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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] Registration statement pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 (NO FEE REQUIRED)
or
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
For the fiscal year ended December 29, 2000
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
Commission file number: 1-14706
FRESH DEL MONTE PRODUCE INC.
(Exact Name of Registrant as Specified in Its Charter)
The Cayman Islands
(Jurisdiction of incorporation or organization)
c/o Del Monte Fresh Produce Company
800 Douglas Road, North Tower, 12th Floor, Coral Gables, FL 33134
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
-------------------------- -----------------------------------------
Ordinary Shares, par value New York Stock Exchange
$0.01 per share
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
53,763,600 Ordinary Shares
Indicate by check mark whether the registrant: (1) has filed all
reports required to filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
Page
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PART I
Item 1. Identity of Directors, Senior Management and Advisers - Not Applicable..............................1
Item 2. Offer Statistics and Expected Timetable - Not Applicable............................................1
Item 3. Key Information.....................................................................................2
Item 4. Information on the Company.........................................................................10
Item 5. Operating and Financial Review and Prospects.......................................................23
Item 6. Directors, Senior Management and Employees.........................................................32
Item 7. Major Shareholders and Related Party Transactions..................................................37
Item 8. Financial Information..............................................................................38
Item 9. The Offer and Listing..............................................................................44
Item 10. Additional Information.............................................................................45
Item 11. Quantitative and Qualitative Disclosures About Market Risk.........................................48
Item 12. Description of Securities Other than Equity Securities - Not Applicable............................50
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies...................................................50
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds......................50
PART III
Item 17. Financial Statements..............................................................................50
Item 18. Financial Statements..............................................................................50
Item 19. Exhibits..........................................................................................51
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PART I
In this Annual Report (Report), references to "$" and "dollars" are to
United States dollars. 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 1998 through 2000 are to fiscal years ended January 1,
1999, December 31, 1999 and December 29, 2000, respectively.
THIS REPORT, INFORMATION INCLUDED IN FUTURE FILINGS BY FRESH DEL MONTE
PRODUCE INC. AND INFORMATION CONTAINED IN WRITTEN MATERIAL, PRESS RELEASES AND
ORAL STATEMENTS ISSUED BY OR ON BEHALF OF US CONTAIN, OR MAY CONTAIN, STATEMENTS
THAT CONSTITUTE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS APPEAR IN A NUMBER
OF PLACES IN THIS REPORT AND INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR
CURRENT EXPECTATIONS OF US OR OUR OFFICERS (INCLUDING STATEMENTS PRECEDED BY,
FOLLOWED BY OR THAT INCLUDE THE WORDS "BELIEVES", "EXPECTS", "ANTICIPATES" OR
SIMILAR EXPRESSIONS) WITH RESPECT TO VARIOUS MATTERS, INCLUDING WITHOUT
LIMITATION (I) OUR ANTICIPATED NEEDS FOR, AND THE AVAILABILITY OF, CASH, (II)
OUR LIQUIDITY AND FINANCING PLANS, (III) TRENDS AFFECTING OUR FINANCIAL
CONDITION OR RESULTS OF OPERATIONS, INCLUDING ANTICIPATED FRESH PRODUCE SALES
PRICE LEVELS AND ANTICIPATED EXPENSE LEVELS, (IV) OUR PLANS FOR EXPANSION OF OUR
BUSINESS (INCLUDING THROUGH ACQUISITIONS) AND COST SAVINGS, (V) THE IMPACT OF
COMPETITION, AND (VI) THE RESOLUTION OF CERTAIN LEGAL AND ENVIRONMENTAL
PROCEEDINGS. ALL FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE BASED ON
INFORMATION AVAILABLE TO US ON THE DATE HEREOF, AND WE ASSUME NO OBLIGATION TO
UPDATE ANY SUCH FORWARD-LOOKING STATEMENT.
THE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE
AND INVOLVE RISKS AND UNCERTAINTIES. IT IS IMPORTANT TO NOTE THAT OUR ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS
REPORT, INCLUDING, WITHOUT LIMITATION, THE INFORMATION UNDER "KEY
INFORMATION--RISK FACTORS" AND "OPERATING AND FINANCIAL REVIEW AND PROSPECTS,"
IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
Our volume data included in this Report has been obtained from our
records. Other than with respect to volume data for Fresh Del Monte Produce
Inc., which we refer to as Fresh Del Monte, the market share, volume and
consumption data contained in this Report have been compiled by us based upon
data and other information obtained from third party sources, primarily from the
Food and Agriculture Organization of the United Nations, which we refer to as
the FAO, and from our surveys of customers and other company-compiled data.
Volume data contained in this Report is shown in millions of 40 pound equivalent
boxes.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
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ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
Our principal shareholders, the Abu-Ghazaleh family, have been involved
in the fresh produce business since the late 1950's and acquired Fresh Del Monte
Produce N.V., which we refer to as FDP, N.V., and Global Reefer Carriers, Ltd.,
which we refer to as GRC, in December 1996.
Fresh Del Monte was organized to acquire beneficial ownership and
control of all of the outstanding common stock of FDP N.V. and GRC. The
acquisition of FDP N.V. and GRC, which was accounted for as a purchase, was
completed on December 20, 1996. The results of operations of FDP N.V. and GRC
are included in our results commencing December 21, 1996.
On September 17, 1998, Fresh Del Monte acquired 14 wholly-owned
operating companies, referred to as IAT, from IAT Group Inc. and its
shareholders. We refer to this combination as the IAT transaction. At the time
of the IAT transaction, IAT Group Inc. owned approximately 86% of FG Holdings
Limited, which in turn owned approximately 63% of Fresh Del Monte. As a result,
the IAT transaction was accounted for as a combination of entities under common
control using the as if pooling of interests method of accounting.
Under the as if pooling of interests method of accounting, the
historical results of Fresh Del Monte have been restated to combine the
operations of Fresh Del Monte and IAT for all periods subsequent to August 29,
1996, the date Fresh Del Monte and IAT came under common control. The recorded
assets and liabilities of Fresh Del Monte and IAT were carried forward to Fresh
Del Monte's consolidated financial statements at their historical amounts and
consolidated earnings include the earnings of Fresh Del Monte and IAT for all
periods subsequent to the date Fresh Del Monte and IAT came under common
control. Our results prior to August 29, 1996 reflect the results of IAT only.
Fresh Del Monte's fiscal year end is the last Friday of the calendar
year or the first Friday subsequent to the end of the calendar year, whichever
is closest to the end of the calendar year. Prior to 1999, IAT's fiscal year end
was September 30. In 1999, IAT's fiscal year end was changed to conform to Fresh
Del Monte's fiscal year end. As a result, the following selected consolidated
financial information includes balance sheet data and income statement data for
IAT as of and for each of the three years ended September 30, 1996, 1997 and
1998, respectively. As a result of the change in IAT's year end, the results of
operations for IAT for the period October 1, 1998 to January 1, 1999, a loss of
$7.6 million, are not included in any of the periods presented in the
consolidated statements of income, but are reflected as an adjustment to
retained earnings as of January 2, 1999.
The following selected consolidated financial information of Fresh Del
Monte for the years ended December 27, 1996, December 26, 1997, January 1, 1999,
December 31, 1999 and December 29, 2000, is derived from the respective audited
consolidated financial statements of Fresh Del Monte prepared in accordance with
accounting principles generally accepted in the United States of America (the
United States).
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This data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included elsewhere in
this Report.
Year Ended
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December 27, December 26, January 1, December 31, December 29,
1996 1997 1999 1999 2000
------------ ------------ ---------- ------------ ------------
(In Millions, Except Share and Per Share Data)
INCOME STATEMENT DATA:
Net sales.................................... $ 278.3 $ 1,452.4 $ 1,600.1 $ 1,743.2 $ 1,859.3
Cost of products sold........................ 249.3 1,288.7 1,405.4 1,592.6 1,692.4
--------- ---------- ---------- ---------- ----------
Gross profit ................................ 29.0 163.7 194.7 150.6 166.9
Selling, general and administrative expenses. 11.5 51.4 58.3 63.5 80.9
Amortization of goodwill..................... -- 1.5 1.7 2.6 3.4
Acquisition-related expenses................. -- -- 4.0 -- --
Hurricane Mitch charge....................... -- -- 26.5 -- --
--------- ---------- ---------- ---------- ----------
Operating income ............................ 17.5 110.8 104.2 84.5 82.6
Interest expense............................. 12.8 45.7 30.3 30.2 43.2
Interest income.............................. 1.0 5.6 4.3 2.6 2.7
Other income, net............................ 1.7 6.0 11.4 14.7 (6.1)
--------- ---------- ---------- ---------- ----------
Income before provision (benefit) for income
taxes and extraordinary item............... 7.4 76.7 89.6 71.6 36.0
Provision (benefit) for income taxes......... (0.6) 13.1 12.2 14.7 2.9
--------- ---------- ---------- ---------- ----------
Income before extraordinary item............. 8.0 63.6 77.4 56.9 33.1
Extraordinary charge on early extinguishment
of debt.................................... -- 10.4 18.1 -- --
--------- ---------- ---------- ---------- ----------
Net income................................... 8.0 53.2 59.3 56.9 33.1
Redemption premium, dividends and accretion on
convertible preferred shares.............. -- (22.5) -- -- --
--------- ---------- ---------- ---------- ----------
Net income applicable to ordinary shareholders $ 8.0 $ 30.7 $ 59.3 $ 56.9 $ 33.1
========= ========== ========== ========== ==========
Basic and diluted per share amount applicable
to ordinary shareholders:
Before extraordinary item.................. $ 1.20 $ 0.94 $ 1.44 $ 1.06 $ 0.62
Extraordinary charge....................... $ -- $ (0.24) $ (0.34) $ -- $ --
Net income................................. $ 1.20 $ 0.70 $ 1.10 $ 1.06 $ 0.62
Weighted average number of ordinary
shares outstanding:
Basic...................................... 6,687,776 43,765,188 53,632,656 53,763,600 53,763,600
Diluted.................................... 6,687,776 43,765,188 53,774,831 53,805,237 53,764,383
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.................... $ 32.4 $ 85.7 $ 32.8 $ 31.2 $ 10.6
Working capital............................. 85.2 134.6 177.2 203.7 156.9
Total assets................................. 920.8 1,009.3 1,034.0 1,216.2 1,221.6
Total debt................................... 438.6 354.1 354.2 504.1 485.5
Ordinary shares.............................. 0.4 0.5 0.5 0.5 0.5
Paid in Capital.............................. 129.4 311.7 327.1 327.1 327.1
Shareholders' equity......................... 147.0 342.8 382.5 425.8 457.2
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For the convenience of the reader and due to the significance of the
operations of FDP N.V., we are presenting the following selected consolidated
financial information of FDP N.V. for the fifty-one week period ended December
20, 1996, prior to our acquisition of FDP N.V. This information has been derived
from the audited consolidated financial statements of FDP N.V. prepared in
accordance with United States generally accepted accounting principles. Prior to
the IAT transaction, results for FDP N.V. were reported by Fresh Del Monte as
the results of the principal predecessor entity.
