |
|
|
(3.1 |
) |
|
|
(22.9 |
) |
|
|
|
|
|
|
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Total shareholders equity |
|
|
1,152.9 |
|
|
|
1,069.2 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,124.8 |
|
|
$ |
2,076.5 |
|
|
|
|
|
|
|
|
See accompanying notes.
F-2
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in millions, except share and per share data)
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Year ended |
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|
December 30, |
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|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net sales |
|
$ |
3,259.7 |
|
|
$ |
2,906.0 |
|
|
$ |
2,486.8 |
|
Cost of products sold |
|
|
2,948.2 |
|
|
|
2,641.3 |
|
|
|
2,158.6 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
311.5 |
|
|
|
264.7 |
|
|
|
328.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
190.9 |
|
|
|
131.0 |
|
|
|
107.8 |
|
Asset impairment charges |
|
|
3.1 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
117.5 |
|
|
|
128.3 |
|
|
|
220.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(17.1 |
) |
|
|
(9.0 |
) |
|
|
(7.3 |
) |
Interest income |
|
|
1.0 |
|
|
|
0.8 |
|
|
|
0.8 |
|
Other income (expense), net |
|
|
(3.1 |
) |
|
|
6.9 |
|
|
|
28.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
98.3 |
|
|
|
127.0 |
|
|
|
242.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes |
|
|
(8.3 |
) |
|
|
(12.2 |
) |
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
106.6 |
|
|
$ |
139.2 |
|
|
$ |
226.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income per ordinary share Basic |
|
$ |
1.84 |
|
|
$ |
2.42 |
|
|
$ |
4.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
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|
Net income per ordinary share Diluted |
|
$ |
1.84 |
|
|
$ |
2.41 |
|
|
$ |
3.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per ordinary share |
|
$ |
0.80 |
|
|
$ |
0.80 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
Weighted average number of ordinary shares: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
57,926,466 |
|
|
|
57,487,131 |
|
|
|
56,539,691 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
58,077,282 |
|
|
|
57,803,158 |
|
|
|
57,346,377 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
|
|
|
|
|
|
|
|
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|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
106.6 |
|
|
$ |
139.2 |
|
|
$ |
226.4 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
89.0 |
|
|
|
70.9 |
|
|
|
63.0 |
|
Asset impairment charges |
|
|
3.1 |
|
|
|
5.4 |
|
|
|
|
|
Reversal of accrual for tax contingency |
|
|
|
|
|
|
(18.0 |
) |
|
|
|
|
Gain on sale of equity investment |
|
|
|
|
|
|
|
|
|
|
(5.5 |
) |
Gain on sale of equipment |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
Equity in loss (income) of unconsolidated companies |
|
|
2.1 |
|
|
|
|
|
|
|
(1.2 |
) |
Deferred income taxes |
|
|
(3.7 |
) |
|
|
7.8 |
|
|
|
(1.1 |
) |
Other, net |
|
|
(14.7 |
) |
|
|
(1.4 |
) |
|
|
(7.0 |
) |
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(17.5 |
) |
|
|
(28.3 |
) |
|
|
(5.7 |
) |
Inventories |
|
|
(45.1 |
) |
|
|
(14.1 |
) |
|
|
(23.2 |
) |
Prepaid expenses and other current assets |
|
|
(0.6 |
) |
|
|
(6.5 |
) |
|
|
1.9 |
|
Accounts payable and accrued expenses |
|
|
(7.4 |
) |
|
|
(4.5 |
) |
|
|
18.4 |
|
Other noncurrent assets and liabilities |
|
|
(0.6 |
) |
|
|
6.5 |
|
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
110.0 |
|
|
|
157.0 |
|
|
|
264.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(81.1 |
) |
|
|
(94.0 |
) |
|
|
(58.1 |
) |
Proceeds from sale of equity investments |
|
|
|
|
|
|
|
|
|
|
12.8 |
|
Proceeds from sale of assets |
|
|
3.7 |
|
|
|
2.4 |
|
|
|
1.5 |
|
Purchase of subsidiaries, net of cash acquired |
|
|
(2.0 |
) |
|
|
(320.1 |
) |
|
|
(115.8 |
) |
Dividends received from unconsolidated subsidiaries |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.5 |
|
Other investing activities, net |
|
|
0.9 |
|
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(78.1 |
) |
|
|
(412.0 |
) |
|
|
(159.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
724.0 |
|
|
|
545.1 |
|
|
|
344.9 |
|
Payments on long-term debt |
|
|
(732.3 |
) |
|
|
(238.8 |
) |
|
|
(397.6 |
) |
Payments on debt of acquired subsidiary |
|
|
|
|
|
|
(24.0 |
) |
|
|
|
|
Proceeds from stock options exercised |
|
|
3.6 |
|
|
|
4.4 |
|
|
|
12.0 |
|
Payments of dividends |
|
|
(46.3 |
) |
|
|
(46.0 |
) |
|
|
(25.5 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(51.0 |
) |
|
|
240.7 |
|
|
|
(66.2 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
1.5 |
|
|
|
5.4 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(17.6 |
) |
|
|
(8.9 |
) |
|
|
41.5 |
|
Cash and cash equivalents, beginning |
|
|
42.1 |
|
|
|
51.0 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, ending |
|
$ |
24.5 |
|
|
$ |
42.1 |
|
|
$ |
51.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
14.9 |
|
|
$ |
4.2 |
|
|
$ |
4.4 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
3.0 |
|
|
$ |
7.9 |
|
|
$ |
17.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of assets under capital lease obligations |
|
$ |
6.1 |
|
|
$ |
7.2 |
|
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(U.S. dollars in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Ordinary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Shares |
|
|
Ordinary |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Shareholders |
|
|
|
Outstanding |
|
|
Shares |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
Balance at December 27, 2002 |
|
|
56,206,012 |
|
|
$ |
0.6 |
|
|
$ |
355.3 |
|
|
$ |
420.5 |
|
|
$ |
(16.9 |
) |
|
$ |
759.5 |
|
Exercises of stock options |
|
|
1,076,506 |
|
|
|
|
|
|
|
12.0 |
|
|
|
|
|
|
|
|
|
|
|
12.0 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.5 |
) |
|
|
|
|
|
|
(25.5 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226.4 |
|
|
|
|
|
|
|
226.4 |
|
Unrealized loss on
derivatives, net of
reclassification for losses
of $27.7 included in net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29.7 |
) |
|
|
(29.7 |
) |
Net foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
0.4 |
|
Additional minimum
pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196.2 |
|
|
|
|
Balance at December 26, 2003 |
|
|
57,282,518 |
|
|
|
0.6 |
|
|
|
367.3 |
|
|
|
621.4 |
|
|
|
(47.1 |
) |
|
|
942.2 |
|
Exercises of stock options |
|
|
407,556 |
|
|
|
|
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
Tax benefit on stock options |
|
|
|
|
|
|
|
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
5.2 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46.0 |
) |
|
|
|
|
|
|
(46.0 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139.2 |
|
|
|
|
|
|
|
139.2 |
|
Unrealized gain on
derivatives, net of
reclassification for losses
of $37.7 included in net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9 |
|
|
|
7.9 |
|
Net foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.7 |
|
|
|
16.7 |
|
Additional minimum
pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163.4 |
|
|
|
|
Balance at December 31, 2004 |
|
|
57,690,074 |
|
|
|
0.6 |
|
|
|
376.9 |
|
|
|
714.6 |
|
|
|
(22.9 |
) |
|
|
1,069.2 |
|
Exercises of stock options |
|
|
323,106 |
|
|
|
|
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
3.6 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46.3 |
) |
|
|
|
|
|
|
(46.3 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106.6 |
|
|
|
|
|
|
|
106.6 |
|
Unrealized gain on
derivatives, net of
reclassification for losses
of $3.1 included in net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61.9 |
|
|
|
61.9 |
|
Net foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41.6 |
) |
|
|
(41.6 |
) |
Additional minimum
pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126.4 |
|
|
|
|
Balance at December 30, 2005 |
|
|
58,013,180 |
|
|
$ |
0.6 |
|
|
$ |
380.5 |
|
|
$ |
774.9 |
|
|
$ |
(3.1 |
) |
|
$ |
1,152.9 |
|
|
|
|
See accompanying notes.
F-5
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 43.4% 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 8.5% of the outstanding ordinary shares of Fresh Del Monte.
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, which include bananas, pineapples, melons and non-tropical fruit (including grapes,
citrus, apples, pears, peaches, plums, nectarines, apricots and kiwi), plantains, Vidalia®
sweet onions, tomatoes, potatoes and various greens, primarily from Central, South and North
America and the Philippines. Fresh Del Monte also sources products from North America, Africa and
Europe and distributes its products in 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.
With the acquisition of Del Monte Foods Europe (Del Monte Foods) on October 1, 2004, Fresh Del
Monte became a vertically integrated producer, marketer and distributor of prepared fruit and
vegetables, juices, snacks and desserts and holds a perpetual, royalty-free license to use the Del
Monte®
brand for prepared and/or canned foods throughout Europe, Africa and the Middle East. See
note 4, Acquisitions.
2. Balance Sheet Restatement
As part of preparing for the upcoming internal control compliance deadline in 2006, Fresh Del
Monte performed a comprehensive review of its global deferred income tax reporting processes. In
performing this review, which culminated in the fourth quarter of 2005, Fresh Del Monte determined
that certain deferred tax assets and liabilities relating to the revaluation of assets and
liabilities from a prior acquisition were not recorded. Fresh Del Monte has concluded that there
was an immaterial effect on operating results and no effects on cash flows or working capital of
quarterly and annual reporting periods prior to and including 2005. However, Fresh Del Monte
determined that its consolidated balance sheet as of December 31, 2004 should be restated to
properly reflect the resulting deferred tax assets and liabilities and related effect on goodwill
as follows (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
|
As Reported |
|
|
As Restated |
|
Deferred income tax assets, noncurrent |
|
$ |
33.4 |
|
|
$ |
38.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
248.7 |
|
|
$ |
262.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,058.0 |
|
|
$ |
2,076.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities, noncurrent |
|
$ |
53.0 |
|
|
$ |
71.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
980.8 |
|
|
$ |
999.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,058.0 |
|
|
$ |
2,076.5 |
|
|
|
|
|
|
|
|
F-6
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Fresh Del Monte, its majority owned
subsidiaries, which Fresh Del Monte controls, and a consolidated variable interest entity (VIE).
Fresh Del Montes 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.
Use of Estimates
Preparation of the financial statements in conformity with United States of America generally
accepted accounting principles 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.
Trade Receivables and Concentrations of Credit Risk
Trade receivables are recognized on Fresh Del Montes accompanying consolidated balance sheets at
fair value. Fresh Del Monte performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and customers credit worthiness, as determined by its
review of their current credit information. Fresh Del Monte continuously monitors collections and
payments from its customers and maintains a provision for estimated credit losses based upon its
historical experience, specific customer collection issues that it has identified and reviews of
agings of trade receivables based on contractual terms. Fresh Del Monte generally does not
require collateral on trade accounts receivable. No single customers receivable balance is
considered to be large enough to pose a significant credit risk to Fresh Del Monte.
Inventories
Inventories are valued at the lower of cost or market. Cost is computed using the weighted average
cost method for fresh produce and the first-in first-out, actual cost or average cost methods for
raw materials and packaging supplies. Raw materials and packaging supplies inventory consists
primarily of agricultural supplies, containerboard, packaging materials and spare parts.
Growing Crops
Expenditures on pineapple, melon and non-tropical fruit growing crops are valued at the lower of
cost or market and are deferred and charged to cost of products sold when the related crop is
harvested and sold. The deferred growing costs consist primarily of land preparation, cultivation,
irrigation and fertilization costs. Expenditures related to banana crops are expensed in the year
incurred due to the continuous nature of the crop.
F-7
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Summary of Significant Accounting Policies (continued)
Investments in Unconsolidated Companies
Investments in unconsolidated companies are accounted for under the equity method of accounting for
investments of 20% or more in companies over which Fresh Del Monte does not have control except for
one variable interest entity. See note 6, Investments in Unconsolidated Companies and note 7,
Variable Interest Entity.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, which range from 10 to 40 years
for buildings, 5 to 20 years for ships and containers, 3 to 20 years for machinery and equipment, 3
to 7 years for furniture, fixtures and office equipment and 5 to 10 years for automotive equipment.
Leasehold improvements are amortized over the term of the lease, or the estimated useful life of
the related asset, whichever is shorter. When assets are retired or disposed of, the costs and
accumulated depreciation or amortization are removed from the respective accounts and any related
gain or loss is recognized. Maintenance and repairs are charged to expense as incurred.
Significant expenditures, which extend the useful lives of assets, are capitalized. Interest is
capitalized as part of the cost of construction. Costs related to land improvements for bananas,
pineapples and non-tropical fruit and other agricultural projects are deferred during the formative
stage and are amortized over the estimated life of the project.
Purchase Accounting
Fresh Del Monte allocates the purchase price of business combinations to the fair values of assets
it acquires based on appraisals from third parties as well as on certain internally generated
information. Fresh Del Monte estimates the economic lives of certain acquired assets and these
lives are used to calculate depreciation and amortization expense in periods subsequent to
acquisitions. Estimates are revised, if necessary, in subsequent periods not exceeding one year,
when pending information, if any, becomes available.
Goodwill
Fresh Del Montes goodwill represents the excess of the purchase price of business combinations
over the fair value of the net assets of acquired. Fresh Del Monte assesses goodwill for
impairment with the assistance of an independent valuation firm on an annual basis on the first day
of the fourth quarter of each fiscal year, or sooner if events indicate such a review is necessary.
Based on this valuation, Fresh Del Monte determined that no impairment of goodwill existed as of
October 1, 2005. As of December 30, 2005, Fresh Del Monte is not aware of any events or circumstances that
would cause it to adjust the recorded value of goodwill for impairment. Potential impairment
exists if the fair value of a reporting unit to which goodwill has been allocated is less than the
carrying value of the reporting unit. The amount of the impairment to recognize, if any, is
calculated as the amount by which the carrying value of the goodwill exceeds its implied value.