Fifty-One Week
Period Ended
December 20, 1996
FDP N.V.
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(In Millions)
INCOME STATEMENT DATA:
Net sales ................................................... $1,167.5
Cost of products sold ....................................... 1,065.8
--------
Gross profit ................................................ 101.7
Selling, general and administrative expenses................. 51.8
Amortization of goodwill .................................... 4.2
Acquisition-related expenses ................................ 3.2
Special charge to goodwill(1) ............................... 138.7
--------
Operating loss .............................................. (96.2)
Interest expense ............................................ 36.1
Interest income ............................................. 2.0
--------
Loss before provision for income taxes ...................... (130.3)
Provision for income taxes .................................. 2.6
--------
Net loss .................................................... $ (132.9)
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(1) FDP N.V. continuously assessed the carrying value of goodwill to
determine if an impairment had occurred. Accordingly, a special charge
to the carrying value of goodwill was recorded in 1996.
RISK FACTORS
OUR RESULTS OF OPERATIONS IN 1999 AND 2000 SUFFERED DUE TO THE DECLINE
IN BANANA SALES PRICES, AND WE COULD REALIZE LOSSES AND SUFFER LIQUIDITY
PROBLEMS DUE TO DECLINES IN SALES PRICES FOR PINEAPPLES AND OTHER FRESH PRODUCE.
In 1999 and 2000, banana sales accounted for a significant portion of
our total net sales, and pineapple sales accounted for a significant portion of
our total gross profit. Bananas are an agricultural commodity and banana prices
fluctuate significantly as a result of supply and demand as well as seasonal and
other market factors. Sales prices for bananas declined significantly in 1999 in
both the North American and European markets and, as a result, we experienced
losses on sales of bananas. In 2000, sales prices for bananas in the North
American market increased slightly, however, banana sales prices declined in the
European and the Asia-Pacific markets. Sales prices for bananas, pineapples and
other fresh produce are difficult to predict. It is possible that sales prices
for bananas will decline further in the future and sales prices for pineapples
and other fresh produce may decline. In recent years, there has been increasing
consolidation among leading grocery stores and other retail chains, wholesalers
and distributors and we believe it may have resulted in increases in their
purchasing power which may have contributed to the downward pressure on sales
prices. In the event of a decline in fresh produce sales prices, we could
realize significant losses, experience liquidity problems and suffer a weakening
in our financial condition. A significant portion of our costs are fixed, so
that fluctuations in the prices of fresh produce have an immediate impact on our
profitability. Import regulations such as those currently in place in the
European Union banana market can also significantly affect market supply and
demand conditions, contributing to sales price fluctuations.
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DUE TO THE FLUCTUATIONS IN THE SUPPLY OF AND DEMAND FOR FRESH PRODUCE,
OUR RESULTS OF OPERATIONS ARE HIGHLY SEASONAL, AND WE REALIZE A GREATER PORTION
OF OUR NET SALES AND GROSS PROFIT DURING THE FIRST TWO CALENDAR QUARTERS.
In part as a result of seasonal sales price fluctuations, we have
historically realized most of our net sales and a substantial majority of our
gross profit during the first two calendar quarters of the year. The sales 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 deciduous fruits
during the off-season from November to May. In the melon market, the entry of
many growers selling unbranded or regionally branded melons during the peak
North American and European melon growing season results in greater supply, and
therefore lower sales prices, from June to October.
WE ARE SUBJECT TO MATERIAL CURRENCY EXCHANGE RISKS BECAUSE OUR
OPERATIONS INVOLVE TRANSACTIONS DENOMINATED IN VARIOUS CURRENCIES.
Because we conduct 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. Although a substantial portion of our sales
revenues (44% in 2000) is received in currencies other than the dollar, we incur
the majority of our costs in dollars. We generally are unable to adjust our
non-dollar local currency sales prices to compensate for increases 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
generally are negatively affected. Although we periodically enter into currency
forward contracts as a hedge against currency exposures, we may not enter into
these contracts during any particular period or these contracts may not fully
offset currency fluctuations.
INCREASED PRICES FOR FUEL OIL, PACKAGING MATERIALS OR SHORT-TERM
REFRIGERATED VESSEL CHARTERS COULD INCREASE OUR COSTS SIGNIFICANTLY.
The costs we incur in our shipping and packaging operations are
determined in large part by the prices of fuel oil and packaging materials,
including linerboard, plastic and resin. We may be adversely affected if
sufficient quantities of these materials are not available to us. Any
significant increase in the cost of these items could also materially adversely
affect our results. During 1999 and 2000, cost of fuel and linerboard increased
as compared to the prior years which resulted in a negative impact on our
results of operations. Cost of fuel on a per ton basis increased by 53% from
1999 to 2000 and cost of linerboard on a per ton basis increased by 20% from
1999 to 2000. In addition, our shipping operations are subject to the volatility
of the short-term charter market because a significant portion 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 significantly adversely
affect our results.
CROP DISEASE OR SEVERE WEATHER COULD RESULT IN SUBSTANTIAL LOSSES AND
WEAKEN OUR FINANCIAL CONDITION.
Crop disease or severe weather conditions including floods, windstorms
and hurricanes may adversely affect our supply of one or more fresh produce
items, reduce our sales volumes and increase our
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unit production costs. Because 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 and severe weather conditions from
time to time including a hurricane in Guatemala in 1998, flooding in Costa Rica
in 1996 and a significant outbreak of Black Sigatoka disease at our Costa Rican
banana farms during 1993 and 1994. When crop disease or severe weather
conditions occur and destroy crops planted on our farms, we lose our investment
in those crops, which increases unit production costs and reduces our sales
volumes.
WE MAY HAVE DIFFICULTY COMPETING IN THE HIGHLY COMPETITIVE FRESH
PRODUCE INDUSTRY.
The fresh produce business is highly competitive, in part because our
products are perishable. Competition in the sale of bananas, pineapples,
deciduous fruit, melons, other fresh fruit and vegetables comes from competing
producers as well as from other fresh produce. The extent of competition varies
for each particular fresh produce item. In order to compete successfully, we
must be able to strategically source fresh produce of uniformly high quality and
sell and distribute it on a timely basis.
WE ARE SUBJECT TO SUBSTANTIAL LEGAL AND ENVIRONMENTAL RISKS THAT COULD
RESULT IN SIGNIFICANT CASH OUTLAYS.
We are involved in several significant legal and environmental matters
which, if not resolved in our favor, could require significant cash outlays and
could materially adversely affect our results of operations and financial
condition. For example, we are involved in several actions in U.S. and non-U.S.
courts involving allegations by numerous Central American and Philippine
plaintiffs that they were injured during the 1970s and 1980s by exposure to a
nematocide containing the chemical Dibromochloropropane.
In addition, the United States Environmental Protection Agency, or the
EPA, has placed the Kunia Well Site at our plantation in Oahu, Hawaii on the
National Priorities List under the "Superfund" law, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980. Under an order
entered into with the EPA, we completed a remedial investigation and engaged in
a feasibility study to determine the extent of the environmental contamination.
The remedial investigation report was finalized on January 21, 1999 and approved
by the EPA in February 1999. The final draft feasibility study was submitted for
EPA review in December 1999, and we expect that the Feasibility Study will be
finalized by the first half of 2001. The ultimate outcome and any potential
costs associated with this matter are estimated to be between approximately $4.2
million and $28.1 million (a portion of these estimates have been discounted
using a 5% interest rate. The undiscounted estimates are between approximately
$5.0 million and $30.0 million). As of December 29, 2000, our balance sheet
includes a provision of approximately $4.2 million.
ENVIRONMENTAL AND OTHER REGULATION OF OUR BUSINESS COULD ADVERSELY
IMPACT US.
Our business depends on the use of fertilizers, pesticides and other
agricultural chemicals. The use and disposal of these chemicals in some
jurisdictions are subject to regulation by various agencies. A decision by a
regulatory agency to significantly restrict the use of a chemical that has
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 for which there is currently no known
substitute, is currently scheduled to be phased out in the United States by
2005. 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
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are not in compliance with a regulation in that agency's jurisdiction, this
could result in substantial penalties and could also result in a ban on the sale
of part or all of our products in that jurisdiction.
WE ARE EXPOSED TO POLITICAL, ECONOMIC AND OTHER RISKS FROM OPERATING A
MULTINATIONAL BUSINESS.
Our business is multinational and subject to the political, economic
and other risks that are inherent in operating in numerous countries. These
risks include those of adverse government regulation, including the imposition
of import and export duties and quotas, currency restrictions, expropriation and
potentially burdensome taxation in a variety of countries. For example, the
banana import regulations that took effect in 1993 have restricted our access to
the European Union banana market and increased the cost of doing business in the
European Union. Recently, the council of the European Union issued a regulation
authorizing the modification of the current banana import system. However, the
date of adoption and the specifics of a potential new banana import system
remain unclear. Accordingly, we cannot predict whether, when or how the European
Union banana import regime may change, but any change could materially adversely
impact us. In addition, the potential risks of operating a multinational
business may be greater in countries where our activities are a significant
factor in the country's economy, which is particularly true of our banana,
pineapple and melon operations in Costa Rica and our banana and melon operations
in Guatemala.
We have a disagreement with the Government of Cameroon with respect to
its intended privatization of certain banana plantations which we have a
contract for the supply of their banana production. We disagree over the amount
of acreage that can be privatized and the date of the privatization. We cannot
predict whether or when the Government of Cameroon will privatize the banana
plantations. Depending on the banana import regulations in effect for the
European Union, such privatization may have a material adverse impact on us.
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 prices potentially affect our
international cash flows because they result in increased payments to
counterparties in the producing country, based on the minimum export prices
established.
We are also subject to a variety of 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, South Korea and China. Examples of these regulations include:
o sanitary regulations;
o regulations governing pesticide use and residue levels; and
o regulations governing packaging and labeling.
If we fail to comply with applicable regulations, it could result in an
order barring the sale of part or all of a particular shipment of our products
or, in an extreme case, 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.
OUR ABILITY TO SUCCESSFULLY DISTRIBUTE FRESH PRODUCE IN EUROPE AND
JAPAN IS AT RISK DUE TO OUR DISTRIBUTION ARRANGEMENTS.
We distribute many of our products in Europe and Japan through
marketing companies or partnerships with whom we have profit-sharing
arrangements or who distribute our products on a
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commission basis. If any of these arrangements were terminated it could
significantly limit our ability to distribute products in the affected regions.
In 2000, our net sales of DEL MONTE(R) branded and other fruit sold in
Northern Europe under a sales and purchase agreement with a partnership in which
we own a non-controlling majority interest totaled $85.8 million. The
partnership owns banana import licenses that permit us to distribute bananas in
Northern Europe. Due to disagreements between the partnership and us, in July
1997 we informed the partnership that we intend to discontinue the sales
agreement as of December 31, 2002. If we are unable to resolve this dispute, we
may not be able to continue to distribute the same volume of bananas in Northern
Europe.
OUR ACQUISITION AND EXPANSION STRATEGY MAY NOT BE SUCCESSFUL.
We seek to achieve our growth strategy through acquisitions or
expansion, which pose a number of risks. We may not be successful in identifying
appropriate acquisition candidates, consummating acquisitions on satisfactory
terms, integrating any newly acquired or expanded business with our current
operations or obtaining financing on favorable terms or at all. We may issue
ordinary shares, incur long- or short-term indebtedness, spend cash or use a
combination of these for all or part of the consideration paid in future
acquisitions. We also are currently subject to contractual limitations on our
ability to effect acquisitions under our revolving credit facility. While we
regularly evaluate various acquisition opportunities, we have no present
commitments or agreements with respect to any material acquisition.
ACTS OR OMISSIONS OF OTHER COMPANIES COULD ADVERSELY AFFECT THE VALUE
OF THE DEL MONTE(R) BRAND.
We depend on the DEL MONTE(R) brand name in marketing our fresh
produce. We share the DEL MONTE(R) brand name with unaffiliated companies that
manufacture, distribute and sell canned or processed fruits and vegetables,
dried fruit, snacks and other products. Acts or omissions by these companies,
including an instance of food-borne contamination or disease, may adversely
affect the value of the DEL MONTE(R) brand name. We may be adversely affected by
an incident, whether it occurs in our products or a competitor's products.
OUR SUBSTANTIAL INDEBTEDNESS COULD LIMIT OUR FINANCIAL AND OPERATING
FLEXIBILITY AND SUBJECT US TO OTHER RISKS.
At year-end 2000, our total debt, including current maturities and
capital lease obligations, was $485.5 million and our total debt to total
capitalization ratio was approximately 52%. This level of indebtedness could
have significant consequences because:
o a substantial portion of our net cash flow from operations
must be dedicated to debt service and will not be available
for other purposes;
o our ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions may
be limited either by financial considerations or due to
covenants in existing loan agreements; and
o our level of indebtedness may limit our flexibility in
reacting to changes in the industry and economic conditions
generally.
Our ability to service our indebtedness 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. If
we were unable to service our debt, we would be forced to pursue one or more
alternative strategies such as selling assets, restructuring or refinancing our
indebtedness or seeking
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additional equity capital, which might not be successful and which could
substantially dilute the ownership interest of existing shareholders.
Our revolving credit agreement imposes operating and financial
restrictions on our activities. Our failure to comply with the obligations under
the revolving credit agreement, 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.
OUR SUCCESS DEPENDS ON OUR SENIOR EXECUTIVES, THE LOSS OF WHOSE
SERVICES COULD DISRUPT OUR OPERATIONS.
Our ability to maintain our competitive position is dependent to a
large degree on the services of our senior management team. We may not be able
to retain our existing senior management personnel or to attract additional
qualified senior management personnel.
WE ARE A HOLDING COMPANY AND WE MAY BE UNABLE TO PAY DIVIDENDS OR MEET
OUR DEBT SERVICE OBLIGATIONS.
We are a holding company, accordingly, our ability to pay dividends and
to meet our debt service obligations depends primarily on receiving sufficient
funds from our subsidiaries, including funds from borrowings under our credit
facilities. 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 the holding
Company.
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 67% of the outstanding ordinary
shares. Our chairman and chief executive officer, and two other directors, are
members of the Abu-Ghazaleh family. We expect our principal shareholders to
continue to use their majority interest in the ordinary shares to direct our
management, to effectively control the election of our entire board of
directors, to determine substantially all other matters requiring shareholder
approval and to control Fresh Del Monte. The concentration of beneficial
ownership of Fresh Del Monte may have the effect of delaying, deterring or
preventing a change in control, may discourage bids for the ordinary shares at a
premium over their market price and may otherwise adversely affect the market
price of the ordinary shares.
A SUBSTANTIAL NUMBER OF OUR ORDINARY SHARES ARE AVAILABLE FOR SALE IN
THE PUBLIC MARKET AND SALES OF THOSE SHARES COULD ADVERSELY AFFECT OUR SHARE
PRICE.
Future sales of the ordinary shares by our principal shareholders, or
the perception that such sales could occur, could adversely affect prevailing
market prices for the ordinary shares. Of the 53,763,600 ordinary shares
outstanding, 35,993,600 ordinary shares are owned by the principal shareholders
and are "restricted securities." These "restricted" ordinary shares are
registrable upon demand by the principal shareholders 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.
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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 Fresh Del Monte that is
not approved by our board of directors. These provisions include:
o a classified board of directors;
o a prohibition on shareholder action through written consents;
o a requirement that general meetings of shareholders be called
only by a majority of the board of directors or by the
Chairman of the Board;
o advance notice requirements for shareholder proposals and
nominations;
o limitations on the ability of shareholders to amend, alter or
repeal our organizational documents; and
o the authority of the board of directors to issue preferred
shares with such terms as the board of directors may
determine.
In addition, a change of control would constitute an event of default
under our revolving credit facility which would have a material adverse effect
on us. These provisions also could delay, deter or prevent a takeover attempt.
ITEM 4. INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF FRESH DEL MONTE
Our legal name is Fresh Del Monte Produce Inc. and our commercial name
is Del Monte Fresh Produce. We are a holding company, incorporated under the
laws of the Cayman Islands on August 29, 1996 and are 57.6% owned by IAT Group
Inc. which is 100% beneficially owned by members of the Abu-Ghazaleh family. In
addition, members of the Abu-Ghazaleh family directly own 9.3% of the
outstanding ordinary shares of Fresh Del Monte. Our registered office is located
at P.O. Box 265GT, Georgetown, Grand Cayman, Cayman Islands. Our principal
executive offices are located at c/o Del Monte Fresh Produce Company, 800
Douglas Road, North Tower, 12th Floor, Coral Gables, Florida 33134. Our
telephone number at our principal executive offices is (305) 520-8400.
Our global business, conducted through subsidiaries, is primarily the
worldwide production, transportation and marketing of fresh produce. We source
our products (bananas and other fresh produce which includes pineapples,
deciduous fruit, melons and other fresh fruit and vegetables) from 15 locations
in North, Central and South America, the Asia-Pacific region and Africa and
distribute them in North America, Europe, the Asia-Pacific region and South
America. Our products are sourced from company-owned farms, through joint
venture arrangements and through supply contracts with independent growers.
On September 17, 1998, Fresh Del Monte acquired 14 wholly-owned
operating companies, which we refer to as IAT, from IAT Group Inc. and its
shareholders. At the time of the IAT transaction, IAT Group Inc. owned
approximately 86% of FG Holdings Limited, which in turn owned approximately 63%
of Fresh Del Monte. As a result, the IAT transaction was accounted for as a
combination of entities under common control using the as if pooling of
interests method of accounting.
Fresh Del Monte was organized to acquire beneficial ownership and
control of all of the outstanding common stock of FDP N.V. and GRC. The
acquisition of FDP N.V. and GRC, which was accounted for as a purchase, was
completed on December 20, 1996. The results of operations of FDP N.V. and GRC
are included in our results commencing December 21, 1996.
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Our principal capital expenditures for 2000 consisted of the
acquisition of pre-owned refrigerated vessels and expansion of distribution and
operating facilities for a total of $57.0 million. Our principal capital
expenditures for 1999 consisted of the acquisition of pre-owned refrigerated
vessels, expansion of distribution and operating facilities and the
implementation of a new computer system for a total of $95.4 million. Our
principal capital expenditures for 1998 consisted of the acquisition of
pre-owned refrigerated vessels and expansion of production and distribution
facilities for a total of $39.6 million.
Principal capital expenditures currently in progress consist of
approximately $69.0 million to be spent in the year 2001 for expansion of
distribution facilities in North America and Asia-Pacific and expansion of
operating facilities in Central and South America. Capital expenditures for the
year 2001 are expected to be funded through operating cash flows and through
borrowings from our Revolving Credit Facility.
BUSINESS OVERVIEW
We are a world leader in the production, distribution and marketing of
fresh fruit, fresh vegetables and other fresh produce. Our products are marketed
throughout the world under the DEL MONTE(R) brand name which has been in
existence since 1892 and is a widely recognized symbol of product quality and
reliability. Our major products are bananas, pineapples, deciduous fruit and
melons. The deciduous fruit we sell includes primarily grapes, plums,
nectarines, peaches, apricots, cherries, apples, pears and citrus. In 2000, we
believe we were:
o the third largest marketer of bananas in the world, with an
estimated 17% market share;
o the largest marketer of fresh pineapples in the world, with an
estimated 52% market share; and
o the largest marketer of cantaloupe and honeydew melons sold in
the United States in the November to May off-season.