Future changes in the estimates used to conduct the impairment review, including revenue
projections, market values and changes in the discount rate used could cause the analysis to
indicate that Fresh Del Montes goodwill is impaired in subsequent periods and result in a
write-off of a portion or all of goodwill. The discount rate used is based on independently
calculated risks, Fresh Del Montes capital mix and an estimated market premium. The assumptions
used in estimating revenue projections are
F-8
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Summary of Significant Accounting Policies (continued)
consistent with those used for internal planning.
There are numerous uncertainties and inherent risks in conducting business, such as but not
limited to general economic conditions, actions of competitors, ability to manage growth, actions
of regulatory authorities, pending investigations and/or litigation, customer demand and risk
relating to international operations. Adverse effects from these risks may result in adjustments
to the carrying value of Fresh Del Montes assets and liabilities in the future including, but not
necessarily limited to, goodwill.
The 2005 fourth quarter impairment review indicated that, when compared to its carrying value,
although higher, the fair value of one of Fresh Del Montes components is highly sensitive to
differences between estimated and actual cash flows and changes in the related discount rate used
to evaluate the fair value of the component. Fresh Del Monte estimates that a 5% decrease in the
expected future cash flows of the component and a one-percentage point increase in the discount
rate used would have resulted in an approximate $10.5 million impairment loss related to this
component.
Long-Lived Assets
Fresh Del Monte reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If the
carrying amount of an asset exceeds the assets fair value, Fresh Del Monte measures and records an
impairment loss for the excess. An assets fair value is assessed by either determining the
expected future discounted cash flow of the asset or by independent appraisal. Fresh Del Montes
long-lived assets are primarily composed of property, plant and equipment and intangible assets
other than goodwill. Intangible assets other than goodwill are composed of both those that are
being amortized, including franchise and non-compete agreements, and an indefinite-life intangible
of a perpetual, royalty-free brand name license related to the acquisition of Del Monte Foods. See
note 4, Acquisitions. Prior to 2005, amortizable intangible assets also included banana
licenses. Such licenses were fully amortized as of December 30, 2005.
Fresh Del Monte recorded charges related to impairment of long-lived assets in both 2005 and 2004.
Based on the underutilization of a facility in North America related to the other fresh produce
segment and as a result of damages sustained from Hurricane Katrina at the New Orleans distribution
center, asset impairment charges of $3.1 million were recorded in 2005. Based on continued
operating losses and discontinued product lines in the United Kingdom, the United States and Brazil
related to the other fresh produce and banana categories, certain machinery and equipment was
written down to its estimated fair value. As a result, a charge of $5.4 million for impairment
of long-lived assets was recorded in 2004. Such charges are included under the caption Asset
impairment charges in the accompanying consolidated statements of income for the years ended
December 30, 2005 and December 31, 2004, respectively. The estimated fair value of the related
assets was based on either discounted future cash flows or appraisals from independent third
parties.
There are numerous uncertainties and inherent risks in conducting business, such as but not limited
to general economic conditions, actions of competitors, ability to manage growth, actions of
regulatory authorities, pending investigations and/or litigation, customer demand and risk relating
to international operations. Adverse effects from these risks may result in adjustments to the
carrying value of Fresh Del Montes assets and liabilities in the future including, but not
necessarily limited to, long-lived assets.
The 2005 fourth quarter review of Fresh Del Montes perpetual, royalty-free brand name
license indicated that,
F-9
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Summary of Significant Accounting Policies (continued)
when compared to its carrying value, although higher, its fair value is highly sensitive
to differences between estimated and actual cash flows and changes in the related discount rate
used to evaluate the fair value of this asset. Fresh Del Monte estimates that a 5% decrease in the
expected future cash flows of this indefinite-lived intangible asset and a one-percentage point
increase in the discount rate used would have resulted in an approximate $12.7 million impairment
loss related to this asset.
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, depreciation,
overhead, transportation and other distribution costs, including handling costs incurred to deliver
fresh produce or prepared products to customers.
Advertising and Promotional Costs
Fresh Del Monte expenses advertising and promotional costs as incurred. Advertising and
promotional costs, which are included in selling, general and administrative expenses, were $5.7
milllion, $1.3 million and $1.7 million in 2005, 2004 and 2003, respectively.
Debt Issuance Costs
Debt issuance costs relating to long-term debt are amortized over the term of the related debt
instrument using the straight-line method as the costs are primarily related to the revolving
credit facility and are included in other noncurrent assets. Debt issuance cost amortization,
which is included in interest expense, was $0.9 million, $1.0 million and $1.7 million, for 2005,
2004 and 2003, respectively.
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.
See note 2, Balance Sheet Restatement.
Fresh Del Monte recorded a $20.6 million net benefit in the 2004 third quarter, primarily due to
the reversal of tax contingency accruals net of changes in deferred tax assets for the settlement
of a U.S. federal income tax audit for the years 1997 through 2001. See note 13, Provision for
Income Taxes.
Environmental Remediation Liabilities
Losses associated with environmental remediation obligations are accrued when such losses are
probable and can be reasonably estimated. See note 19, Litigation.
F-10
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Summary of Significant Accounting Policies (continued)
Currency Translation
For Fresh Del Montes 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 monthly
using the average exchange rate for the respective month. The gains and losses resulting from the
changes in exchange rates from year-to-year are recorded as a component of accumulated other
comprehensive income or loss as currency translation adjustments.
For Fresh Del Montes operations where the functional currency is the U.S. dollar or where the
operations are located in highly inflationary countries, non-monetary balance sheet amounts are
translated at historical exchange rates. Other balance sheet amounts are translated at the
exchange rates in effect at the balance sheet date. Income statement accounts, excluding those
items of income and expenses that relate to non-monetary assets and liabilities, are translated at
the average exchange rate for the month. These remeasurement adjustments are included in the
determination of net income under the caption Other income (expense), net.
Other income (expense), net, in the accompanying consolidated statements of income includes a $2.6
million net loss and $9.3 million and $7.2 million in net gains on foreign exchange for 2005, 2004
and 2003, respectively. These amounts include the effect of foreign currency remeasurement,
realized foreign currency transaction gains and losses and changes in the value of foreign currency
denominated accounts receivable and accounts payable and related forward contracts.
Other Income (Expense), Net
In addition to foreign currency gains and losses, other income (expense), net, also consists of
equity in earnings of unconsolidated companies, gains and losses from sales of investments and
property, plant and equipment, gains from recoveries under insurance policies and other items of
non-operating income and expenses.
Stock-Based Compensation
Fresh Del Monte uses the intrinsic value method to account for employee stock options as
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and discloses information regarding the pro forma effect on net
income and earnings per share determined as if Fresh Del Monte had accounted for its employee stock
options under the fair value method prescribed by Statement of Financial Accounting Standards No.
(SFAS) 123, Accounting for Stock-Based Compensation. The fair values of the outstanding
options are estimated at the date of grant using the Black-Scholes option valuation model.
Although it is a widely-used model for estimating the fair value of stock options issued to
employees for the pro forma disclosures required by SFAS 123, the Black-Scholes option valuation
model was initially developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable and requires the input of highly subjective
assumptions, including the expected volatility of an entitys stock price. Because Fresh Del
Montes employee stock options have characteristics significantly different from those of traded
options, and because changes in the subjective assumptions can materially affect the fair value
estimate, in
F-11
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Summary of Significant Accounting Policies (continued)
managements opinion, the existing models do not necessarily provide a single measure of the
fair value of its employee stock options.
The weighted-average fair value of each option granted during 2005, 2004 and 2003 is estimated at
$11.26, $9.53 and $7.54, respectively, on the date of grant using the following assumptions in
2005, 2004 and 2003, respectively: dividend yield of 2.68%, 3.30% and 1.80%; expected volatility of
0.485, 0.545 and 0.531; risk free interest rate of 3.87%, 3.61% and 2.35%; and expected lives of
two to five years.
For purposes of pro forma disclosures, the estimated fair value of the options is assumed to be
amortized to expense over the options vesting period. The following information shows the effect
on net income and earnings per share as if Fresh Del Monte had accounted for stock options issued
to employees using the fair value method in 2005, 2004 and 2003 (U.S. dollars in millions, except
share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Reported net income |
|
$ |
106.6 |
|
|
$ |
139.2 |
|
|
$ |
226.4 |
|
Deduct: Stock-based compensation
expense under fair value method,
net of related tax effects |
|
|
(5.6 |
) |
|
|
(0.9 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
|
|
|
|
Net income, pro forma |
|
$ |
101.0 |
|
|
$ |
138.3 |
|
|
$ |
223.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per ordinary share, reported: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.84 |
|
|
$ |
2.42 |
|
|
$ |
4.00 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.84 |
|
|
$ |
2.41 |
|
|
$ |
3.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per ordinary share, pro forma: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.74 |
|
|
$ |
2.41 |
|
|
$ |
3.94 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.74 |
|
|
$ |
2.39 |
|
|
$ |
3.89 |
|
|
|
|
|
|
|
|
|
|
|
Because the exercise price of Fresh Del Montes employee stock options equaled the market
price of the underlying stock on the date of grant, no compensation expense was recorded for stock
options issued to employees during 2005, 2004 and 2003 in connection with the 1997 Plan and the
1999 Plan.
See note 17, Stock Based Compensation for more information.
Derivative Financial Instruments
Fresh Del Monte recognizes derivative financial instruments as either assets or liabilities on the
accompanying consolidated balance sheets at fair value and accounts for those derivative financial
instruments designated as hedging instruments 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 financial instrument be offset against the change in the fair value of the underlying
asset, liability, or firm commitment being hedged through earnings. A cash flow hedge requires
that the effective portion of the
F-12
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Summary of Significant Accounting Policies (continued)
change in the fair value of a derivative instrument be recognized in other comprehensive income, a
component of shareholders equity, and reclassified into earnings in the same period or periods
during which the hedged transaction affects earnings. The ineffective portion of a derivative
financial instruments change in fair value is immediately recognized in earnings. Terminations of
derivative financial instruments designated as hedges are immediately recognized in earnings.
Reclassifications
Certain amounts from 2004 and 2003 have been reclassified to conform to the 2005 presentation.
New Accounting Pronouncements
In November 2004, the FASB issued SFAS 151, Inventory Costs An Amendment of ARB No. 43, Chapter
4. SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and
spoilage should be expensed as incurred and not included in overhead. Further, SFAS 151 requires
that allocation of fixed and production facilities overhead to conversion costs should be based on
normal capacity of the production facilities. The provisions of SFAS 151 are effective for
inventory costs incurred during fiscal years beginning after June 15, 2005 which, for Fresh Del
Monte, is December 31, 2005. Fresh Del Monte does not expect that the adoption of SFAS 151 will
have a material impact on its results of operations, financial position or cash flows.
In December 2004, the Financial Accounting Standards Board issued SFAS 123R, Share Based Payment
(SFAS 123R). SFAS 123R is a revision to SFAS 123 and supersedes APB 25 and amends SFAS 95,
Statement of Cash Flows. This statement requires a public entity to expense the cost of employee
services received in exchange for an award of equity instruments. This statement also provides
guidance on valuing and expensing these awards, as well as disclosure requirements of these equity
arrangements. This statement is effective for public companies at the beginning of the first
annual period after December 15, 2005 which, for Fresh Del Monte, is December 31, 2005 (the first
day of its 2006 fiscal year). Fresh Del Monte will use the modified prospective transition method,
which requires that compensation cost be recognized in the financial statements for all awards
granted after the date of adoption as well as for existing awards for which the requisite service
has not been rendered as of the date of adoption and requires that prior periods not be restated.
SFAS 123R also requires an entity to calculate the pool of excess tax benefits available to absorb
tax deficiencies recognized subsequent to adopting FAS 123R (APIC Pool). Fresh Del Monte is
currently evaluating acceptable methods for calculating its APIC Pool but expects that the
implementation of this pronouncement will lower 2006 income before income taxes by approximately $4
million.
On March 29, 2005, the Staff of the SEC (Staff) issued Staff Accounting Bulletin No. 107,
Share-Based Payment (SAB 107). Although not altering any conclusions reached in SFAS 123R, SAB
107 provides the views of the Staff regarding the interaction between
SFAS 123R and certain SEC rules and regulations and, among other things, provides the Staffs views
regarding the valuation of share-based payment arrangements for public companies. Fresh Del Monte
intends to follow the interpretative guidance on share-based payment set forth in SAB 107 during
its adoption of SFAS 123R.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections a replacement
of APB Opinion No. 20 and FASB Statement No. 3. SFAS 154 changes the accounting for and
F-13
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Summary of Significant Accounting Policies (continued)
reporting of a change in accounting principle by requiring retrospective application of changes in
accounting principles to prior periods financial statements unless impracticable. SFAS 154 is
effective for accounting changes made in fiscal years beginning after December 15, 2005. Fresh Del
Monte does not expect that the adoption of SFAS 154 will have a material impact on its results of
operations, financial position or cash flows.
4. Acquisitions
2004 Acquisitions
Can-Am Trucking/RLN Leasing Acquisition
On August 11, 2004, Fresh Del Monte acquired Can-Am Express, Inc. and RLN Leasing, Inc. (collectively, Can-Am), a nationally-recognized refrigerated trucking operation based in Fargo,
North Dakota. With an owned fleet of 150 tractors and 200 trailers, and facilities in Fargo, North
Dakota; Denton, Texas; and Cincinnati, Ohio, Can-Am provides over-the-road trucking services.
Fresh Del Montes acquisition of Can-Am has enabled Fresh Del Monte to provide comprehensive
distribution services to its retail and foodservice customers. The total consideration paid in
connection with the Can-Am acquisition was $18.8 million.
The acquisition has been accounted for as a purchase and, accordingly, the purchase price was
allocated to the fair value of the assets acquired and liabilities assumed. The excess of the
purchase price over the fair value of the assets acquired and liabilities assumed amounted to $0.3
million, of which Fresh Del Monte estimates none is tax deductible.
Del Monte Foods Acquisition
On October 1, 2004, Fresh Del Monte acquired Del Monte Foods, including its operations in Europe,
Africa and the Middle East. Del Monte Foods is a vertically integrated producer, marketer and
distributor of prepared fruit and vegetables, juices, beverages, snacks and desserts and holds a
perpetual, royalty-free license to use the Del
Monte®
brand for prepared and/or canned foods in
more than 100 countries throughout Europe, Africa and the Middle East. Del Monte® is the leading
brand for canned fruit and pineapple in many Western European markets and is a leading brand in the
United Kingdom beverage market. Fresh Del Monte acquired Del Monte Foods for $339.6 million
financed through cash on hand and drawings under the Revolving Credit Facility. The purchase price
included $24.0
million of assumed debt. The acquisition included $6.9 million of transaction related expenses.
See note 14, Long-Term Debt and Capital Lease Obligations.
The acquisition has been accounted for as a purchase and, accordingly, the purchase
price was allocated to the fair value of assets acquired and liabilities assumed. The excess of
the purchase price over the fair value of the assets acquired and liabilities assumed amounted to
$72.6 million, none of which is tax deductible.
The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed at the dates of acquisitions during 2004 (U.S. dollars in millions):
F-14
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Acquisitions (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Del Monte |
|
|
|
|
|
|
Can-Am |
|
|
Foods |
|
|
Total |
|
Current assets |
|
$ |
3.8 |
|
|
$ |
194.8 |
|
|
$ |
198.6 |
|
Property and equipment |
|
|
7.5 |
|
|
|
122.9 |
|
|
|
130.4 |
|
Other noncurrent assets |
|
|
|
|
|
|
20.5 |
|
|
|
20.5 |
|
Identified intangibles |
|
|
8.4 |
|
|
|
81.7 |
|
|
|
90.1 |
|
Current liabilities |
|
|
(1.2 |
) |
|
|
(96.3 |
) |
|
|
(97.5 |
) |
Noncurrent liabilities |
|
|
|
|
|
|
(56.6 |
) |
|
|
(56.6 |
) |
|
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
18.5 |
|
|
|
267.0 |
|
|
|
285.5 |
|
Purchase price |
|
|
18.8 |
|
|
|
339.6 |
|
|
|
358.4 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
0.3 |
|
|
$ |
72.6 |
|
|
$ |
72.9 |
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Disclosures
The following unaudited pro forma information presents a summary of consolidated results of
operations for the year ended December 30, 2004 of Fresh Del Monte as if the Can-Am and Del Monte
Foods acquisitions had occurred as of December 27, 2003 (U.S. dollars in millions, except share and
per share data):
|
|
|
|
|
Net sales |
|
$ |
3,215.0 |
|
|
|
|
|
Net income |
|
$ |
113.2 |
|
|
|
|
|
Net income per ordinary share: |
|
|
|
|
Basic |
|
$ |
1.97 |
|
|
|
|
|
Diluted |
|
$ |
1.96 |
|
|
|
|
|
Weighted average number of ordinary shares: |
|
|
|
|
Basic |
|
|
57,487,131 |
|
|
|
|
|
Diluted |
|
|
57,803,158 |
|
|
|
|
|
The unaudited pro forma results have been prepared for comparison purposes only and do not
purport to represent what the actual results of operations would have been had the above
described acquisitions occurred on December 27, 2003 and may not be indicative of future results of
operations.
F-15
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Inventories
Inventories consisted of the following (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Finished goods |
|
$ |
177.5 |
|
|
$ |
150.4 |
|
Raw materials and packaging supplies |
|
|
101.4 |
|
|
|
96.6 |
|
Growing crops |
|
|
109.8 |
|
|
|
100.3 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
388.7 |
|
|
$ |
347.3 |
|
|
|
|
|
|
|
|
6. 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
$13.5 million and $14.8 million at December 30, 2005 and December 31, 2004, respectively. At
December 30, 2005 and December 31, 2004, net amounts receivable from unconsolidated companies
amounted to $0.6 million and $0.1 million, respectively.
Investments in unconsolidated companies consisted of the following at December 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
Ownership |
Company |
|
Business |
|
Interest |
Melones Del Pacifico, S.A.
|
|
Melon production
|
|
|
50 |
% |
Melones De Costa Rica, S.A. and Subsidiary
|
|
Melon production
|
|
|
50 |
% |
Hacienda Filadelfia, S.A.
|
|
Melon production
|
|
|
50 |
% |
Frutas de Parrita, S.A.
|
|
Melon production
|
|
|
50 |
% |
Harvest Produce Holdings, LLC, Texas
|
|
Potato Repacker
|
|
|
51 |
% |
Texas Specialty Produce Investors, LLC, Texas
|
|
Supplier of specialty produce and herbs
|
|
|
50 |
% |
Effective in the first quarter of 2004, Fresh Del Monte began the full consolidation of the
financial position and results of operations of Davao Agricultural Ventures Corporation, a
previously unconsolidated 40%-owned investment, as it was determined to be a variable interest
entity. See note 7, Variable Interest Entity.
Purchases from unconsolidated companies were $55.4 million, $54.7 million and $57.6 million for
2005, 2004 and 2003, respectively.
F-16
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Investments in Unconsolidated Companies (continued)
Combined financial data of unconsolidated companies is summarized as follows (U.S. dollars in
millions)(unaudited):
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Current assets |
|
$ |
12.8 |
|
|
$ |
16.5 |
|
Noncurrent assets |
|
|
22.0 |
|
|
|
19.7 |
|
Current liabilities |
|
|
(5.4 |
) |
|
|
(5.7 |
) |
Noncurrent liabilities |
|
|
(2.8 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
Net worth |
|
$ |
26.6 |
|
|
$ |
29.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net sales |
|
$ |
61.5 |
|
|
$ |
61.0 |
|
|
$ |
69.8 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
1.3 |
|
|
$ |
5.2 |
|
|
$ |
8.4 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(3.9 |
) |
|
$ |
(1.5 |
) |
|
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
Fresh Del Montes portion of earnings in unconsolidated companies amounted to a loss of $2.1
million, a loss of $0.1 million and income of $1.7 million in 2005, 2004 and 2003, respectively,
and is included in other income (expense), net. Dividends received from unconsolidated
subsidiaries amounted to $0.4 million, $0.1 million and $0.5 million in 2005, 2004 and 2003,
respectively.
7. Variable Interest Entity
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities (revised December 2003) (FIN 46R), which requires VIEs to be consolidated by their
primary beneficiaries. A primary beneficiary is the party that absorbs a majority of the entitys
expected losses or receives a majority of the entitys expected residual returns, or both, as a
result of ownership, contractual or other financial interests in the entity.
Upon adopting FIN 46R in the first quarter of 2004, Fresh Del Monte concluded that its investment
in Davao Agriculture Ventures Corporation (Davco) fit the definition of a VIE pursuant to FIN 46R
and began fully consolidating Davco. Davco is a Del Monte gold pineapple producer in the
Philippines that sells all of its pineapple to Fresh Del Monte and in which Fresh Del Monte has a
40% equity investment. At December 30, 2005 and December 31, 2004, Davco had approximately $1.2
million and $2.0 million, respectively, in long-term debt that is collateralized by its property,
plant and equipment, primarily composed of
buildings and machinery, various properties of the 60% majority equity investor and further
guaranteed by a $1.1 million standby letter of credit issued by Fresh Del Monte.
Although Fresh Del Monte is the minority owner of Davco, Fresh Del Monte and Davco have profit-
F-17
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Variable Interest Entities (continued)
sharing arrangements that result in Fresh Del Monte realizing 70% of Davcos profits. Based on the
criteria of FIN 46R, Davco is considered to be a VIE and Fresh Del Monte is the primary beneficiary
of Davcos expected residual returns. Although Fresh Del Monte is the primary beneficiary, the
creditors of Davco do not have recourse against Fresh Del Montes general credit.
At December 30, 2005, Davco had $6.3 million of current assets, primarily composed of cash and crop
inventory, $3.8 million of other assets, primarily composed of buildings and machinery, $1.3
million of payables and accruals, $1.2 million of long-term debt, of which $0.5 million is
classified as current, and $7.5 million in minority interest, currency translation losses and other
equity which are included in the accompanying consolidated balance sheet at December 30, 2005. At
December 31, 2004, Davco had $5.6 million of current assets, $4.3 million of other assets, $0.8
million of payables and accruals, $2.0 million of long-term debt and $7.1 million in minority
interest, currency translation losses and other equity which are included in the accompanying
consolidated balance sheet at December 31, 2004. For the year ended December 30, 2005, Davco has
results from its operations of $8.4 million of net sales, $1.0 million of gross profit and $0.3
million of net income included in the accompanying consolidated statements of income. For the year
ended December 31, 2004, Davco has results from its operations of $5.5 million of net sales, $0.7
million of gross profit and $0.2 million of net income included in the accompanying consolidated
statements of income.
8. Property, Plant and Equipment
Property, plant and equipment consisted of the following (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Land and land improvements |
|
$ |
309.3 |
|
|
$ |
301.1 |
|
Buildings and leasehold improvements |
|
|
287.7 |
|
|
|
291.7 |
|
Machinery and equipment |
|
|
310.1 |
|
|
|
304.7 |
|
Maritime equipment (including containers) |
|
|
251.4 |
|
|
|
252.2 |
|
Furniture, fixtures and office equipment |
|
|
103.5 |
|
|
|
84.9 |
|
Automotive equipment |
|
|
43.6 |
|
|
|
34.7 |
|
Construction-in-progress |
|
|
56.4 |
|
|
|
39.5 |
|
|
|
|
|
|
|
|
|
|
|
1,362.0 |
|
|
|
1,308.8 |
|
Less: accumulated depreciation and amortization |
|
|
(469.0 |
) |
|
|
(394.1 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
893.0 |
|
|
$ |
914.7 |
|
|
|
|
|
|
|
|
Depreciation and amortization expense on property, plant and equipment including assets
under capital leases, amounted to $81.5 million, $68.5 million and $58.9 million for 2005, 2004 and
2003, respectively.
Buildings, containers, machinery and equipment and automotive equipment under capital leases
totaled $68.8 million and $60.1 million at December 30, 2005 and December 31, 2004, respectively.
Accumulated amortization for assets under capital leases was $29.7 million and $20.2 million at
December 30, 2005 and December 31, 2004, respectively.
F-18
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Goodwill and Other Intangible Assets
The following table reflects the changes in the carrying amount of goodwill by operating segment
for the years ended December 30, 2005 and December 31, 2004 (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
|
|
|
|
|
Beginning |
|
|
Acquisitions |
|
|
and Other |
|
|
Ending |
|
Bananas |
|
$ |
38.9 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
38.9 |
|
Other fresh produce |
|
|
140.6 |
|
|
|
|
|
|
|
(2.3 |
) |
|
|
138.3 |
|
Other products and services |
|
|
11.0 |
|
|
|
|
|
|
|
(8.5 |
) |
|
|
2.5 |
|
Prepared food |
|
|
71.5 |
|
|
|
0.2 |
|
|
|
(2.1 |
) |
|
|
69.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
262.0 |
|
|
$ |
0.2 |
|
|
$ |
(12.9 |
) |
|
$ |
249.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2004 As Restated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
|
|
|
|
|
Beginning |
|
|
Acquisitions |
|
|
and Other |
|
|
Ending |
|
Bananas |
|
$ |
38.9 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
38.9 |
|
Other fresh produce |
|
|
140.8 |
|
|
|
|
|
|
|
(0.2 |
) |
|
|
140.6 |
|
Other products and services |
|
|
2.1 |
|
|
|
8.7 |
|
|
|
0.2 |
|
|
|
11.0 |
|
Prepared food |
|
|
|
|
|
|
71.9 |
|
|
|
(0.4 |
) |
|
|
71.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
181.8 |
|
|
$ |
80.6 |
|
|
$ |
(0.4 |
) |
|
$ |
262.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2005, Fresh Del Monte determined that certain deferred tax assets
and liabilities relating to the revaluation of assets and liabilities from a prior acquisition were
not recorded. As a result, Fresh Del Monte has restated its consolidated balance sheet as of
December 31, 2004 to properly reflect the resulting deferred tax assets and liabilities, including
the related effect on goodwill. See note 2, Restatement. The effect on goodwill was an increase
of $13.3 million, of which $4.5 million relates to the bananas and $8.8 million relates to the
other fresh produce. The beginning balances for bananas and other
fresh produce in the table above for the year ended December 31, 2004 have been restated from their
previously reported amounts of $34.4 million and 132.0 million, respectively, to reflect these
changes.
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, effective December 29, 2001,
Fresh Del Monte ceased amortizing goodwill but reviews goodwill for impairment on an annual basis
or sooner if indicators of impairment arise. During the fourth quarter of 2005, Fresh Del Monte
completed the annual impairment review of its goodwill with the assistance of an independent
valuation firm. Based on this valuation, Fresh Del Monte determined that no impairment of this
asset existed as of October 1, 2005 or 2004. As of December 30, 2005, Fresh Del Monte is not aware
of any items or events that would cause it to adjust the recorded value of its goodwill for
impairment. Future changes in the estimates used to conduct the impairment review, including
revenue projections or market values, could cause the analysis to indicate that Fresh Del Montes
goodwill is impaired in subsequent periods and result in a write-off of a portion or all of
goodwill.
F-19
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Goodwill and Other Intangible Assets (continued)
During 2005, Fresh Del Monte finalized the valuation of the net assets acquired related to the
Can-Am acquisition. See note 4, Acquisitions. Included in the assets acquired was a lease
franchise agreement that entitles Fresh Del Monte to substantial discounts and rebates on future
purchases of trucks, trailers and other trucking-related equipment. As a result of the valuation
of Can-Ams assets, performed by and independent valuation firm, $8.4 million of the purchase price
was allocated to the value of this agreement and was reclassified from the goodwill of other
products and services to amortizable intangible assets, included in the table above for the year
ended December 30, 2005 under the title Foreign Exchange and Other. This franchise agreement can
be renewed indefinitely for a nominal annual fee. Fresh Del Monte, however, is amortizing its
value over an estimated useful life of 15 years on the straight-line basis.