We control, manage or supervise all aspects of the production,
distribution and marketing of our fresh produce. We believe this enhances our
ability to ensure the quality of our products, operate efficiently and generate
high margins. Our products come primarily from 15 countries located in North,
Central and South America, the Asia-Pacific region and Africa. In 2000, 32% of
the fresh produce we sold was grown on farms owned or leased by us or by joint
ventures in which we participate and the remaining 68% was acquired through
supply contracts with independent growers. We transport our fresh produce to
markets worldwide using our globally managed fleet of 40 owned or chartered
refrigerated vessels. We also operate port, distribution and ripening
facilities. By controlling transportation and distribution, we have a greater
ability to continuously monitor and maintain the quality of our produce and
ensure its timely distribution to our customers around the world.
We market and distribute our products to retail chains, wholesalers,
independent distributors and marketing companies in more than 50 countries
around the world. In 2000, North America was our largest market, accounting for
50% of our total sales. Europe and the Asia-Pacific region were our other major
markets, accounting for 31% and 17% of total sales. The scale of our fresh
produce transportation and distribution operations provides us with the
flexibility to take advantage of market opportunities as they arise. It also
enables us to rapidly introduce new products and to widely distribute those
products efficiently.
We have exclusive rights to use the DEL MONTE(R) brand name for fresh
fruit, fresh vegetables and other fresh produce on a royalty-free basis under a
worldwide, perpetual license from Del Monte Corporation, an unaffiliated company
that owns the DEL MONTE(R) trademark. Del Monte Corporation and several other
unaffiliated companies manufacture, distribute and sell under the DEL MONTE(R)
brand name canned or processed fruits, vegetables and other produce as well as
dried fruit, snacks and other products.
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Our principal shareholders, the Abu-Ghazaleh family, have been involved
in the fresh produce business since the late 1950s and acquired the Company,
which is engaged in the fresh produce business using the DEL MONTE(R) brand
name, in December 1996. In October 1997, we effected an initial public offering
of our ordinary shares.
In September 1998, we combined the fresh produce business of IAT Group
Inc., a company owned by the Abu-Ghazaleh family, with the fresh produce
business conducted under the DEL MONTE(R) brand name. During 1999 and 2000, we
completed several important acquisitions. In January 1999, we acquired all of
the outstanding shares of Banana Marketing Belgium N.V., or BMB, a marketing
company in Europe which enabled us to expand direct sales in the Northern
European market. Also during 1999 and 2000, we acquired a distribution business
in New Zealand and we acquired several fresh-cut fruit businesses in North
America and a produce distribution business in the U.K. We expect that the North
American acquisitions will help us to rapidly develop a national fresh-cut fruit
and vegetable business in the United States.
PRODUCTS
The following table presents the countries from which we source our
primary products, and the percentage of total 2000 sales volume for each product
category by country. The table also presents the percentage of total 2000 sales
volume of each product category that is sourced from farms owned or leased by us
or by joint ventures in which we participate and the percentage that is
purchased by us from independent growers.
Percentage of Total 2000 Volume Sourced
------------------------------------------------------
Deciduous Fruit
Source Bananas Pineapples and Citrus Melons
------ ------- ---------- --------------- ------
CENTRAL AMERICA:
Costa Rica ............... 32% 66% -- 36%
Guatemala ................ 10 -- -- 17
Panama ................... 2 -- -- --
ASIA-PACIFIC:
Philippines .............. 23 14 -- --
New Zealand .............. -- -- 1% --
SOUTH AMERICA:
Chile ................... -- -- 53 --
Ecuador ................. 12 -- -- --
Uruguay ................. -- -- 3 --
Colombia ................ 15 -- -- --
Brazil .................. 1 -- -- 4
NORTH AMERICA:
United States ........... -- 20 13 30
Mexico .................. -- -- 2 4
AFRICA:
South Africa ............. -- -- 15 --
Cameroon ................. 5 -- -- --
Spain .................... -- -- 5 --
OTHER ............................ -- -- 8 9
---- ---- ---- ----
TOTAL ............ 100% 100% 100% 100%
==== ==== ==== ====
From company-owned or leased farms
and joint ventures ........... 21% 75% 12% 66%
Purchased from independent growers 79 25 88 34
---- ---- ---- ----
TOTAL ............ 100% 100% 100% 100%
==== ==== ==== ====
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BANANAS
Bananas are the leading internationally traded fresh fruit in terms of
both volume and dollar sales. Based on the most recently available FAO data,
Europe is the world's largest market for bananas, importing approximately 14
billion pounds per year. North America is the next largest market for bananas,
importing over ten billion pounds annually. The Asia-Pacific region, including
the Middle East, currently imports approximately five billion pounds per year.
According to the most recently available FAO data, during the period from 1990
to 1999, the volume of banana imports increased by approximately 37% in North
America, by approximately 59% in Europe, including Eastern Europe, and by
approximately 100% in the Asia-Pacific region, including the Middle East.
Bananas are the largest volume fresh fruit and the second largest volume fresh
produce item, behind potatoes, sold in U.S. grocery stores.
We sold 108 million boxes of bananas in 2000 compared to 113 million
boxes in 1999, primarily due to a planned reduction in sales volumes in the
Eastern European markets.
OTHER FRESH PRODUCE
PINEAPPLES
Based upon the most recently available FAO data, annual fresh pineapple
consumption in the United States and Canada in 1999 was approximately 696
million pounds. In 1999, fresh pineapple imports into Europe were approximately
1,186 million pounds and imports into the Asia-Pacific region, including the
Middle East, were approximately 311 million pounds. During the period from 1990
to 1999, the volume of imports of fresh pineapple increased by approximately
141% in North America and by approximately 88% in Europe, including Eastern
Europe, but decreased by approximately 8% in the Asia-Pacific region, including
the Middle East.
Since the introduction in 1996 of our premier product, the "DEL MONTE
GOLD(R) EXTRA SWEET" pineapple, our share of the worldwide pineapple market has
grown significantly, to an estimated 52% in 2000. In addition, largely as a
result of our introduction and expansion of the "DEL MONTE GOLD(R) EXTRA SWEET"
pineapple, we increased our aggregate pineapple sales volume from 12 million
boxes in 1996 to 21 million boxes in 2000. During 2000, we began production of
the "DEL MONTE HAWAII GOLD(TM)" pineapple in our Hawaii plantation. The "DEL
MONTE HAWAII GOLD(TM)" will be marketed in North America starting in 2001. The
"DEL MONTE GOLD(R) EXTRA SWEET" and the DEL MONTE HAWAII GOLD(TM)" have a number
of highly desirable characteristics such as enhanced taste, golden shell color,
bright yellow flesh and a higher vitamin C content as compared to traditional
varieties of pineapple.
DECIDUOUS FRUIT
Deciduous fruit grows on trees, bushes or vines that shed their leaves
seasonally. We produce, distribute and market a variety of deciduous fruit,
primarily consisting of grapes, stonefruit, apples, pears and citrus. The
stonefruit we sell includes primarily plums, nectarines and peaches.
In 2000, we sold ten million boxes of deciduous fruit including four
million boxes of grapes, two million boxes of citrus, one million boxes of
apples and one million boxes of stonefruit. In 1999, we sold nine million boxes
of deciduous fruit.
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MELONS
Demand for melons in the United States and Europe continues to grow.
Based on the most recently available FAO data, during the period from 1990 to
1999 the volume of imports of cantaloupes and other melons increased by
approximately 110% in North America and by approximately 130% in Europe.
We currently sell a variety of melons including cantaloupe, honeydew,
watermelon and other specialty melons. We have introduced new varieties of
melons in order to meet the different tastes and expectations of consumers in
various markets. We have become a significant producer and distributor of
cantaloupe, honeydew and other melons during the off-season. In 2000, we were
the largest marketer in the United States of cantaloupe and honeydew sold in the
November to May off-season with an estimated 27% market share for cantaloupe and
an estimated 35% market share for honeydew.
In 2000, we sold over 19 million boxes of melons, compared to 15
million boxes in 1999. The 2000 sales included 14 million boxes of cantaloupes,
two million boxes of honeydews, two million boxes of specialty melons and one
million boxes of watermelons. We sold approximately 82% of our total melon
volume in North America and approximately 16% in the off-season in Europe.
OTHER
During 1999 and 2000, we acquired three fresh-cut fruit and vegetable
businesses in North America, which we expect will help us to rapidly develop a
national fresh-cut fruit and vegetable business. These acquisitions demonstrate
our on-going initiative of diversification. The fresh-cut produce business
provides us with an opportunity to further leverage our distribution network and
bring value-added products to the market. During 2000, we sold 1.7 million boxes
of fresh-cut products in North America. The market for the fresh-cut fruit and
vegetable category is approximately $10 billion and is expected to more than
double by 2005, according to the INTERNATIONAL FRESH-CUT PRODUCE ASSOCIATION.
We also produce, market and distribute other fresh produce including
plantains, Vidalia(R) and other sweet onions and specialty vegetables (collard
greens, turnip greens and mustard greens). In 2000 we sold two million boxes of
plantains principally under the DEL MONTE(R) brand name, and we plan to continue
increasing our sales of this fruit, which we purchase from independent growers.
In addition, in 2000, we sold over two million boxes of sweet onions and
specialty vegetables. We began growing sweet onions outside the United States in
1998, and we also purchased a Vidalia(R) sweet onion farm and distribution
facility in Georgia. Although sweet onions are grown throughout the United
States, a sweet onion may only be labeled a Vidalia(R) onion if it is grown in
certain counties in the State of Georgia.
SOURCING AND PLANTATION OPERATIONS
We source our products from 15 countries in North, Central and South
America, the Asia-Pacific region and Africa. In 2000, 32% of the fresh produce
we sold was grown on farms that are owned or leased by us or by joint ventures
in which we participate and the remaining 68% was acquired through supply
contracts with independent growers. We seek to maintain long-term contracts with
most of our independent growers in order to maintain a stable source of supply.
BANANAS
Bananas are grown in hot and humid climates, typically within 15
degrees north or south of the equator. Bananas are vulnerable to both adverse
localized weather conditions, such as windstorms or floods, and to plant
disease. For example, in 1998, our Guatemalan banana operations were damaged as
a result of Hurricane Mitch. The hurricane damage reduced our Guatemalan banana
production by
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approximately six million and two million boxes in 1999 and 1998, respectively,
or approximately 5% and 2%, respectively, of our 1999 and 1998 worldwide banana
production.
In Central and South America we produce bananas on company-owned farms
in Costa Rica, Guatemala and Brazil and purchase bananas from independent
growers in Costa Rica, Ecuador, Guatemala, Colombia, Mexico and Panama,
primarily through long-term contracts.
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. Under these contracts we have the right and the obligation
to purchase all bananas produced by the independent grower that meet our quality
specifications. Approximately half of all of our Philippine-sourced bananas are
supplied by one major Philippine grower which also supplies us with pineapples
through a joint venture relationship.
Our banana production in Cameroon is conducted in accordance with a
1987 arrangement, as amended, between one of our subsidiaries and the Cameroon
Development Corporation, a company wholly-owned by the government of Cameroon.
Based on this agreement, we provide financial, management and technical support
to develop and cultivate banana plantations owned by the Cameroon Development
Corporation. The Government of Cameroon started procedures for the privatization
of the Cameroon Development Corporation through a bid process. Based on the
agreement, we disagree with the Government of Cameroon with respect to the
acreage which can be privatized and the date on which the privatization may take
effect. We are currently involved in discussions with the Government of Cameroon
regarding our disagreements and we have been involved in the privatization
process. In the event the Government of Cameroon was to select another bid, we
have the right of first refusal to acquire the business being privatized by
matching the chosen bid.
PINEAPPLES
Pineapples are grown in tropical locations similar to those in which
bananas are grown, but pineapple growing requires greater capital resources,
significant agricultural expertise and intensive cultivation. As a result, a
higher percentage of the pineapples we sell are produced on company-owned or
leased farms, as compared with the bananas we sell.
The principal production and procurement areas for our pineapples are
Costa Rica, Hawaii and the Philippines. We own and operate a pineapple
plantation in Costa Rica, which provided approximately eleven million of the
total of fourteen million boxes of pineapple sourced from Costa Rica in 2000. In
Hawaii, we operate a pineapple plantation on leased land on the island of Oahu.
Most of this plantation is situated on land held under long-term leases which
run through 2008, while approximately 2,000 acres of the plantation is currently
leased on a month-to-month basis pending resolution of the environmental issues
relating to the Kunia Well site. As part of our joint venture arrangement in the
Philippines, we have a pineapple production and purchase agreement expiring in
the year 2013 that provides us with all of the joint venture's pineapple
production that meets our quality specifications. In the Philippines we also
have a long-term pineapple supply and profit-sharing agreement, under which we
are assured a minimum annual volume of pineapples.
DECIDUOUS FRUIT
We obtain our supply of deciduous fruit from company-owned plantations
in Chile and the United States and from purchases from independent growers in
Chile, South Africa, the United States and New Zealand. In Chile, we purchase
fruit from independent growers and also produce a variety of deciduous fruit on
more than 6,000 acres of company-owned or leased land. Grapes that are harvested
from Chile for
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the pre-Christmas season in North America typically command a premium price
because of the limited supply at that time of the year. In South Africa, we
source most of our deciduous fruit from the Capetown area under annual contracts
with independent growers. In the United States, the majority of our fruit is
sourced from California. In New Zealand, we source our products from independent
growers.
MELONS
We are able to provide our customers with a year-round supply of melons
by sourcing them from Costa Rica, Guatemala, Brazil, the United States and
Mexico. We have developed specialized melon-growing technology which we believe
has significantly increased our crop yield. Melon crop yields are highly
dependent on favorable weather conditions, particularly in the case of
cantaloupes, which are highly susceptible to adverse weather conditions. In
addition, melon production requires annual crop rotation and irrigation. For
these reasons, we have chosen primarily to lease rather than to own melon farms.
OTHER
We source the other products that we sell from a variety of locations
worldwide.
QUALITY
In order to ensure the consistently high quality of our products, we
have a quality assurance group that maintains detailed quality specifications
for our products. Our specifications require extensive sampling of our fresh
produce at all stages of the production and distribution process to ensure high
quality and proper sizing as well as to identify the primary sources of any
defects. Our fresh produce is evaluated based on both external appearance and
internal quality, using size, color, porosity, translucence and sweetness
criteria. Only fresh produce meeting our stringent quality specifications is
sold under the DEL MONTE(R) brand name.
We are able to maintain the high quality of our products by growing our
own produce and working closely with our joint venture partners and independent
growers. We insist that all produce supplied by our independent growers meet the
same stringent quality requirements as produce grown on our own farms.
Accordingly, we monitor our independent growers to ensure that their produce
will meet agricultural and quality control standards, we offer technical
assistance on certain aspects of production and packing and, in some cases, we
manage the farms. As proof of our commitment to quality, in July 2000, our
Philippines banana operations received ISO 9002 certification in recognition of
quality management systems.
In December 1998, our Costa Rican fresh pineapple and banana operations
received certificates of compliance to the International Standards Organization,
or ISO, 14001 standards. In April 1999, our Guatemalan banana operation also
received the ISO 14001 certification. These certifications demonstrate that our
Costa Rican banana and fresh pineapple operations, and our Guatemalan banana
operations conform to internationally recognized standards for environmental
management systems. In light of increasing concerns about the environmental
impact of agricultural practices, particularly among European consumers, we
believe that our environmental management efforts may become increasingly
important in marketing our products. We are seeking to achieve certificates to
the ISO 14001 and/or ISO 9000 standards in our other major worldwide production
operations.
PACKING FACILITIES
We have extensive packing facilities in locations around the world
where we receive and pack for shipment fresh produce grown on our plantations
and received from joint venture partners and independent
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growers. At our banana and pineapple sourcing locations, we have packing
operations where we prepare harvested fruit for shipment. At locations where we
grow or purchase deciduous fruit and melons, most of our packing stations
include cold storage facilities, controlled atmosphere rooms and multi-purpose
packing lines designed to handle a variety of products. The quality assurance
process that begins on our plantations and those of our joint venture partners
and independent growers continues as harvested products enter our packing
facilities. Where appropriate, we cool the fresh produce at our packing
facilities to maximize quality and shelf life.
SHIPPING AND DISTRIBUTION
In order to maintain the product quality and freshness required to
remain competitive and meet customers' expectations, it is critical that we
successfully manage the logistics of distributing fresh produce in a timely
manner to appropriate markets. In addition, we strive to preserve our fruit by
creating a continuous cold chain, beginning with the harvest of the fruit in the
field through its distribution to our end markets. Maintaining fruit at the
appropriate temperature is an important factor in preventing deterioration of
the fruit and maximizing potential shelf life. For example, bananas must be
refrigerated within 36 hours of the time of harvest and carefully maintained in
this state until delivery to the customer in order to ensure quality and
freshness. Even more stringent refrigeration requirements apply to the
transportation of pineapples, melons and deciduous fruit. As a result of these
requirements, we operate a broad range of shipping and distribution facilities
including refrigerated vessels, port facilities, trucks and warehouses.
We conduct shipping operations on a global basis to support our fresh
produce business, transporting our products from the countries in which they are
grown to the countries in which they are sold. We devote substantial resources
to managing the scheduling and availability of reliable ocean transportation. In
doing so, we seek to maximize the flexibility of our shipping operations to
permit us both to deliver our products on a timely basis to our customers, and
also to enhance our ability to respond quickly to changes in the global fresh
produce market by redeploying shipments to meet demand.
As of December 29, 2000, 15 out of the total of 19 vessels we chartered
were chartered on a short-term basis and, accordingly, our shipping operations
are generally subject to the volatility of the short-term vessel charter market.
Both the supply of and demand for refrigerated vessels fluctuate over time,
causing corresponding fluctuations in short-term charter rates that can be
significant and that directly affect our overall transportation costs and
results of operations. The majority of our worldwide pineapple and deciduous
fruit production and all of our banana and melon production are shipped by
refrigerated vessels. In addition, we air freight the majority of our Hawaiian
pineapple production to customers in the mainland United States. In 2000, we air
freighted 2 million boxes to those customers. We have been able to use our
existing refrigerated vessel fleet to ship melons from Costa Rica and Guatemala,
which has significantly reduced our per-box costs and improved our margins. We
also have developed a controlled modified atmosphere package for use in shipping
melons, which allows us to harvest the fruit when it is at a more advanced stage
of ripeness, resulting in improved melon taste without reducing shelf life.
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As of December 29, 2000, we operated 26 cold storage and distribution
facilities located throughout the United States, Europe and the Asia-Pacific
region, many of which have ripening facilities. The cold storage facilities
allow palletized fruit to be stored in a temperature-controlled environment. Our
cold-storage capability helps to improve pricing by reducing pressure to fully
sell a shipment prior to its arrival at the port and improves ship utilization
by minimizing their waiting time at ports.
SALES AND MARKETING
We market our fresh produce in over 50 countries around the world. The
following tables present for each of the periods indicated (1) the percentage of
our total net sales by geographic region and (2) the percentage of our total net
sales by product category:
Year Ended
-------------------------------------------------------------
January 1, 1999 December 31, 1999 December 29, 2000
--------------- ----------------- -----------------
NET SALES BY GEOGRAPHIC REGION:
North America................. 49% 48% 50%
Europe........................ 33 34 31
Asia-Pacific.................. 15 16 17
Other......................... 3 2 2
---- ---- ----
Total....................... 100% 100% 100%
==== ==== ====
NET SALES BY PRODUCT CATEGORY:
Bananas....................... 56% 55% 50%
Other fresh produce........... 40 40 45
Non-Produce................... 4 5 5
---- ---- ----
Total....................... 100% 100% 100%
==== ==== ====
Our customers primarily consist of retail chains, wholesalers and
distributors. As part of our effort to maintain and enhance the value of the DEL
MONTE(R) brand name and strengthen customer loyalty, we, directly or in
conjunction with our marketing associates and distributors, provide value-added
services for our customers. These services include technical training relating
to the handling of fresh produce, merchandising, joint promotional activities,
market research, ripening services and logistical support. Since our customers
generally carry only one brand of each fresh produce item, we focus our
marketing and promotional efforts on trade advertising and in-store promotions.