Amortizable intangible assets included in the accompanying consolidated balance sheet in other
noncurrent assets as of December 30, 2005 are related to a franchise agreement and non-compete
agreements. At December 31, 2004, amortizable intangible assets also included $3.7 million related
to banana licenses which were fully amortized during 2005. Amortization expense related to
amortizable intangible assets totaled $6.4 million, $6.1 million and $6.8 million for 2005, 2004
and 2003, respectively.
The following table reflects Fresh Del Montes intangible assets and related accumulated
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise |
|
|
Non-compete Agreements |
|
|
|
Agreement |
|
|
and others |
|
|
|
December 30, |
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2005 |
|
|
2004 |
|
Intangible assets, gross |
|
$ |
8.4 |
|
|
$ |
10.2 |
|
|
$ |
10.2 |
|
Accumulated amortization |
|
|
(0.8 |
) |
|
|
(6.5 |
) |
|
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
$ |
7.6 |
|
|
$ |
3.7 |
|
|
$ |
5.6 |
|
|
|
|
|
|
|
|
|
|
|
The estimated aggregate amortization expense for the five succeeding fiscal years is as
follows:
|
|
|
|
|
2006 |
|
$ |
1.5 |
|
2007 |
|
|
1.1 |
|
2008 |
|
|
0.7 |
|
2009 |
|
|
0.7 |
|
2010 |
|
|
0.7 |
|
The weighted average amortization periods for amortizable intangibles is 13.5 years for the
franchise agreement, two and one-half years for non-compete agreements and other intangibles and
five years for all amortizable intangibles.
On October 1, 2004, Fresh Del Monte acquired Del Monte Foods. Del Monte Foods is a vertically
integrated producer, marketer and distributor of prepared fruit and vegetables, juices, beverages,
snacks and desserts and holds a perpetual, royalty-free license to use the Del Monte® brand for
prepared and/or canned foods in more than 100 countries throughout Europe, Africa and the Middle
East. Other noncurrent
F-20
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Goodwill and Other Intangible Assets (continued)
assets in the accompanying consolidated balances sheet at December 30, 2005 and December 31, 2004
include an indefinite-lived intangible asset of $80.9 million, after currency translation effect,
and $81.7 million, respectively, related to this license. This indefinite-lived intangible asset
is not being amortized but is reviewed for impairment pursuant to Fresh Del Montes policy for
long-lived assets. See note 3, Summary of Significant Accounting Policies.
10. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
Currency |
|
Minimum |
|
|
|
|
Gain (Loss) on |
|
Translation |
|
Pension |
|
|
|
|
Derivatives |
|
Adjustment |
|
Liability |
|
Total |
Balance at December 27, 2002
|
|
$ |
(5.1 |
) |
|
$ |
(10.6 |
) |
|
$ |
(1.2 |
) |
|
$ |
(16.9 |
) |
Current year net change in other comprehensive income (loss)
|
|
|
(29.7 |
) |
|
|
0.4 |
|
|
|
(0.9 |
) |
|
|
(30.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 26, 2003
|
|
|
(34.8 |
) |
|
|
(10.2 |
) |
|
|
(2.1 |
) |
|
|
(47.1 |
) |
Current year net change in other comprehensive income (loss)
|
|
|
7.9 |
|
|
|
16.7 |
|
|
|
(0.4 |
) |
|
|
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
(26.9 |
) |
|
|
6.5 |
|
|
|
(2.5 |
) |
|
|
(22.9 |
) |
Current year net change in other comprehensive income (loss)
|
|
|
61.9 |
|
|
|
(41.6 |
) |
|
|
(0.5 |
) |
|
|
19.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2005
|
|
$ |
35.0 |
|
|
$ |
(35.1 |
) |
|
$ |
(3.0 |
) |
|
$ |
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Other Income (Expense), Net
In addition to the items of other income and expenses discussed in the accompanying notes to the
consolidated financial statements, other income (expense), net, in the accompanying consolidated
statements of income for the year ended December 26, 2003 also includes an insurance recovery under
Fresh Del Montes business interruption policy of $11.5 million in the first quarter of 2003
related to damage sustained in 1998 by Fresh Del Montes Guatemalan banana operations that were
damaged as a result of Hurricane Mitch.
F-21
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Trade and other payables |
|
$ |
153.4 |
|
|
$ |
193.2 |
|
Accrued fruit purchases |
|
|
39.0 |
|
|
|
26.5 |
|
Vessel and port operating expenses |
|
|
27.3 |
|
|
|
14.8 |
|
Payroll and employee benefits |
|
|
26.2 |
|
|
|
24.4 |
|
Accrued promotions |
|
|
13.9 |
|
|
|
14.4 |
|
Forward contracts |
|
|
|
|
|
|
30.4 |
|
Other accrued expenses |
|
|
111.3 |
|
|
|
94.6 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
371.1 |
|
|
$ |
398.3 |
|
|
|
|
|
|
|
|
Other accrued expenses is primarily composed of accruals for inland freight costs incurred,
purchases received but not invoiced and other accruals, none of which individually exceeds 5% of
current liabilities.
13. Provision for Income Taxes
The (benefit from) provision for income taxes consisted of the following (U.S. dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal income tax |
|
$ |
(0.5 |
) |
|
$ |
(34.5 |
) |
|
$ |
6.6 |
|
State |
|
|
0.2 |
|
|
|
(1.1 |
) |
|
|
1.1 |
|
Non-U.S. |
|
|
(0.8 |
) |
|
|
5.3 |
|
|
|
9.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
(30.3 |
) |
|
|
17.3 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal income tax |
|
|
(6.3 |
) |
|
|
13.5 |
|
|
|
|
|
State |
|
|
(0.7 |
) |
|
|
2.5 |
|
|
|
|
|
Non-U.S. |
|
|
(0.2 |
) |
|
|
2.1 |
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.2 |
) |
|
|
18.1 |
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes |
|
$ |
(8.3 |
) |
|
$ |
(12.2 |
) |
|
$ |
15.9 |
|
|
|
|
|
|
|
|
|
|
|
The current tax benefit in the year ended December 31, 2004 includes a $20.6 million net
benefit recorded in the 2004 third quarter, primarily due to the reversal of tax contingency
accruals net of changes in deferred tax assets for the settlement of a U.S. federal income tax
audit for the years 1997 through 2001.
Total income tax payments during 2005, 2004 and 2003 were $3.0 million, $7.9 million and $17.3
million, respectively.
F-22
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Provision for Income Taxes (continued)
Income before income taxes consisted of the following (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
United States |
|
$ |
(35.2 |
) |
|
$ |
2.5 |
|
|
$ |
17.0 |
|
Non-U.S. |
|
|
133.5 |
|
|
|
124.5 |
|
|
|
225.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
98.3 |
|
|
$ |
127.0 |
|
|
$ |
242.3 |
|
|
|
|
|
|
|
|
|
|
|
The differences between the reported (benefit from) 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 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Income tax provision computed at U.S.
statutory federal rate |
|
$ |
34.4 |
|
|
$ |
44.4 |
|
|
$ |
84.8 |
|
Effect of tax rates on non-U.S. operations |
|
|
(102.6 |
) |
|
|
(87.3 |
) |
|
|
(65.8 |
) |
Provision for (reversal of) accruals for tax
contingencies |
|
|
(3.1 |
) |
|
|
(16.9 |
) |
|
|
1.0 |
|
Net operating losses utilized in settlement of
U.S. federal income tax audit |
|
|
|
|
|
|
10.0 |
|
|
|
|
|
Non-taxable differences |
|
|
(6.2 |
) |
|
|
(4.4 |
) |
|
|
(1.3 |
) |
Increase (decrease) in valuation allowance |
|
|
72.2 |
|
|
|
42.4 |
|
|
|
(5.4 |
) |
Other |
|
|
(3.0 |
) |
|
|
(0.4 |
) |
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
Reported (benefit from) provision for income taxes |
|
$ |
(8.3 |
) |
|
$ |
(12.2 |
) |
|
$ |
15.9 |
|
|
|
|
|
|
|
|
|
|
|
F-23
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Provision for Income Taxes (continued
Deferred income tax assets and liabilities consisted of the following (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Deferred tax liabilitites: |
|
|
|
|
|
As Restated |
Current: |
|
|
|
|
|
|
|
|
Inventories |
|
$ |
(16.1 |
) |
|
$ |
(14.1 |
) |
|
|
|
|
|
|
|
Total current deferred tax liabilities |
|
|
(16.1 |
) |
|
|
(14.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(62.8 |
) |
|
|
(67.6 |
) |
Equity in earnings in unconsolidated companies |
|
|
(3.1 |
) |
|
|
(3.9 |
) |
|
|
|
|
|
|
|
Total noncurrent deferred tax liabilities |
|
|
(65.9 |
) |
|
|
(71.5 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(82.0 |
) |
|
|
(85.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
Allowances and other accrued liabilities |
|
|
6.5 |
|
|
|
4.7 |
|
Valuation allowance |
|
|
|
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
Total current deferred tax assets, net |
|
|
6.5 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent: |
|
|
|
|
|
|
|
|
Pension liability |
|
|
16.9 |
|
|
|
17.6 |
|
Post-retirement benefits other than pensions |
|
|
9.1 |
|
|
|
7.9 |
|
Net operating loss carryforwards |
|
|
161.8 |
|
|
|
119.9 |
|
Capital loss carryforward |
|
|
28.3 |
|
|
|
|
|
Other, net |
|
|
19.8 |
|
|
|
18.0 |
|
|
|
|
|
|
|
|
Total noncurrent deferred tax assets |
|
|
235.9 |
|
|
|
163.4 |
|
Valuation allowance |
|
|
(197.9 |
) |
|
|
(124.8 |
) |
|
|
|
|
|
|
|
Total noncurrent deferred tax assets, net |
|
|
38.0 |
|
|
|
38.6 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
44.5 |
|
|
|
42.4 |
|
|
|
|
|
|
|
|
Deferred tax liability, net |
|
$ |
(37.5 |
) |
|
$ |
(43.2 |
) |
|
|
|
|
|
|
|
As part of preparing for the upcoming internal control compliance deadline in 2006, Fresh Del Monte
performed a comprehensive review of its deferred income tax reporting processes which culminated in
the fourth quarter of 2005. In performing this review, Fresh Del Monte determined that certain
deferred tax assets and liabilities relating to the revaluation of assets and liabilities from a
prior acquisition were not recorded. As a result, Fresh Del Monte has restated its consolidated
balance sheet as of December 31, 2004 to properly reflect the resulting deferred tax assets and
liabilities. See note 2, Restatement. This had the effect of increasing the previously reported
amounts of noncurrent deferred tax liabilities by $18.5 million and of noncurrent deferred tax
assets by $5.2 million at December 31, 2004.
The valuation allowance established with respect to the deferred tax assets relates primarily to
the Kunia
F-24
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Provision for Income Taxes (continued)
Well Site accrual and net operating loss carryforwards in tax jurisdictions where, due to Fresh Del
Montes current and foreseeable operations, it is deemed more likely than not, future taxable
income will not be sufficient to realize the related income tax benefits. During 2005 and 2004,
the valuation allowance increased by $72.2 million and $94.5 million, respectively. The increase
in the valuation allowance in 2005 relates primarily to valuation allowances on portions of net
operating loss carryforwards generated during the year and a capital loss carryforward. The
increase in the valuation allowance in 2004 includes $42.8 million as a result of the acquisition
of Del Monte Foods. As part of the acquisition, Fresh Del Monte acquired a significant amount of
future possible income tax benefits, primarily composed of net operating loss carryforwards. As of
December 30, 2005, $34.7 million of the valuation allowance for deferred tax assets relates to
acquired net operating loss carryforwards of Del Monte Foods. The majority of the amounts of and
benefits from net operating losses carried forward, from Del Monte Foods, may be impacted and/or
limited in certain circumstances. The majority of these impaired and/or limited losses relate to
the United Kingdom. Events which may cause limitations in the amounts of net operating losses that
Del Monte Foods may utilize in any one year include, but are not limited to, a deemed change in
operation and/or ownership. Future reduction of this valuation allowance as the result of the
recognition of these acquired income tax benefits by Fresh Del Monte, if any, would be allocated to
reduce the related goodwill created in the acquisition of Del Monte Foods.
Except for earnings that are currently distributed, no additional provision has been made for U.S.
or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred
tax liabilities for temporary differences related to basis differences in investments in
subsidiaries, as such earnings are expected to be permanently reinvested, the investments are
essentially permanent in duration, or Fresh Del Monte has concluded that no additional tax
liability will arise as a result of the distribution of such earnings. A liability could arise if
amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It
is not practicable to estimate the additional income taxes related to permanently reinvested
earnings or the basis differences related to investments in subsidiaries.
In addition to the effects of the net operating loss carryforwards described above, we recorded a
$7.4 million net deferred tax liability as a result of the Del Monte Foods acquisition. The net
deferred tax liability is comprised of deferred tax assets and liabilities due to differences
between assigned values and tax bases of assets acquired and liabilities assumed. These
differences primarily related to higher assigned book values of property, plant and equipment in
the acquisition than their corresponding carrying values for tax purposes and accrued pension
liabilities assumed in the acquisition, which are not deductible for tax purposes until paid. The
net deferred tax liability was recorded with a corresponding increase to goodwill.
At December 30, 2005, Fresh Del Monte had approximately $578.5 million of tax operating loss
carryforwards expiring as follows (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
$ |
0.5 |
|
2007 |
|
|
|
|
|
|
4.7 |
|
2008 |
|
|
|
|
|
|
7.5 |
|
2009 and beyond |
|
|
|
|
|
|
91.0 |
|
No expiration |
|
|
|
|
|
|
474.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
578.5 |
|
|
|
|
|
|
|
|
|
F-25
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Provision for Income Taxes (continued)
At December 30, 2005, Fresh Del Monte had $15.9 million of additional net operating loss
carryforwards for U.S. tax purposes resulting from stock option exercises in 2004 and 2005 which
have expiration dates beginning in 2023.
During 2004, Fresh Del Monte recognized tax benefits related to the exercise of employee stock
options in prior years in the amount of $5.2 million. These benefits were recorded as increases to
additional paid-in capital.
Fresh Del Monte is currently undergoing tax audits in several jurisdictions for certain years prior
to 2002. The accruals for the audits are included in other noncurrent liabilities in the
accompanying balance sheets at December 30, 2005 and December 31, 2004. Fresh Del Monte believes
the amounts accrued as of December 30, 2005 are sufficient to cover the estimated costs to resolve
these tax assessments. The amounts accrued represent Fresh Del Montes best estimates. Actual
amounts may be different which may result in an additional accrual or reversal of amounts
previously accrued. At December 30, 2005 and December 31, 2004, there was $12.2 million and $15.3
million, respectively, included in other noncurrent liabilities in the accompanying consolidated
balance sheets related to tax contingency accruals.
14. Long-Term Debt and Capital Lease Obligations
The following is a summary of long term-debt and capital lease obligations (U.S. dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
$600.0 million five-year syndicated bank loan (see Revolving
Credit Facility below) due November 2009 |
|
$ |
330.1 |
|
|
$ |
322.7 |
|
Term note bearing interest at LIBOR plus 1.25%, set quarterly
(5.08% at December 30, 2005), payable in quarterly
installments of principal and interest maturing from January
2003 to March 2006, secured by a mortgage on one of
Fresh Del Montes vessels |
|
|
0.3 |
|
|
|
1.3 |
|
Term notes bearing interest at 7.14%, payable in quarterly
installments of principal and interest maturing January
2005, secured by mortgages on two of Fresh Del Montes
vessels |
|
|
|
|
|
|
6.9 |
|
Various other notes payable |
|
|
8.2 |
|
|
|
8.4 |
|
Capital lease obligations |
|
|
22.2 |
|
|
|
24.2 |
|
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations |
|
|
360.8 |
|
|
|
363.5 |
|
Less: Current portion |
|
|
(11.7 |
) |
|
|
(15.8 |
) |
|
|
|
|
|
|
|
Long-term debt and capital lease obligations |
|
$ |
349.1 |
|
|
$ |
347.7 |
|
|
|
|
|
|
|
|
F-26
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Long-Term Debt and Capital Lease Obligations (continued)
Revolving Credit Facility
On March 21, 2003, Fresh Del Monte, and certain wholly-owned subsidiaries entered into a $400.0
million, four-year syndicated revolving credit facility (Revolving Credit Facility), with
Rabobank Nederland, New York Branch, as administrative agent. On November 9, 2004, the Revolving
Credit Facility was amended to increase the total commitment to $600.0 million, to add a term loan
commitment of up to $400.0 million, to extend its maturity to November 10, 2009 and to increase the
letter of credit facility to $100.0 million.
The Revolving Credit Facility is collateralized directly or indirectly by substantially all of
Fresh Del Montes assets and is guaranteed by certain of Fresh Del Montes subsidiaries. The
Revolving Credit Facility permits borrowings with an interest rate, determined by Fresh Del Montes
leverage ratio, based on a spread over London Interbank Offer Rate (LIBOR) (5.37% at December 30,
2005). At December 30, 2005 and December 31, 2004, $330.1 million and $322.7 million,
respectively, were outstanding under the Revolving Credit Facility.
The Revolving Credit Facility requires Fresh Del Monte to be in compliance with various financial
and other covenants and limits the amount of future dividends. As of December 30, 2005, Fresh Del
Monte was in compliance with all of the financial and other covenants contained in the Revolving
Credit Facility.
At December 30, 2005 and December 31, 2004, Fresh Del Monte had $243.8 million and $247.4 million,
respectively, available under committed working capital facilities, primarily all of which is
represented by the Revolving Credit Facility. The Revolving Credit Facility also includes a swing
line facility and a letter of credit facility. At December 30, 2005 and December 31, 2004, Fresh
Del Monte applied $27.9 million and $29.9 million, respectively, to the letter of credit facility,
primarily related to Del Monte Foods , which requires Fresh Del Monte to guarantee certain
contingent obligations under the purchase agreement.
Maturities of long-term debt and capital lease obligations during the next five years are (U.S.
dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term |
|
|
Capital |
|
|
|
|
|
|
Debt |
|
|
Leases |
|
|
Totals |
|
2006 |
|
$ |
2.0 |
|
|
$ |
10.7 |
|
|
$ |
12.7 |
|
2007 |
|
|
1.8 |
|
|
|
5.9 |
|
|
|
7.7 |
|
2008 |
|
|
1.6 |
|
|
|
3.8 |
|
|
|
5.4 |
|
2009 |
|
|
331.5 |
|
|
|
3.0 |
|
|
|
334.5 |
|
2010 |
|
|
1.4 |
|
|
|
0.5 |
|
|
|
1.9 |
|
Thereafter |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338.6 |
|
|
|
24.0 |
|
|
|
362.6 |
|
Less
: Representing
interest |
|
|
|
|
|
|
(1.8 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
338.6 |
|
|
|
22.2 |
|
|
|
360.8 |
|
Less
: Current portion |
|
|
(2.0 |
) |
|
|
(9.7 |
) |
|
|
(11.7 |
) |
|
|
|
|
|
|
|
|
|
|
Totals, net of
current portion |
|
$ |
336.6 |
|
|
$ |
12.5 |
|
|
$ |
349.1 |
|
|
|
|
|
|
|
|
|
|
|
F-27
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Long-Term Debt and Capital Lease Obligations (continued)
Cash payments of interest on long-term debt, net of amounts capitalized, were $14.9 million, $4.2
million and $4.4 million for 2005, 2004 and 2003, respectively.
15. Net Income Per Ordinary Share
Basic and diluted net income per ordinary share is calculated as follows (U.S. dollars in millions,
except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
106.6 |
|
|
$ |
139.2 |
|
|
$ |
226.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares Basic |
|
|
57,926,466 |
|
|
|
57,487,131 |
|
|
|
56,539,691 |
|
Effect of dilutive securities employee stock options |
|
|
150,816 |
|
|
|
316,027 |
|
|
|
806,686 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares Diluted |
|
|
58,077,282 |
|
|
|
57,803,158 |
|
|
|
57,346,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per ordinary share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.84 |
|
|
$ |
2.42 |
|
|
$ |
4.00 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.84 |
|
|
$ |
2.41 |
|
|
$ |
3.95 |
|
|
|
|
|
|
|
|
|
|
|
Because there was a net loss in the fourth quarter of 2005, the calculation of diluted earnings per
share is anti-dilutive and, therefore, in the fourth quarter of 2005, basic and diluted net loss
per share are equal. There were no antidilutive options for any part of 2004 and 2003.
F-28
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Retirement and Other Employee Benefits
U.S. Based Defined Benefit Pension Plans
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 Montes 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.
Fresh Del Montes pension plan weighted average asset allocation by asset category based on fair
value, is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Equity securities |
|
|
64 |
% |
|
|
63 |
% |
Debt securities |
|
|
33 |
% |
|
|
35 |
% |
Cash and cash equivalents |
|
|
3 |
% |
|
|
2 |
% |
The target asset allocation, according to the plans investment policy, is 40%-65% for equity
securities, 20%-55% for debt securities and 0%-45% for other investments. Performance benchmarks for each asset class are as follows: S&P 500
for equities, the regional MSCI index for international equities, and the Merrill Lynch
Intermediate Government/Corporate Index for fixed income securities. Investment performance is
evaluated annually. The actual returns on plan assets for 2005 and 2004 were 3.3% and 9.0%,
respectively.
Within the equity portfolio, investments are diversified among capitalization and style. Up to 25%
of the equity portfolio may be invested in financial markets outside of the United States. In
order to minimize equity risk, limitations are placed on the overall amount that can be invested in
one stock. No more than 5% of the fund at cost may be invested in any one stock and no more than
20% may be invested in any one industry. In addition, investments shall not exceed more than 1% of
Fresh Del Montes outstanding stock. No more than 10% of the portfolio may be invested in one debt
issue. These limits do not apply to issues of governmental agencies. Debt securities must have a
minimum credit rating of Baa or above with an overall portfolio average quality of A.
Fresh Del Monte funds all pension plans in amounts consistent with applicable laws and regulations.
Fresh Del Monte expects to contribute approximately $1.9 million to its pension plans in 2006.
Benefit payments under the pension plans over the next 10 years are expected to total $10.6 million
and average approximately $1.0 million per year. The accumulated benefit obligation for the
defined benefit pension plans was $19.4 million and $18.3 million at December 30, 2005 and December
31, 2004, respectively.
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 Montes defined benefit
pension plans consisted of the following:
F-29
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Retirement and Other Employee Benefits (continued)
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Weighted average discount rate |
|
|
5.50% - 5.75 |
% |
|
|
5.00% - 5.75 |
% |
Rate of increase in compensation levels |
|
|
3.50 |
% |
|
|
3.50 |
% |
Expected long-term return on assets |
|
|
7.50 |
% |
|
|
7.50 |
% |
As a result of the decline in value of plan assets and lower interest rates utilized in discounting
liabilities, Fresh Del Monte recorded, in accordance with SFAS 87, Employers Accounting for
Pensions, an additional minimum pension liability as Retirement benefits in the accompanying
consolidated balance sheets at December 30, 2005 and December 31, 2004, which resulted in a charge
directly to shareholders equity of $1.0 million in 2005 and $0.4 million in 2004.
U.S. Based Post-Retirement Healthcare Plan
Fresh Del Monte provides contributory healthcare 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. Fresh Del Monte funds claims under the plan as they are incurred, and accordingly, the
plan has no assets.
On November 21, 2003 Fresh Del Monte announced to all eligible employees that it had suspended the
postretirement medical program for employees retiring on or after January 1, 2004. The plan would
continue for employees currently participating in the plan or those who retired prior to January 1,
2004 and had 15 years of service and were above the age of 60. As a result of this change in the
post-retiree benefits medical plan, Fresh Del Monte recognized a curtailment gain of $4.5 million
in 2003. Of the total gain, $2.9 million was recorded as a reduction of selling, general and
administrative expenses and $1.6 million as a reduction of cost of products sold.
In May 2004, the FASB issued SFAS 106-2, providing final guidance on accounting for the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act). Fresh Del Monte adopted
the provisions of FAS 106-2 during the year ended December 31, 2004 and recognized the effects of
the federal subsidy provided by the Act in measuring its net periodic postretirement benefit cost
for the year. This resulted in a reduction in Fresh Del Montes accumulated postretirement benefit
obligation for the subsidy related to benefits attributable to past service of $1.4 million. There
was an immaterial effect on net periodic postretirement benefit cost as the result of the Act
because Fresh Del Monte suspended its postretirement medical program for employees not retired by
January 1, 2004. Fresh Del Monte expects to receive subsidy payments beginning in the 2006 fiscal
year.
Benefit payments under the other postretirement benefit plan over the next 10 years are expected to
total $11.8 million and average approximately $1.1 million per year.
The weighted average discount rate used in determining the accumulated benefit obligation for
postretirement pension benefit obligation was 5.50% and 5.75% at December 30, 2005 and December 31,
F-30
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Retirement and Other Employee Benefits (continued)
2004, respectively. For measuring the liability as of December 30, 2005, a 9.00% and 10.25% annual
rate of increase in pre-Medicare and post-Medicare real medical inflation, respectively, was
assumed. This annual inflation rate was assumed to be declining gradually to 5.0% by the year 2013
for both pre-Medicare and post-Medicare.
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 $2.7 million as of December 30, 2005 and the total of service cost plus interest cost
by $0.2 million for 2005. In addition, decreasing the trend rate by 1% would decrease the
accumulated postretirement benefit obligation by $2.3 million as of December 30, 2005 and the total
of the service cost plus interest cost by $0.2 million for 2005.
The following table sets forth a reconciliation of benefit obligations, plan assets and funded
status for Fresh Del Montes U.S. based defined benefit pension plans and post retirement pension
plan as of November 30, 2005 and December 31, 2004, which are also their measurement dates. There
was an immaterial impact on the funded status of these plans by the use of a November 30, 2005
measurement date (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
Postretirement Plan |
|
|
|
November 30, |
|
|
December 31, |
|
|
November 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Change in Benefit
Obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning benefit obligation |
|
$ |
19.9 |
|
|
$ |
18.7 |
|
|
$ |
18.5 |
|
|
$ |
18.8 |
|
Service cost |
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Interest cost |
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Actuarial (gain) loss |
|
|
(0.2 |
) |
|
|
0.4 |
|
|
|
0.8 |
|
|
|
(1.0 |
) |
Benefits paid |
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
(0.2 |
) |
|
|
(0.6 |
) |
Amendments and other |
|
|
(0.3 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending benefit obligation |
|
|
20.2 |
|
|
|
19.9 |
|
|
|
20.3 |
|
|
|
18.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value |
|
|
12.0 |
|
|
|
11.5 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
|
0.3 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
Company and employee contributions |
|
|
0.5 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.6 |
|
Benefits paid |
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
(0.2 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending fair value |
|
|
12.0 |
|
|
|
12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Accruals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
|
(8.2 |
) |
|
|
(7.9 |
) |
|
|
(20.3 |
) |
|
|
(18.5 |
) |
Unrecognized (gain) loss |
|
|
4.3 |
|
|
|
4.1 |
|
|
|
(0.2 |
) |
|
|
(1.0 |
) |
Additional minimum liability |
|
|
(3.5 |
) |
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit costs |
|
$ |
(7.4 |
) |
|
$ |
(6.3 |
) |
|
$ |
(20.5 |
) |
|
$ |
(19.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Retirement and Other Employee Benefits (continued)
The following table sets forth the net periodic pension cost of Fresh Del Montes defined benefit
pension plans for 2005, 2004 and 2003 (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
Postretirement Plan |
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Service cost |
|
$ |
0.5 |
|
|
$ |
0.4 |
|
|
$ |
0.4 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
1.0 |
|
Interest cost |
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
1.6 |
|
Curtailment gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.5 |
) |
Expected return on assets |
|
|
(0.9 |
) |
|
|
(0.9 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic costs |
|
$ |
0.8 |
|
|
$ |
0.7 |
|
|
$ |
0.5 |
|
|
$ |
1.2 |
|
|
$ |
1.3 |
|
|
$ |
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Del Monte Foods
Fresh Del Monte acquired Del Monte Foods on October 1, 2004. Del Monte Foods sponsors a
contributory defined benefit pension plan, which covers a portion of its employees in the United
Kingdom (UK plan). The UK plan provides benefits based on the employees years of service and
qualifying compensation. Upon acquisition of Del Monte Foods, Fresh Del Monte assumed the
obligations and acquired the assets of the UK plan. Fresh Del Montes funding policy for the UK
plan is to contribute amounts sufficient to meet the minimum funding requirements of occupational
trust-based arrangements of the United Kingdom or such additional amounts as determined appropriate
to assure that assets of the UK plan would be adequate to provide benefits. Substantially all of
the UK plans assets are invested in fixed income and equity funds. The UK plan is accounted for
pursuant to SFAS 87.