NORTH AMERICA
Sales and distribution of our products in North America are conducted
by a sales force with offices throughout the United States and Canada. This
sales force sells directly to customers in North America, comprised principally
of leading grocery stores and other retail chains, wholesalers and distributors.
In recent years, our customer base has been consolidating and the sales force
has focused on supplying large-scale customers.
In the United States, because produce department margins are among the
highest of all major departments in grocery stores and because of strong demand
for fresh produce, many retailers have responded by using new grocery store
formats that allot more shelf space to fresh produce and/or place it in a prime
location within their stores.
We typically sell our bananas at a price that includes delivery to the
port of entry. At the port of entry, the fruit, which has been harvested while
still unripe or green, is transported in refrigerated trucks to processing
warehouses where the bananas are ripened, which generally takes four to eight
days. Bananas
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ripened by distributors or service wholesalers are then sold to retailers, while
bananas ripened by chain store ripening rooms are distributed directly to their
company-owned food stores. To meet customer needs, we offer a proprietary banana
ripening service from our distribution centers. We also provide other services,
such as store delivery, from our distribution locations. In contrast to bananas
and nearly all deciduous fruit, pineapples and melons are ripe at the time of
harvest, which requires the fruit to be delivered and sold in a shorter time
period but does not require any further dependence on ripeners and ripening
schedules.
EUROPE
The consumption of fresh produce has increased in Europe, aided by
greater year-round availability of certain fruits and vegetables from other
sources such as Chile and South Africa and by new technologies such as
controlled atmosphere storage. However, the European Union has imposed
regulations that have reduced the supply of bananas in the European Union and
slowed EU banana market growth. See "Government Regulation--European Union
Banana Import Regulations", described below. In the United Kingdom, our products
are distributed in much the same manner as in North America, through direct
sales to leading retail chains and to wholesalers and distributors. Our products
are distributed in Northern and Southern Europe through two marketing companies
with whom we share, in an agreed ratio, the profits or losses realized from
sales to customers. The Northern European marketing company is a partnership in
which we own a non-controlling 80% equity interest. We gave notice of our intent
to discontinue our profit-sharing agreement with this partnership, but we are in
ongoing discussions with the partnership to resolve certain disagreements. See
"Risk Factors--Our ability to successfully distribute fresh produce in Europe
and Japan is at risk due to our distribution arrangements." During 1999, we
acquired all of the outstanding shares of BMB a marketing company in Belgium
which enabled us to expand our direct sales in the Northern European market.
ASIA-PACIFIC
Since 1975, our bananas and pineapples have been distributed in Japan
through Japan's largest fresh produce distribution cooperative, which
distributed our products on a sales commission basis. In 1996, we commenced
direct marketing of fresh produce in Japan and in 2000, 61% of our sales volume
in Japan was attributable to our direct marketing efforts.
We have also commenced direct sales and marketing activities in Hong
Kong and Korea. In other Asia-Pacific markets, including China, Pacific Russia,
Okinawa, Singapore and Taiwan, we currently sell to local distributors.
COMPETITION
Fresh produce marketing is highly competitive, and the effect of
competition is intensified because our products are perishable. Competition in
the sale of bananas, pineapples, deciduous fruit and melons comes from competing
producers of those fruits as well as other fresh produce items, most of which
are seasonal in nature. In order to compete successfully and capitalize on our
extensive brand awareness, we must be able to strategically source fresh produce
of uniformly high quality and sell and distribute it on a timely basis.
The extent of competition varies for each particular fresh produce
line. In the banana market we face competition from a limited number of
multinational companies. At times, particularly when demand is greater than
supply, smaller companies also become a competitive factor. We believe that we
are the third largest marketer of bananas in the world and that in 2000 our
bananas constituted approximately 17% of the worldwide banana market.
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In the fresh pineapple market, the significant investment, logistics
and transportation requirements and the significant agricultural expertise
required to grow pineapples commercially deters new competitors from entering
the fresh pineapple business. As a result, traditionally there have been
relatively few fresh pineapple market participants. There tends to be less price
fluctuation in the fresh pineapple business as compared with the banana business
because of a better balance in the market between supply and demand. This
happens in part because from the consumer's perspective, fewer comparable fruit
substitutes for fresh pineapples exist.
Competition in the sale of melons comes from marketers of both branded
melons and unbranded melons. From June to October, the peak North American
melon-growing season, many growers enter the market with less expensive
unbranded or regionally branded melons due to the relative ease of growing
melons, 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 with unbranded or regionally
branded melons. As there are comparatively fewer melons available during
November to May, the U.S. off-season, we concentrate on selling our melons
during this off-season. In 2000, we were the largest marketer of cantaloupes and
honeydews sold in the United States in the off-season, November to May.
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 the Kunia Well Site at our
plantation in Hawaii for potential listing on the National Priorities List
("NPL") under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA" or "Superfund"). This identification
was based upon the detection of elevated levels of certain chemicals in the soil
and ground water in the area of the Kunia Well Site in 1980. In 1980, we
discontinued use of the Kunia Well Site, provided an alternate water source to
area well users and commenced our own voluntary cleanup operation.
On December 16, 1994, the EPA issued a final ruling adding the Kunia
Well Site to the NPL. We entered into an order with the EPA for the Kunia Well
Site on September 28, 1995. Under the terms of the order and the approved
workplan, we submitted a remedial investigation report in November 1998 for
review by the EPA. The remedial investigation report was finalized on January
21, 1999 and approved by the EPA in February 1999. The final draft feasibility
study was submitted for EPA review in December 1999, and we expect that the
feasibility study will be finalized by the first half of 2001. The ultimate
outcome and any potential costs associated with this matter is estimated to be
between approximately $4.2 million and $28.1 million (a portion of these
estimates have been discounted using a 5% interest rate. The undiscounted
estimates are between approximately $5.0 million and $30.0 million). As of
December 29, 2000, our balance sheet includes a provision of approximately $4.2
million.
GOVERNMENT REGULATION
Agriculture and the sale and distribution of fresh produce are subject
to 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
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products, as well as a technical staff to monitor chemical usage and ensure
compliance with applicable laws and regulations. We believe we are in material
compliance with these laws and regulations. Additionally, we are not a party to
any dispute or legal proceeding relating to governmental regulations where the
risk associated with the dispute or legal proceeding would be material, except
as described above in "Environmental Matters" and in "Legal Proceedings."
We are also subject to a variety of 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 EU, Japan, China and
South Korea. These government regulations include:
o sanitary regulations, particularly in the United States and
the countries of the EU;
o regulations governing pesticide use and residue levels,
particularly in the United States, Japan and Germany; and
o regulations governing packaging and labeling, particularly in
the United States and the countries of the European Union.
A 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.
This could have a material adverse effect on our results of operations and
financial condition
In addition, we believe there has been an increasing emphasis on the
part of consumers, as well as retailers and wholesale distributors, on food
safety issues, which could result in our business and operations being subject
to increasingly stringent food safety regulations or guidelines.
EUROPEAN UNION BANANA IMPORT REGULATIONS
The banana import regulations that took effect in the European Union on
July 1, 1993 have restricted our access to the EU banana market by favoring
imports from certain former British and French territories in Africa (such as
Cameroon), the Caribbean and the Pacific. In two separate rulings, General
Agreement on Tariffs and Trade ("GATT") panels have found the EU banana import
regulations to be illegal. In August 1997, the World Trade Organization (the
"WTO") Appellate Body ruled that the EU's banana import regulations violate
world trade rules.
On July 20, 1998, the European Union introduced a modified banana
import regime in response to the WTO appellate ruling. The new banana regime
maintains the system of tariffs and quotas, but abolishes the existing system of
licensing imports. Under the new regime, licenses are allocated based on the
amount of bananas actually imported in the past. The United States challenged
the modified regime as failing to comply with the WTO appellate ruling and has
threatened to impose sanctions in the form of duties of 100% of the value of
specified EU goods, effective retroactively to March 3, 1999. The United States
currently requires importers of the specified EU goods to post bonds in the
amount of the threatened duties. In 1999, a WTO arbitral panel ruled that the
existing modifications made to the EU banana import regime were insufficient to
bring it into compliance with world trade rules.
On January 29, 2001, the Council of the European Union issued
regulation 216/2001 authorizing the modification of the EU banana import regime
to the traditional trade flow method and/or other methods. The date of adoption
and the specifics of a potential new banana import regime remain unclear pending
further clarification of the implementation procedures. On February 16, 2001 the
European Union Banana Management Committee issued a circular providing that the
current import system will remain in place until, at a minimum, July 1, 2001.
Accordingly, we cannot predict whether or when any additional changes will be
made to EU banana import regulations in response to the WTO arbitral panel,
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or if made, what effect such changes would have on us and our operations. See
"Risk Factors--We are exposed to political, economic and other risks from
operating a multinational business."
ORGANIZATIONAL STRUCTURE
We are organized under the laws of the Cayman Islands and, as set
forth in our Amended and Restated Memorandum of Association, we are a holding
company for the various subsidiaries that conduct our business on a worldwide
basis. Our significant subsidiaries all of which are wholly-owned are:
Subsidiary Country of Incorporation
---------- ------------------------
Corporacion de Desarrollo Agricola Del Monte S.A. Costa Rica
Compania de Desarrollo Bananero de Guatemala, S.A. Guatemala
Del Monte Fresh Produce Brasil Ltda. Brazil
Del Monte Fresh Produce (Chile) S.A. Chile
Del Monte Fresh Produce International Inc. Liberia
Del Monte Fresh Produce N.A., Inc. USA
Del Monte Fresh Produce (UK) Ltd. England
Fresh Del Monte Japan Company Ltd. Japan
In addition to the above, we have a non-controlling 80% interest in
Internationale Fruchtimport Gesellschaft Weichert & Co., a German limited
partnership.
PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the plantation acreage owned or leased
by us and the principal products grown on such plantations by location as of the
end of 2000:
Acres Under Production
--------------------------------
Location Acres Owned Acres Leased Products
-------- ----------- ------------ --------
Costa Rica................. 22,500 1,700 Bananas, Pineapples
Guatemala.................. 15,800 2,700 Bananas, Melons
Brazil .................... 3,000 -- Bananas, Melons
Chile...................... 5,400 -- Deciduous fruit
Hawaii..................... -- 9,400 Pineapples
Contiguous United States 700 2,400 Melons, Onions, Deciduous fruit
In addition, we lease port and other facilities and office space in a
variety of locations worldwide. We are currently leasing approximately 2,000
acres in Hawaii on a month to month basis pending resolution of the
environmental issues relating to the Kunia Well Site. See "Environmental
Matters."
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OPERATING RESULTS
OVERVIEW
We are a world leader in the production, distribution and marketing of
fresh produce. Our products are marketed throughout the world under the DEL
MONTE(R) brand name which has been in existence since 1892 and is a widely
recognized symbol of product quality and reliability. Our major product
categories include bananas and other fresh produce, which includes primarily
pineapples, deciduous fruit and melons. With 2000 sales of over four billion
pounds of bananas and over two billion pounds of other fresh produce, we believe
we are the third largest marketer of bananas and the largest marketer of fresh
pineapples in the world, as well as the largest marketer of cantaloupes and
honeydews sold in the United States in the off-season, November to May.
NET SALES
Our net sales are affected by numerous factors including the balance
between the supply of and demand for our products and competition from other
fresh produce. 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
bananas, seasonal variations in demand as a result of increased supply and
competition from other fruits are reflected in the seasonal fluctuations in
banana prices, with the first six months of the year generally exhibiting
stronger demand and higher prices, except in those years where an excess supply
exists. See "Seasonality." Because our operations are conducted in many areas of
the world and involve sales denominated in a variety of currencies, net sales as
expressed in dollars may also be affected by fluctuations in rates of exchange
between currencies.
During 2000, our net sales were negatively impacted by a strong dollar
against the Euro, partially offset by a weak dollar against the Japanese Yen.
Late in the fourth quarter of 2000, we began to experience a strengthening of
the Euro against the dollar which has continued through the date of this filing.
The effect of the strengthening of the Euro in early 2001 is being partially
offset by a weakening of the Japanese Yen versus the dollar.
Our net sales growth in recent years has been achieved primarily
through acquisitions, increased sales volume in existing markets of other fresh
produce, primarily pineapples and melons, higher pricing on the "DEL MONTE
GOLD(R) EXTRA SWEET" pineapple and expansion of value-added services such as
banana ripening. Our net sales growth in recent years is also attributable to a
broadening of our product line in the other fresh produce category such as the
introduction of fresh-cut and sweet onions. We expect our net sales growth to
continue to be driven by increased sales volumes in the other fresh produce
category.
COST OF PRODUCTS SOLD
Cost of products sold is principally composed of two elements, product
and distribution costs. Product cost for company-grown produce is primarily
composed of cultivation (the cost of growing crops), harvesting, packaging,
labor, depreciation and farm administration. Product cost for produce obtained
from independent growers is composed of produce cost, packaging costs and, in
some cases, profit sharing. Distribution costs include ocean freight, inland and
air freight and port and warehouse expenses. Ocean freight is the most
significant component of distribution costs and is comprised of the cost of
chartering refrigerated vessels and vessel operating expenses. Vessel operating
expenses include ship operation and maintenance, depreciation, fuel, which is
subject to international supply and demand trends, and port charges. Variations
in linerboard prices, which affect the cost of boxes and other packaging
materials, and
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fuel prices, can have a significant impact on our product cost and, accordingly,
profit margins. Linerboard, plastic, resin and fuel prices have historically
been volatile. Linerboard and fuel prices increased significantly in 2000 as
compared to 1999. Linerboard and fuel prices on a per ton basis have declined
during the first two months of 2001 in comparison to the end of the year 2000.
Historically, we have received subsidies from the Costa Rican
government for the production and export of pineapples which we accounted for as
a reduction in cost of products sold. These subsidies which were $9.3 million
for 1999 and $8.2 million for 1998, expired on December 31, 1999.
In general, changes in the volume of the products we sell have a direct
impact on our per-box product cost. Within any particular year, a significant
portion of our cost of products sold is fixed, both with respect to
company-owned operations and with respect to the farms of independent growers
from whom we have agreed to purchase all the product they produce. Accordingly,
higher volumes 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 plantations owned by us and by independent growers
in any given year depends on a variety of factors, including weather, that are
beyond our control or the control of our independent growers, it is difficult to
predict volumes and per-box costs.
In 1998, Guatemalan banana operations were damaged as a result of
Hurricane Mitch. The hurricane damage resulted in a one-time charge of $26.5
million for asset write offs and other costs, net of insurance proceeds and
reduced banana production by approximately six million and two million boxes in
1999 and 1998, respectively, or approximately 5% and 2%, respectively, of our
worldwide banana production.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include primarily the
costs associated with selling in North America, Japan, Korea, the United
Kingdom, Belgium and the Netherlands, where we have our own sales force,
advertising and promotional expenses and general corporate overhead and other
related administrative functions, including depreciation associated with these
functions.
INTEREST EXPENSE
Interest expense consists primarily of interest on borrowings under
working capital facilities that we maintain and interest on other long-term debt
and capital lease obligations. Increases in interest rates during 2000
significantly contributed to the increase in interest expense. Interest rates in
the first two months of 2001 have declined in comparison to interest rates at
the end of 2000.
OTHER INCOME (LOSS), NET
Other income (loss), net, primarily consists of equity earnings in
unconsolidated companies including melon and pineapple and deciduous fruit joint
ventures, a box manufacturing facility and a German limited partnership engaged
in the distribution of fresh produce in Northern Europe, together with currency
exchange gains or losses and other income or expenses. During 1999, we
recognized $13.5 million of insurance proceeds in connection with Hurricane
Mitch, which is included in other income (loss), net. In 2000, we recognized a
loss of $5.2 million due to the permanent decline in market value on
available-for-sale securities, which is included in other income (loss), net.
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PROVISION FOR INCOME TAXES
Income taxes consist of the consolidation of the tax provisions,
computed on a separate entity basis, in each country in which we have
operations. Since we are a non-U.S. company with substantial operations outside
the United States, a substantial portion of our results of operations is not
subject to U.S. taxation. We are subject to U.S. taxation on constructive
operating profits of our U.S. distribution company, calculated in accordance
with the tax provisions governing related party transactions.
RESULTS OF OPERATIONS
The following table presents, for each of the periods indicated,
certain income statement data expressed as a percentage of net sales:
Year Ended
----------------------------------------------------
January 1, December 31, December 29,
1999 1999 2000
---------- ------------ ------------
INCOME STATEMENT DATA:
Net sales................................. 100.0% 100.0% 100.0%
Gross profit.............................. 12.2 8.6 8.9
Selling, general and administrative
expenses............................... 3.6 3.6 4.4
Operating income.......................... 6.5 4.8 4.4
Interest expense.......................... 1.9 1.7 2.3
Income before extraordinary item.......... 4.8 3.3 1.8
Net income ............................... 3.7 3.3 1.8
The following tables present for each of the periods indicated (1) net sales by
geographic region, (2) net sales by product category and (3) gross profit by
product category, and in each case, the percentage of the total represented
thereby:
Year Ended
--------------------------------------------------------
January 1, December 31, December 29,
1999 1999 2000
------------ ------------- ------------
($ in Millions)
NET SALES BY GEOGRAPHIC REGION:
North America............... $ 781.0 49% $ 830.4 48% $ 922.2 50%
Europe...................... 522.8 33 601.5 34 572.7 31
Asia-Pacific................ 237.7 15 280.7 16 324.5 17
Other....................... 58.6 3 30.6 2 39.9 2
-------- --- -------- --- -------- ---
Total..................... $1,600.1 100% $1,743.2 100% $1,859.3 100%
======== === ======== === ======== ===
NET SALES BY PRODUCT CATEGORY:
Bananas..................... $ 897.5 56% $ 951.3 55% $ 921.0 50%
Other fresh produce......... 638.2 40 701.3 40 838.9 45
Non-produce................. 64.4 4 90.6 5 99.4 5
-------- --- -------- --- -------- ---
Total..................... $1,600.1 100% $1,743.2 100% $1,859.3 100%
======== === ======== === ======== ===
GROSS PROFIT BY PRODUCT CATEGORY:
Bananas..................... $ 32.7 17% $ (4.0) (3)% $ 6.3 4%
Other fresh produce......... 160.6 82 155.5 103 162.1 97
Non-produce................. 1.4 1 (0.9) - (1.5) (1)
-------- --- -------- --- -------- ---
Total..................... $ 194.7 100% $ 150.6 100% $ 166.9 100%
======== === ======== === ======== ===
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2000 COMPARED WITH 1999
NET SALES
In 2000, net sales were $1,859.3 million compared with $1,743.2 million
for 1999, an increase of 7%. The increase in net sales of $116.1 million was
primarily the result of higher sales volume of other fresh produce, partially
offset by lower per unit sales volumes of bananas and the effect of a stronger
dollar against the Euro.
Net sales of bananas decreased 3% in 2000 compared with 1999, as a
result of a planned 4% reduction in sales volumes in Europe and North America
and lower per unit sales prices in Europe and Asia-Pacific, partially offset by
higher per unit sales prices in North America. The decrease in per unit sales
pricing in Europe and Asia-Pacific resulted from an oversupply in these markets.
Net sales of other fresh produce increased by $137.6 million or 20% in
2000 compared with 1999 primarily due to an increase in unit sales volumes of
melons, deciduous fruit and fresh-cut operations and higher per unit sales
prices of all of the major products. The increase in unit sales volume resulted
from better yields from the melon operations and the introduction of the
fresh-cut operation in late 1999. The fresh-cut operation contributed $34.9
million to net sales in 2000.
Our net sales in 2000 were negatively impacted by the strengthening of
the dollar against the Euro, partially offset by the weakening of the dollar
against the Japanese Yen. The net effect of foreign exchange for the year 2000
compared with 1999 was a decrease of approximately $35.0 million in net sales.
COST OF PRODUCTS SOLD
Cost of products sold was $1,692.4 million for 2000 compared with
$1,592.6 million for 1999, an increase of 6%. The increase in cost of products
sold was principally attributable to the increased unit sales volume in the
other fresh produce category.