The weighted average asset allocation of the UK plan by asset category based on fair value is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Equity securities |
|
|
80 |
% |
|
|
80 |
% |
Fixed income securities |
|
|
20 |
% |
|
|
20 |
% |
The above allocation is consistent with the target allocation of the UK plan, according to the
plans investment policy. Approximately 40% of the UK plans assets are invested in equity
securities of companies of the United Kingdom and 40% are invested in other international equities,
including 16% in European companies outside of the United Kingdom, 12% in companies in the United
States and 12% in Japanese and Pacific Rim companies. These assets are managed by Fidelity
Pensions Management and Newton Investment Management in the United Kingdom. Fund managers have no
discretion to make asset allocation decisions, but are required to rebalance the portfolios back to
the above benchmarks. Performance benchmarks for each asset class are based on various Financial
Times Stock Exchange indices. Investment performance is evaluated annually. The actual return on
plan assets for the UK plan years ended December 30, 2005 and
December 31, 2004 was 21.4% and 25.6%,
respectively. The remaining 20% of the UK plans assets are invested in high-grade, fixed-income
securities with
F-32
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16.
Retirement and Other Employee Benefits (continued)
maturities of up to 15 years.
Fresh Del Monte expects to contribute approximately $0.7 million to the UK plan in 2006, estimated
using the British pound sterling to U.S. dollar exchange rate as of December 30, 2005. Benefit
payments under the UK plan over the next 10 years are expected to total $17.5 million and range
ratably between $1.3 million in 2006 and $1.8 million in 2015.
The accumulated benefit obligation for the UK plan was $59.9 million and $57.9 million at December
30, 2005 and December 31, 2004, respectively. The assumptions used in the calculation of the
actuarial present value of the projected benefit obligation, the net periodic pension cost and
expected long-term return on plan assets for the UK plan consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Weighted average discount rate |
|
|
5.00 |
% |
|
|
5.60 |
% |
Rate of increase in compensation levels |
|
|
2.75 |
% |
|
|
4.00 |
% |
Expected long-term return on assets |
|
|
6.75 |
% |
|
|
7.50 |
% |
The following table sets forth a reconciliation of benefit obligation, plan assets and funded
status for the UK plan as of November 30, 2005 and from the acquisition date through December 31,
2004, which are also the measurement dates. There was an immaterial impact on the funded status of
this plan by the use of a November 30, 2005 measurement date (U.S. dollars in millions):
F-33
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Retirement and Other Employee Benefits (continued)
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
December 31, |
|
|
|
|
|
2005 |
|
|
2004 |
|
Change in Benefit Obligation: |
|
|
|
|
|
|
|
|
Beginning benefit obligation |
|
$ |
64.2 |
|
|
$ |
|
|
Benefit obligation assumed |
|
|
|
|
|
|
63.1 |
|
Service cost |
|
|
1.9 |
|
|
|
0.6 |
|
Interest cost |
|
|
3.3 |
|
|
|
0.9 |
|
Actuarial gain |
|
|
(0.3 |
) |
|
|
|
|
Benefits paid |
|
|
(2.2 |
) |
|
|
(0.4 |
) |
Exchange rate changes |
|
|
(7.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
Ending benefit obligation |
|
|
59.9 |
|
|
|
64.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets: |
|
|
|
|
|
|
|
|
Beginning fair value |
|
|
29.8 |
|
|
|
|
|
Plan assets acquired |
|
|
|
|
|
|
29.1 |
|
Actual return on plan assets |
|
|
6.6 |
|
|
|
0.6 |
|
Company and employee contributions |
|
|
1.1 |
|
|
|
0.5 |
|
Benefits paid |
|
|
(2.2 |
) |
|
|
(0.4 |
) |
Exchange rate changes |
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Ending fair value |
|
|
31.8 |
|
|
|
29.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Accruals: |
|
|
|
|
|
|
|
|
Funded status |
|
|
(28.1 |
) |
|
|
(34.4 |
) |
Unrecognized gain |
|
|
(4.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit costs |
|
$ |
(32.6 |
) |
|
$ |
(34.4 |
) |
|
|
|
|
|
|
|
The following table sets forth the net periodic pension cost of the UK plan for 2005 and 2004 since
acquisition of Del Monte Foods (U.S. dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Service cost |
|
$ |
1.9 |
|
|
$ |
0.6 |
|
Interest cost |
|
|
3.3 |
|
|
|
0.9 |
|
Expected return on assets |
|
|
(2.1 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
Net periodic costs |
|
$ |
3.1 |
|
|
$ |
0.8 |
|
|
|
|
|
|
|
|
Other Employee Benefits
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 employees
contribution. This plan is in effect for U.S. based employees only. The expense pertaining to
this plan was $0.8 million, $0.7 million, and $0.6 million for 2005, 2004 and 2003, respectively.
F-34
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. 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 employees 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 $3.8 million,
$4.3 million and $3.4 million for 2005, 2004 and 2003, respectively.
Funding generally occurs when employees cease active service. The most significant of these
programs pertains to one of Fresh Del Montes subsidiaries in Central America for which a liability
of $11.4 million and $11.1 million was recorded at December 30, 2005 and December 31, 2004,
respectively. Expenses for this program for 2005, 2004 and 2003 amounted to $1.5 million, $2.0
million and $1.9 million, respectively, including service cost earned of $0.9 million, $1.2 million
and $0.9 million, and interest cost of $0.6 million, $0.8 million and $0.9 million, respectively.
As of August 31, 1997, a subsidiary of Fresh Del Monte ceased accruing benefits under its salary
continuation plan covering all Central American management personnel. At December 30, 2005 and
December 31, 2004, Fresh Del Monte had $8.5 million and $8.6 million, respectively, accrued for
this plan.
17. 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 Montes shareholders approved and ratified the 1999 Share Incentive Plan
(the 1999 Plan). Under the 1999 Plan, as amended on May 1, 2002, the Board of Directors is
authorized to grant options to purchase an aggregate of 4,000,000 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, 20% 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.
F-35
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Stock Based Compensation (continued)
A summary of Fresh Del Montes stock option activity and related information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
Options outstanding at December 27, 2002 |
|
|
1,762,618 |
|
|
$ |
10.29 |
|
Granted |
|
|
500,000 |
|
|
$ |
19.76 |
|
Exercised |
|
|
(1,076,506 |
) |
|
$ |
11.18 |
|
Canceled |
|
|
(23,000 |
) |
|
$ |
18.85 |
|
|
|
|
|
|
|
|
|
Options outstanding at December 26, 2003 |
|
|
1,163,112 |
|
|
$ |
13.37 |
|
Granted |
|
|
211,000 |
|
|
$ |
24.29 |
|
Exercised |
|
|
(407,556 |
) |
|
$ |
10.74 |
|
Canceled |
|
|
(76,000 |
) |
|
$ |
20.14 |
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2004 |
|
|
890,556 |
|
|
$ |
16.55 |
|
Granted |
|
|
1,573,500 |
|
|
$ |
29.90 |
|
Exercised |
|
|
(323,106 |
) |
|
$ |
11.18 |
|
Canceled |
|
|
(161,000 |
) |
|
$ |
27.73 |
|
|
|
|
|
|
|
|
|
Options outstanding at December 30, 2005 |
|
|
1,979,950 |
|
|
$ |
27.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 26, 2003 |
|
|
361,500 |
|
|
$ |
13.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2004 |
|
|
289,950 |
|
|
$ |
16.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 30, 2005 |
|
|
594,550 |
|
|
$ |
24.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
Exercise |
|
|
|
|
|
Contractual |
|
|
|
|
Price |
|
Outstanding |
|
|
Life |
|
|
Exercisable |
|
$5.95 |
|
|
41,750 |
|
|
5.3 Years |
|
|
41,750 |
|
$8.38 |
|
|
12,000 |
|
|
3.8 Years |
|
|
12,000 |
|
$9.28 |
|
|
8,000 |
|
|
3.8 Years |
|
|
8,000 |
|
$14.22 |
|
|
20,000 |
|
|
3.0 Years |
|
|
20,000 |
|
$15.69 |
|
|
15,000 |
|
|
3.2 Years |
|
|
15,000 |
|
$19.76 |
|
|
198,700 |
|
|
7.1 Years |
|
|
58,700 |
|
$22.01 |
|
|
60,000 |
|
|
6.9 Years |
|
|
48,000 |
|
$23.82 |
|
|
161,000 |
|
|
8.3 Years |
|
|
64,400 |
|
$25.83 |
|
|
20,000 |
|
|
8.1 Years |
|
|
8,000 |
|
$29.84 |
|
|
1,406,000 |
|
|
9.3 Years |
|
|
281,200 |
|
$32.28 |
|
|
37,500 |
|
|
9.1 Years |
|
|
37,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,979,950 |
|
|
|
|
|
|
|
594,550 |
|
|
|
|
|
|
|
|
|
|
|
|
F-36
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. 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 30, 2005 are as follows
(U.S. dollars in millions):
|
|
|
|
|
2006 |
|
$ |
22.4 |
|
2007 |
|
|
19.5 |
|
2008 |
|
|
16.4 |
|
2009 |
|
|
13.7 |
|
2010 |
|
|
10.8 |
|
Thereafter |
|
|
32.7 |
|
|
|
|
|
|
|
$ |
115.5 |
|
|
|
|
|
Total rent expense for all operating leases, including leases with initial terms of less than one
year, amounted to $41.2 million, $42.3 million and $29.6 million for 2005, 2004 and 2003,
respectively.
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, Brazil, South
Africa and the Philippines. Total purchases under these agreements amounted to $585.9 million,
$571.4 million and $505.6 million for 2005, 2004 and 2003, respectively. Purchases under these
agreements in 2006 are not expected to be significantly more than in 2005.
At year-end 2005, Fresh Del Monte employed a total of approximately 37,000 persons worldwide,
substantially all of whom are year-round employees. Approximately 84% of these persons are
employed in production locations, of which the majority, are unionized.
19. Litigation
DBCP Litigation
Beginning in December 1993, certain of Fresh Del Montes U.S. subsidiaries were named among the
defendants in a number of actions in courts in Texas, Louisiana, Hawaii, California 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
from 1965 to 1990.
On February 16, 1999, two of Fresh Del Montes 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 was brought by the Banana Workers Association (the 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 Fresh Del Montes subsidiaries at the time of the alleged DBCP use. Fresh Del Montes
subsidiaries filed motions to dismiss and for reconsideration on jurisdictional grounds, which were
denied. Accordingly, Fresh Del Montes subsidiaries answered the complaint denying all of the
plaintiffs allegations. Fresh Del Montes subsidiaries believe
F-37
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Litigation (continued)
substantial defenses exist to the claims asserted by the Association. On October 3, 2002, the
Philippine Court of Appeals ruled that the method of service used by the Association to serve the
defendants was improper and dismissed the Associations complaint. As a result of this decision,
the trial court suspended the proceedings indefinitely. In 2002, the Association filed a motion
for reconsideration of the dismissal of its complaint, which remains pending.
In 1997, plaintiffs from Costa Rica and Guatemala named certain of Fresh Del Montes U.S.
subsidiaries in a class action in Hawaii. The action was dismissed by a federal district court on
grounds of forum non conveniens in favor of the courts of the plaintiffs home countries and the
plaintiffs appealed this decision. As a result of the dismissal of the Hawaiian action, several
Costa Rican and Guatemalan individuals filed the same type of actions in those countries. The
Guatemalan action was dismissed for plaintiffs failure to prosecute the action. On April 22,
2003, the plaintiffs appeal of the dismissal was affirmed by the Supreme Court of the United
States, thereby remanding the action to the Hawaiian State Court. The plaintiffs have taken no
further action.
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 Montes U.S. subsidiaries along
with several other defendants in the District Court for the Parish of St. Charles, Louisiana,
asserting injuries due to the alleged exposure to DBCP. The Fresh Del Monte subsidiary answered
the complaint and asserted substantial defenses, eventually settling with all but 13 of the Canales
Martinez plaintiffs in federal court. On October 25, 2001, defendants filed a motion to dismiss
the action on grounds of forum non conveniens in favor of plaintiffs home countries. On July 16,
2002, the district court denied that motion and the defendants filed a motion requesting immediate
review by the Court of Appeals, which was denied by the district court on August 21, 2002. On
August 28, 2002, defendants filed a petition for a writ of mandamus before the Court of Appeals
with respect to the district courts denial of defendants motion to dismiss the action on grounds
of forum non conveniens. As a result of the Supreme Courts decision in the Hawaiian action, the
district court remanded these actions to state court in Louisiana. The plaintiffs have taken no
further action.
On November 15, 1999, one of Fresh Del Montes subsidiaries was served in two actions entitled,
Godoy Rodriguez, et al. v. AMVAC Chemical Corp., et al. and Martinez Puerto, et al. v. AMVAC
Chemical Corp., et al., in the 29th Judicial District Court for the Parish of St.
Charles, Louisiana. These actions were removed to federal court, where they have been
consolidated. As a result of the Supreme Courts decision in the Hawaiian action, the district
court remanded these actions to state court in Louisiana. At this time, it is not known how many
of the 2,962 Godoy Rodriguez and Martinez Puerto plaintiffs are making claims against the Fresh Del
Monte subsidiary.
On October 14, 2004, two of Fresh Del Montes subsidiaries were served with a complaint in an
action styled Angel Abarca, et al. v. Dole Food Co., et al. filed in the Superior Court of the
State of California for the County of Los Angeles on behalf of more than 2,600 Costa Rican banana
workers who claim injury from exposure to DBCP. On October 8, 2004 (prior to service on Fresh Del
Montes subsidiaries),
a co-defendant removed the action to the United States District Court for the Central District of
California. An initial review of the plaintiffs in the Abarca action denotes that a substantial
number of the plaintiffs were claimants in prior DBCP actions in Texas and may have participated in
the settlement of those actions. On December 9, 2004, plaintiffs counsel served notices
of voluntary dismissal pursuant to Federal Rule 41(a)(1) to all defendants except for The Dow
Chemical Co (Dow). The same day, the District Court granted plaintiffs motion to remand. Fresh
Del Monte, its subsidiaries and the other
F-38
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Litigation (continued)
defendants apart from Dow, jointly moved to quash service
before the state court on the grounds that they have been dismissed from the action. The state
court denied the motion on September 2, 2005, and the California Court of Appeals subsequently
rejected defendants petition for a writ of mandate.
On April 25, 2005, two of Fresh Del Montes subsidiaries were served with a complaint styled Juan
Jose Abrego, et.al. v. Dole Food Company, et al. filed in the Superior Court of the State of
California for the County of Los Angeles on behalf of 955 Guatemalan residents who claim injury
from exposure to DBCP. An initial review of the Plaintiffs in the Abrego action denotes that a
substantial number of the plaintiffs released their claims with prejudice as part of the December
1998 settlement with Fresh Del Montes subsidiaries as well as in prior settlement with other
defendants. On May 13, 2005, co-defendant Dow removed the action to the United States District
Court for the Central District of California. Plaintiffs filed a motion to remand on June 15,
2005, which Dow opposed. On October 6, 2005, the District Court remanded the action to the state
court of California. Dow has appealed the remand order to the U.S. Court of Appeals for the Ninth
Circuit, which was granted and will be heard on March 7, 2006.
On April 25, 2005, two of Fresh Del Montes subsidiaries were served in a complaint styled Antonio
Abrego, et al. v. Dole Food Company, et al. filed in the Superior Court of California for the
County of Los Angeles on behalf of 612 Panamanian residents who claim injury from exposure to DBCP.
On May 6, 2005, plaintiffs amended the complaint to add an additional 548 plaintiffs, for a total
of 1,160. Fresh Del Monte and its subsidiaries have never owned, managed or otherwise been
involved with any banana growing operations in Panama. On May 13, 2005, co-defendant Dow removed
the action to the United States District Court for the Central District of California. On June 10,
2005, the Court directed Dow to show cause in writing as to why the amount in controversy
requirement had been sufficiently met to invoke federal jurisdiction, which Dow subsequently filed
on June 17, 2005. On October 11, 2005, the District Court remanded the action to the state court
of California. As in Juan Jose Abrego, Dow has appealed the remand order to the U.S. Court of
Appeals for the Ninth Circuit, which remains pending.
On April 25, 2005, two of Fresh Del Montes subsidiaries were served with a complaint styled Miguel
Jose Acosta et al. v. Dole Food Company, et al. filed in the Superior Court of the State of
California for the County of Los Angeles on behalf of 633 Honduran residents who claim exposure to
DBCP. Fresh Del Monte and its subsidiaries have never owned, managed or otherwise been involved
with any banana growing operations in Honduras. The complaint was subsequently amended to add an
additional 469 plaintiffs (for a total of 1,102), and re-styled Prospero Aceituno Linares, et al.
v. Dole Food Company, et al. On May 13, 2005, co-defendant Dow removed the action to the United
States District Court for the Central District of California. The District Court sua sponte
remanded the action on May 16, 2005, and subsequently rejected an amended notice of removal on May
27, 2005. On May 31, 2005, Dow filed a petition before the Court of Appeals for the Ninth Circuit
seeking permission to appeal the District Courts remand order. The petition was denied on
September 19, 2005.
The state court in the Abarca action has found all four of the above California actions to be
related and has transferred all four actions to the California state court department normally
responsible for hearing complex litigations, where the assignment of a judge remains pending.
F-39
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Litigation (continued)
Former Shareholders Litigation
On December 30, 2002, Fresh Del Monte was served with a complaint filed on December 18, 2002 in the
Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida by
seven Mexican individuals and corporations, who claim to have been former indirect shareholders of
Fresh Del Montes predecessor, against Fresh Del Monte, and certain current and former directors,
officers and shareholders of Fresh Del Monte and its predecessor (the Florida Complaint).
The Florida Complaint alleges that instead of proceeding with a prospective buyer who offered
superior terms, the former chairman of Fresh Del Montes predecessor and majority shareholder,
agreed to sell Fresh Del Montes predecessor to its current majority shareholder at a below market
price as the result of commercial bribes allegedly paid by Fresh Del Montes current majority
shareholder and chief executive officer to Fresh Del Montes predecessors former chairman. On
February 20, 2003, Fresh Del Monte filed a motion to dismiss the Florida Complaint and the oral
argument was heard on June 19, 2003. On July 22, 2003, the court granted in part and denied in
part Fresh Del Montes motion to dismiss the Florida Complaint, dismissing two of the 11 counts.
Mediation of the Florida Complaint occurred on September 9, 2005, but was unsuccessful. On
February 9, 2006, the court set a trial date of May 15, 2006. Fresh Del Monte believes that the
allegations of the remaining Florida complaint are entirely without merit.
Class Action Litigation
a. Pineapple Class Actions
On April 16, 2004, four fruit wholesalers filed a consolidated complaint against two of Fresh Del
Montes subsidiaries in the United States District Court for the Southern District of New York.
The plaintiffs claim to have purchased Del Monte Gold® pineapples from Fresh Del Montes
subsidiaries. This consolidated action is brought as a putative class action on behalf of all
direct purchasers of Del Monte Gold® pineapples from March 1, 1996 through the present. The court
directed the plaintiffs to file a new consolidated complaint, which was filed on August 2, 2004 and
consists of the four fruit wholesalers and two individual consumers who had filed their complaints
in the federal court for the Southern District of New York. In addition to these six actions,
other class actions against Fresh Del Monte were transferred to the United States District Court
for the Southern District of New York by the Judicial Panel on Multidistrict Litigation (JPML)
and then remanded as described below. The new consolidated complaint alleges claims for: (1)
monopolization and attempted monopolization; (2) restraint of trade; (3) unfair and deceptive trade
practices; and (4) unjust enrichment. On May 27, 2005, Fresh Del Monte filed a motion to dismiss
the indirect and direct purchasers claims for unjust enrichment which remains pending.
On March 5, 2004, an alleged individual consumer filed a putative class action complaint against
Fresh Del Montes subsidiaries in the state court of Tennessee on behalf of consumers who purchased
(other than for resale) Del Monte Gold® pineapples in Tennessee from March 1, 1996 to May 6, 2003.
The complaint alleges violations of the Tennessee Trade Practices Act and the Tennessee Consumer
Protection Act. On April 14, 2004, Fresh Del Montes subsidiaries removed this action to federal
court. The plaintiffs filed a motion for remand to state court which was granted by the court on
July 7, 2004. This action will now proceed in the state court of Tennessee. On February 18, 2005,
Fresh Del Montes subsidiaries filed a motion to dismiss the complaint which remains pending.
F-40
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Litigation (continued)
Between March 17, 2004 and March 18, 2004, three alleged individual consumers filed putative class
action complaints against Fresh Del Monte and its subsidiaries in the state court of California on
behalf of residents of California who purchased (other than for re-sale) Del Monte Gold® pineapples
between March 1, 1996 and May 6, 2003. The complaints allege violations of the Cartwright Act,
common law monopolization, unfair competition in violation of the California Business and
Professional Code, unjust enrichment and
violations of the Consumer Legal Remedies Act. On April 19, 2004, Fresh Del Monte removed these
actions to federal court. The plaintiffs filed a motion for remand to the state court of California
which was granted by the court on July 8, 2004 in one of the actions and on July 12, 2004 in the
other two actions. These actions will now proceed in the state court of California. In one of the
three actions, Fresh Del Monte filed a motion to dismiss the plaintiffs complaint which was
granted in part and denied in part. On November 9, 2005, the three actions were consolidated under
one amended complaint with a single claim for unfair competition in violation of the California
Business and Professional Code. Fresh Del Monte has filed a motion to dismiss this one remaining
claim, which was denied on January 6, 2006. On January 23, 2006, the court granted Fresh Del
Montes petition for leave to file an interlocutory appeal of the denial.
On April 19, 2004, an alleged individual consumer filed a putative class action complaint against
Fresh Del Montes subsidiaries in the state court of Florida on behalf of Florida residents who
purchased (other than for re-sale) Del Monte Gold® pineapples between March 1, 1996 and May 6,
2003. The complaint alleges fraudulent concealment/tolling of statute of limitations, violations
of the Florida Deceptive and Unfair Trade Practices Act and unjust enrichment. On May 11, 2004,
Fresh Del Montes subsidiaries removed this action to federal court. The plaintiff filed a motion
for remand to state court and Fresh Del Montes subsidiaries opposed that motion. The court
granted plaintiffs motion to remand. The case will now proceed in state court of Florida. On
October 27, 2004, Fresh Del Monte filed a motion to dismiss the plaintiffs complaint, which motion
was granted on January 23, 2006 with leave for plaintiff to amend. Plaintiff filed an amended
complaint on February 13, 2006.
On April 29, 2004, an alleged individual consumer filed a putative class action complaint against
Fresh Del Montes subsidiaries in the state court of Arizona on behalf of residents of Arizona who
purchased (other than for re-sale) Del Monte Gold® pineapples between November 1997 and January
2003. The complaint alleges monopolization and attempted monopolization in violation of the
Arizona Consumer Fraud Act, and unjust enrichment in violation of common law. On May 24, 2004,
Fresh Del Montes subsidiaries removed this action to federal court. The plaintiffs filed a motion
for remand and Fresh Del Montes subsidiaries opposed that motion. Fresh Del Montes subsidiaries
are not required to respond to the complaint until 20 days after the resolution of plaintiffs
motion to remand. On October 25, 2004, this action was transferred to the United States District
Court for the Southern District of New York by the JPML. The plaintiffs filed a motion for remand
which was granted by the court on April 20, 2005. This action will now proceed in Arizona state
court. On July 25, 2005, Fresh Del Monte filed a motion to dismiss which remains pending. On July
25, 2005, Fresh Del Monte filed a motion to dismiss the claim for violation of the Arizona Consumer
Fraud Act which was granted by the state court on February 16, 2006 with leave for the plaintiffs
to amend.
On July 2, 2004, an alleged individual consumer filed a putative class action which was served on
August 24, 2004 against Fresh Del Montes subsidiaries in the state court of Nevada on behalf of
residents of Nevada who purchased (other than for re-sale) Del Monte Gold® pineapples between
November 1997 and January 2003. The complaint alleges restraint of trade in violation of Nevada
statutes, common law monopolization and unjust enrichment. On September 13, 2004, Fresh Del
Montes subsidiaries removed
F-41
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Litigation (continued)
this action to federal court. On November 15, 2004, this action was
transferred to the United States District Court for the Southern District of New York by the JPML.
The plaintiffs filed a motion for remand which was granted by the court on April 20, 2005. This
action will now proceed in Nevada state court.
b. Banana Class Actions
Between July 25, 2005 and August 22, 2005, several plaintiffs served putative class action
complaints against Fresh Del Monte, certain subsidiaries and several other corporations all in the
United States District Court for the Southern District of Florida on behalf of all direct
purchasers of bananas for the period from May 2003 to the present. The complaints allege that the
defendants engaged in a continuing
agreement, understanding and conspiracy to restrain trade by artificially raising, fixing and
maintaining the prices of, and otherwise restricting the sale of, bananas in the United States in
violation of Section 1 of the Sherman Act. A similar action was brought by a New York corporation
for the period from July 2001 to the present.
Additionally, between October 21, 2005 and November 10, 1005, Arizona, California, Minnesota, New
York, Tennessee and Kansas residents filed a putative class action complaint against Fresh Del
Monte, one of its subsidiaries and several other corporations in the United States District Court
for the Southern District of Florida on behalf of all indirect purchasers of bananas in their
respective states for the period from May 2003 to the present. That complaint alleges violations
of numerous state antitrust, competition, and unjust enrichment statutes. A similar action was
brought by a California resident for the period from July 2001 to the present.
The cases on behalf of the direct purchasers have been consolidated in the U.S. District Court for
the Southern District of Florida. The cases on behalf of the indirect purchasers have been
transferred to the same judge in the U.S. District Court for the Southern District of Florida, but
are not consolidated at present.
In the consolidated direct purchaser cases, the court has entered a case management order and a
scheduling order under which trial in this matter has been set for the two week trial period
commencing October 1, 2007 and discovery on the merits of the action is scheduled to take place
before discovery on class certification. On November 16, 2005, the direct purchaser plaintiffs
filed an amended, consolidated complaint. On December 22, 2005, Fresh Del Monte filed a motion to
dismiss the complaint, which motion remains pending. The plaintiffs have served discovery requests
on Fresh Del Monte.
An amended complaint is due from the indirect purchaser plaintiffs by March 3, 2006. No discovery
or motion proceedings have commenced in the indirect purchaser action.
Germanys European Union Antitrust Investigation
On June 2, 2005, one of Fresh Del Montes German subsidiaries was visited by Germanys European
Union (EU) antitrust authority which is investigating Fresh Del Montes subsidiary for possible
violations of the EUs competition laws. On February 17, 2006, Fresh Del Monte received a request
for additional information from Germanys EU antitrust authority and is in the process of gathering
and providing the requested information. Fresh Del Monte and its subsidiary are fully cooperating
and will continue to fully cooperate with the investigation.
F-42
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Litigation (continued)
Fresh Del Monte and its subsidiaries intend to vigorously defend themselves in all of the above
matters. At this time, management is not able to evaluate the likelihood of a favorable or
unfavorable outcome in any of the above-described matters. Accordingly, management is not able to
estimate the range or amount of loss, if any, from any of the above-described matters and no
accruals or expenses have been recorded as of December 31, 2005, except as related to the Kunia
Well Site discussed below.
Kunia Well Site
In 1980, elevated levels of certain chemicals were detected in the soil and ground-water at a
plantation leased by one of Fresh Del Montes U.S. subsidiaries in Honolulu, Hawaii (Kunia Well
Site). Shortly thereafter, Fresh Del Montes 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 Montes subsidiary entered into an
order (the Order) with the EPA to conduct the remedial investigation and the feasibility study of
the Kunia Well Site. Under the terms of the Order, Fresh Del Montes subsidiary submitted a
remedial investigation report in November 1998 and a final draft feasibility study in December 1999
(which was updated from time to time) for review by the EPA. The EPA approved the remedial
investigation report in February 1999 and the feasibility study on April 22, 2003.
As a result of communications with the EPA in 2001, Fresh Del Monte recorded a charge of $15.0
million in the third quarter of 2001 to increase the recorded liability to the estimated expected
future cleanup cost for the Kunia Well Site to $19.1 million. Based on conversations with the EPA
in the third quarter of 2002 and consultation with Fresh Del Montes legal counsel and other
experts, Fresh Del Monte recorded a charge of $7.0 million during the third quarter of 2002 to
increase the accrual for the expected future clean up costs for the Kunia Well Site to $26.1
million.
On September 25, 2003, the EPA issued the Record of Decision (ROD). The EPA estimates in the ROD
that the remediation costs associated with the clean up of the Kunia Well Site will range from
$12.9 million to $25.4 million and will last approximately 10 years. As of December 30, 2005,
$22.8 million is included in other long-term liabilities for the Kunia Well Site clean-up. Fresh
Del Monte expects to expend approximately $2.0 million in cash per year for the next five years.
Certain portions of the EPAs estimates have been discounted using a 5% interest rate. The
undiscounted estimates are between $14.8 million and $28.7 million. The undiscounted estimate on
which Fresh Del Montes accrual is based totals $25.1 million. On January 13, 2004, the EPA
deleted a portion of the Kunia Well Site (Northeast section) from the NPL. On May 2, 2005, Fresh
Del Montes subsidiary signed a Consent Decree with the EPA for the performance of the clean up
work for the Kunia Well Site. On September 27, 2005, the U.S. District Court for Hawaii approved
and entered the consent decree. Based on findings from remedial investigations at the Kunia Well
Site, Fresh Del Montes subsidiary continues to evaluate with the EPA the clean up work currently
in progress in accordance with the Consent Decree.
F-43
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Litigation (continued)
Other
In addition to the foregoing, Fresh Del Monte and its subsidiaries are involved from time to time
in various claims and legal actions incident to Fresh Del Monte and its subsidiaries 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 the
results of operations, financial position or cash flows of Fresh Del Monte and its
subsidiaries.
20. Financial Instruments and Concentration of Credit Risk
Derivative Financial Instruments
Fresh Del Monte accounts 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 Montes 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 Montes risk
relating to adverse fluctuations in foreign exchange rates and interest rates. In addition, the
earnings impact resulting from Fresh Del Montes derivative instruments is recorded in the same
line item within the consolidated statement of income as the underlying exposure being hedged.
Fresh Del Monte also formally assesses, both at the inception and at least quarterly thereafter,
whether the financial instruments that are used in hedging transactions are effective at offsetting
changes in the cash flows or fair value of the related underlying exposures. Any ineffective
portion of a financial instruments change in fair value is immediately recognized in earnings.
Hedge ineffectiveness was not material for 2005, 2004 and 2003.
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 changes in the value of forecasted foreign currency cash flows resulting from a
portion of net sales or cost of sales, certain subsidiaries of Fresh Del Monte periodically enter
into foreign currency cash flow hedges (principally Euro, British pound and Japanese yen). These
subsidiaries hedge portions of
F-44
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. Financial Instruments and Concentration of Credit Risk (continued)
forecasted sales denominated in foreign currencies with forward
contracts and options, which generally expire within one year. The forward contracts are
designated as single- and/or 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 or cost of sales are recognized in earnings. Subsequent to the recognition of sales or cost
of sales, changes in the value of the foreign currency accounts receivable or
payable and related forward contract are recognized in other income. Any ineffective portion of
a financial instruments change in fair value is immediately recognized in earnings. Fresh Del
Monte accounts for the fair value of the related forward contracts as either an asset in other
current assets or a liability in accrued expenses. Hedge ineffectiveness did not have a material
impact on earnings for 2005, 2004 and 2003. As of December 30, 2005, and December 31, 2004, Fresh
Del Monte had several foreign currency cash flow hedges outstanding. The fair value of these
hedges as of December 30, 2005, is a net asset of $37.2 million, all of which is expected to be
transferred to earnings in 2006 along with the earnings effect of the related forecasted
transaction. The fair value of these hedges as of December 31, 2004 was a net liability of $30.2
million, substantially all of which was transferred to earnings during 2005.
Fair Value of Financial Instruments
Fresh Del Monte, in estimating its fair value disclosures for financial instruments, uses the
following methods and assumptions:
Cash and cash equivalents, accounts receivable, advances to growers, and accounts payable: The
carrying value reported in the balance sheets for these items approximate their fair value due to
their classification as current assets and liabilities.
Capital lease obligations. The carrying value of Fresh Del Montes capital lease obligations
approximate their fair value based on current interest rates for similar instruments.
Long-term debt: The carrying value of Fresh Del Montes 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 Montes financial instruments are as follows
(U.S. dollars in millions):
F-45
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. Financial Instruments and Concentration of Credit Risk (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2005 |
|
|
December 31, 2004 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Cash and cash equivalents |
|
$ |
24.5 |
|
|
$ |
24.5 |
|
|
$ |
42.1 |
|
|
$ |
42.1 |
|
Trade accounts receivable |
|
|
288.9 |
|
|
|
288.9 |
|
|
|
276.0 |
|
|
|
276.0 |
|
Advances to growers and other
receivables |
|
|
59.1 |
|
|
|
59.1 |
|
|
|
54.7 |
|
|
|
54.7 |
|
Forward contracts, net asset |
|
|
37.2 |
|
|
|
37.2 |
|
|
|
|
|
|
|
|
|
Trade and other accounts payable |
|
|
(153.4 |
) |
|
|
(153.4 |
) |
|
|
(193.2 |
) |
|
|
(193.2 |
) |
Long-term debt |
|
|
(338.6 |
) |
|
|
(338.6 |
) |
|
|
(339.3 |
) |
|
|
(339.3 |
) |
Capital lease obligations |
|
|
(22.2 |
) |
|
|
(22.2 |
) |
|
|
(24.2 |
) |
|
|
(24.2 |
) |
Forward contracts, net liability |
|
|
|
|
|
|
|
|
|
|
(30.2 |
) |
|
|
(30.2 |
) |
21. Related Party Transactions
During 2005 and 2004, Fresh Del Monte incurred expenses of $1.5 million and $1.0 million,
respectively, for air transportation services for chartering of an aircraft that is indirectly
owned by Fresh Del Montes chief executive officer. The rates charged for these transportation
services were comparable with the market rates charged to other unrelated companies for the use of
a similar aircraft.
Sales to companies with common ownership as Fresh Del Monte were $37.9 million, $33.5 million and
$28.7 million in 2005, 2004, and 2003, respectively. At December 30, 2005 and December 31, 2004
there were $8.1 million and $3.9 million, respectively, of receivables from related parties, which
are included in trade accounts receivable.
Fresh Del Monte purchases goods and services from unconsolidated subsidiaries in the ordinary
course of business. These transactions were conducted at arms-length. See note 6, Investments in
Unconsolidated Companies.
F-46
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. Unaudited Quarterly Financial Information
The following summarizes certain quarterly operating data (U.S. dollars in millions, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
|
April 1 |
|
|
July 1, |
|
|
September 30, |
|
|
December 30, |
|
|
|
2005 |
|
|
2005 |
|
|
2005 |
|
|
2005 |
|
Net sales |
|
$ |
838.5 |
|
|
$ |
922.8 |
|
|
$ |
740.5 |
|
|
$ |
757.9 |
|
Gross profit |
|
|
117.0 |
|
|
|
103.5 |
|
|
|
50.5 |
|
|
|
40.5 |
|
Net income (loss) |
|
|
57.9 |
|
|
|
46.5 |
|
|
|
5.7 |
|
|
|
(3.5 |
) |
Net income (loss) per share basic (a) |
|
$ |
1.00 |
|
|
$ |
0.80 |
|
|
$ |
0.10 |
|
|
$ |
(0.06 |
) |
Net income (loss) per share diluted (a) |
|
$ |
1.00 |
|
|
$ |
0.80 |
|
|
$ |
0.10 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 26, |
|
|
June 25, |
|
|
September 24, |
|
|
December 31, |
|
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
Net sales |
|
$ |
713.8 |
|
|
$ |
763.6 |
|
|
$ |
610.4 |
|
|
$ |
818.2 |
|
Gross profit |
|
|
77.2 |
|
|
|
89.1 |
|
|
|
30.8 |
|
|
|
67.6 |
|
Net income |
|
|
47.0 |
|
|
|
59.4 |
|
|
|
13.7 |
|
|
|
19.1 |
|
Net income per share basic (a) |
|
$ |
0.82 |
|
|
$ |
1.03 |
|
|
$ |
0.24 |
|
|
$ |
0.33 |
|
Net income per share diluted (a) |
|
$ |
0.81 |
|
|
$ |
1.03 |
|
|
$ |
0.24 |
|
|
$ |
0.33 |
|
|
|
|
(a) |
|
Basic and diluted earnings per share for each of the quarters presented above is
based on the respective weighted average number of shares for the quarters. The sum of the
quarters may not necessarily be equal to the full year basic and diluted earnings per share amounts
due to the effects of rounding. Because the calculation of diluted earnings per share is
anti-dilutive in the fourth quarter of 2005, basic and diluted net loss per share are equal. |
23. Business Segment Data
Fresh Del Monte is principally engaged in one major line of business, the production, distribution
and marketing of bananas, other fresh produce and prepared food. Fresh Del Montes products are
sold in markets throughout the world, with its major producing operations located in North, Central
and South America, Asia and Africa.
Fresh Del Montes operations are aggregated on the basis of its products; bananas, other fresh
produce, other products and services and prepared food. Other fresh produce includes pineapples, melons, tomatoes,
potatoes, onions, strawberries, non-tropical fruit (including grapes, citrus, apples, pears,
peaches, plums, nectarines, apricots and kiwis), fresh-cut produce and other fruit and vegetables. Other products and services includes a third-party ocean freight
business, a plastic product and box manufacturing business, a poultry business and a grain
business.
Fresh Del Monte evaluates performance based on several factors, of which gross profit by product
and net sales by geographic region are the primary financial measures (U.S. dollars in millions):
F-47
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
_______
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
23. Business Segment Data (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 30, 2005 |
|
|
December 31, 2004 |
|
|
December 26, 2003 |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
Net Sales |
|
|
Profit |
|
|
Net Sales |
|
|
Profit |
|
|
Net Sales |
|
|
Profit |
|
Bananas |
|
$ |
1,079.0 |
|
|
$ |
37.5 |
|
|
$ |
1,030.8 |
|
|
$ |
23.0 |
|
|
$ |
969.6 |
|
|
$ |
69.2 |
|
Other fresh produce |
|
|
1,693.9 |
|
|
|
216.6 |
|
|
|
1,638.7 |
|
|
|
216.1 |
|
|
|
1,398.1 |
|
|
|
249.5 |
|
Prepared food |
|
|
316.5 |
|
|
|
46.7 |
|
|
|
88.8 |
|
|
|
16.3 |
|
|
|
|
|
|
|
|
|
Other products and services |
|
|
170.3 |
|
|
|
10.7 |
|
|
|
147.7 |
|
|
|
9.3 |
|
|
|
119.1 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
3,259.7 |
|
|
$ |
311.5 |
|
|
$ |
2,906.0 |
|
|
$ |
264.7 |
|
|
$ |
2,486.8 |
|
|
$ |
328.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
December 30, |
|
|
December 31, |
|
|
December 26, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net sales by geographic region: |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
1,566.6 |
|
|
$ |
1,497.4 |
|
|
$ |
1,339.0 |
|
Europe |
|
|
1,219.7 |
|
|
|
940.5 |
|
|
|
714.8 |
|
Asia |
|
|
376.6 |
|
|
|
385.8 |
|
|
|
373.3 |
|
Other |
|
|
96.8 |
|
|
|
82.3 |
|
|
|
59.7 |
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
3,259.7 |
|
|
$ |
2,906.0 |
|
|
$ |
2,486.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
North America |
|
$ |
105.7 |
|
|
$ |
113.7 |
|
Europe |
|
|
174.1 |
|
|
|
182.6 |
|
Africa |
|
|
53.4 |
|
|
|
59.4 |
|
Asia |
|
|
16.1 |
|
|
|
11.0 |
|
Central and South America |
|
|
386.6 |
|
|
|
366.5 |
|
Maritime equipment (including containers) |
|
|
123.3 |
|
|
|
142.3 |
|
Corporate |
|
|
33.8 |
|
|
|
39.2 |
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
$ |
893.0 |
|
|
$ |
914.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Identifiable assets: |
|
|
|
|
|
|
|
|
North America |
|
$ |
402.9 |
|
|
$ |
409.6 |
|
Europe |
|
|
709.9 |
|
|
|
676.7 |
|
Africa |
|
|
118.2 |
|
|
|
129.1 |
|
Asia |
|
|
87.2 |
|
|
|
73.4 |
|
Central and South America |
|
|
576.2 |
|
|
|
507.4 |
|
Maritime equipment (including containers) |
|
|
123.3 |
|
|
|
142.3 |
|
Corporate |
|
|
107.1 |
|
|
|
138.0 |
|
|
|
|
|
|
|
|
Total ident |