GROSS PROFIT
Gross profit was $166.9 million for 2000 compared with $150.6 million
for 1999, an increase of $16.3 million or 11%. As a percentage of net sales,
gross profit remained relatively constant from 8.6% in 1999 to 8.9% in 2000.
Gross profit was favorably impacted by increased sales volumes of other fresh
produce and overall improved per unit sales pricing, and negatively impacted by
the effect of foreign exchange and higher fuel and linerboard prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $17.4 million to
$80.9 million in 2000 compared with $63.5 million in 1999. This increase is
primarily a result of increased sales and marketing expenses related to the
expansion in North America, increased selling and marketing activities in the
Asia-Pacific region, an increase in bad debt expense in certain European
operations and increased sales volumes of other fresh produce.
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INTEREST EXPENSE
Interest expense increased $13.0 million to $43.2 million for 2000
compared with $30.2 million in 1999, as a result of higher effective interest
rates during 2000 and a higher average debt balance.
OTHER INCOME (LOSS), NET
Other income (loss), net, was a loss of $6.1 million in 2000 compared
to income of $14.7 million in 1999. The loss in 2000 was due primarily to
foreign exchange losses and recognition of a $5.2 million loss due to a
permanent decline in market value on available-for-sale securities, partially
offset by equity income in unconsolidated subsidiaries. The income in 1999 was
primarily due to Hurricane Mitch insurance recoveries of $13.5 million.
PROVISION FOR INCOME TAXES
Provision for income taxes decreased from $14.7 million in 1999 to $2.9
million in 2000 primarily due to a decrease in taxable income in North America
and Europe.
1999 COMPARED WITH 1998
NET SALES
In 1999 net sales were $1,743.2 million compared with $1,600.1 million
for 1998, an increase of 9%. The increase in net sales of $143.1 million was
primarily the result of higher sales volume of our major product categories,
bananas and other fresh produce, partially offset by lower per unit sales prices
of bananas.
Net sales of bananas increased 6% in 1999 compared with 1998, as a
result of increased sales volume in Europe and North America and higher per unit
sales prices in the Asia-Pacific region, partially offset by lower per unit
sales prices in Europe and North America. Banana unit sales volume increased 11%
in 1999 compared with 1998 due primarily to unit sales volume gains in the North
American and European markets of 22% and 9%, respectively. The increase in unit
sales volume in North America and Europe resulted primarily from incremental
purchases from independent growers. The decrease in per unit sales pricing in
Europe and North America resulted from an oversupply in these markets.
Net sales of other fresh produce increased 10% in 1999 compared with
1998 primarily due to higher unit sales volume in Europe and North America of
14% and 7%, respectively, partially offset by lower per unit sales prices. The
increase in unit sales volume in Europe and North America resulted from the
conversion and expansion of an existing pineapple plantation in Costa Rica.
Our net sales in 1999 were positively impacted by the weakening of the
dollar versus the Japanese yen, partially offset by the strengthening of the
dollar against European currencies for which we receive sales proceeds.
COST OF PRODUCTS SOLD
Cost of products sold was $1,592.6 million for 1999 compared with
$1,405.4 million for 1998, an increase of 13%. The increase in cost of products
sold was principally attributable to the increased unit sales volume.
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GROSS PROFIT
Gross profit was $150.6 million for 1999 compared with $194.7 million
for 1998, a decrease of $44.1 million or 23%. As a percentage of net sales,
gross profit decreased from 12.2% in 1998 to 8.6% in 1999 and was negatively
impacted by lower per unit sales price of bananas in North America and Europe.
The negative impact of per unit banana sales prices was partially offset by
higher net sales in the other fresh produce combined with reduced cost of ocean
freight on a per unit basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $5.2 million to
$63.5 million in 1999 compared with $58.3 million in 1998. This increase is
primarily a result of increased selling and marketing expenses related to the
increase in sales volume together with an increase in professional fees.
INTEREST EXPENSE
Interest expense of $30.2 million in 1999 remained relatively constant
compared with 1998.
OTHER INCOME, NET
Other income, net of $14.7 million in 1999 was $3.3 million higher than
the $11.4 million recorded in 1998. This change represents the proceeds from an
insurance claim related to Hurricane Mitch of $13.5 million, partially offset by
a decrease in equity earnings in unconsolidated subsidiaries and an increase in
currency exchange losses in 1999.
PROVISION FOR INCOME TAXES
Our effective income tax rate increased from 14% in 1998 to 21% in 1999
primarily due to an increase in taxable income for certain subsidiaries in
jurisdictions with higher tax rates.
SEASONALITY
In part as a result of seasonal sales price fluctuations, we have
historically realized most of our net sales and a substantial majority of our
gross profit during the first two calendar quarters of the year. The sales
prices of any fresh produce item fluctuate throughout the year due to the supply
of and demand for that particular item as well as the pricing and availability
of other fresh produce items, many of which are seasonal in nature. For example,
the production of bananas is continuous throughout the year and production is
usually higher in the second half of the year, but the demand for bananas varies
because of the availability of other fruit. As a result, demand for bananas is
seasonal and generally results in higher sales prices during the first six
months of the calendar year. We make most of our sales of deciduous fruits
during the off-season from November to May. In the melon market, the entry of
many growers selling unbranded or regionally branded melons during the peak
North American and European melon growing season results in greater supply, and
therefore lower sales prices, from June to October. These seasonal fluctuations
are illustrated in the following table, which presents certain unaudited
quarterly financial information for the periods indicated:
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Year Ended
------------------------------------
December 31, December 29,
1999 2000
------------ ------------
NET SALES:
First quarter..................... $ 493.4 $ 536.1
Second quarter.................... 476.2 516.2
Third quarter..................... 369.1 395.8
Fourth quarter.................... 404.5 411.2
-------- --------
TOTAL......................... $1,743.2 $1,859.3
======== ========
GROSS PROFIT:
First quarter.................... $ 64.9 $ 71.3
Second quarter................... 54.2 48.3
Third quarter.................... 26.2 21.9
Fourth quarter................... 5.3 25.4
-------- --------
TOTAL........................ $ 150.6 $ 166.9
======== ========
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for 2000 was $98.5 million,
an increase of $59.6 million from 1999. The increase in net cash provided by
operating activities is primarily attributable to lower balances of inventory,
prepaid expenses and other current assets and a reduction in the growth of
accounts receivable, combined with changes in other noncurrent assets and
liabilities.
Net cash provided by operating activities for 1999 was $38.9 million, a
decrease of $25.1 million from 1998. The decrease in net cash provided by
operating activities is primarily attributed to an increase in inventory,
partially offset by an increase in depreciation and amortization.
Net cash used in investing activities was $81.2 million for 2000,
$172.3 million for 1999 and $69.1 million for 1998. The use of cash for 2000,
1999 and 1998 was primarily attributable to capital expenditures and purchases
of subsidiaries. Capital expenditures were $75.5 million for 2000, $100.8
million for 1999 and $53.8 million for 1998. Capital expenditures in 2000, 1999
and 1998 were primarily for expansion of our production and distribution
facilities and the purchase of pre-owned refrigerated vessels.
Purchase of subsidiaries, net of cash acquired, totaled $9.9 million
for 2000, $67.7 million for 1999, and $11.4 million for 1998. Purchase of
subsidiaries in 2000 was primarily for fresh-cut operations in the U.S. and a
fresh produce distribution operation in the U.K., for 1999 it was primarily for
the acquisition of BMB, a Belgian marketing company. Purchase of subsidiaries in
1998 was primarily for the acquisition of a 62% interest in National Poultry
Company PLC, a Jordanian publicly traded company, engaged in the poultry
business.
Net cash used in financing activities for 2000 of $37.7 was primarily
for net payments on long-term debt. Net cash provided by financing activities
for 1999 of $144.5 million was primarily attributed to borrowing under our
revolving credit facility. Net cash used in financing activities for 1998 of
$48.2 million was principally attributed to net payments on short-term
borrowings, the redemption of the remaining N.V. Notes and the cash payment made
as part of the IAT transaction, partially offset by net proceeds from the issue
of long-term debt under our revolving credit facility.
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On May 19, 1998, FDP N.V. completed a tender offer to purchase $200.0
million of the outstanding N.V. Notes and solicitation of consents to certain
proposed amendments to the indenture under which the N.V. Notes were issued. We
purchased $196.8 million of the N.V. Notes in the tender offer, which we funded
by a drawdown of $207.9 million under a revolving credit facility. This
revolving credit facility, which expires on May 19, 2003, replaced our $100
million revolving credit facility. The remaining N.V. Notes were redeemed during
June 1998 at a redemption price of $1,050 for each $1,000 principal amount of
N.V. Notes being redeemed, plus accrued interest to the date of redemption.
Completion of the tender offer and the redemption resulted in an extraordinary
charge of $18.1 million.
On December 15, 1998, the revolving credit facility was amended to
increase the borrowing level to $389.0 million and on May 20, 1999, the
revolving credit facility was amended again to increase the borrowing level to
$450.0 million. Outstanding borrowings at December 29, 2000 were $246.3 million,
bearing interest at a weighted average interest rate of 9.22%. See "Financial
Information--Description of Revolving Credit Facility."
On May 10, 2000, we amended the $450.0 million revolving credit
facility to include a five-year term loan (Term Loan) of $135.0 million giving
us a total borrowing capacity under this facility of $585.0 million. The Term
Loan has similar terms and conditions as the revolving credit facility, is
payable in quarterly installments of $3.4 million which commenced in September
2000, and bears interest based on a spread over LIBOR (9.66% at December 29,
2000). The Term Loan matures on May 10, 2005 with a balloon payment of $70.9
million. We used the total proceeds from the $135.0 million Term Loan to
pay down a portion of the outstanding balance on the $450.0 million five-year
revolving credit facility. The unpaid balance at December 29, 2000 of the
Term Loan was $128.2 million.
In connection with the revolving credit facility, we entered into an
interest rate swap agreement expiring in 2003 with Rabobank International in
order to limit the effect of the increase in interest rates on a portion of the
revolving credit facility. The nominal amount of the swap decreases over its
life from $150 million in the first three months to $53.6 million in the last
three months. The cash differentials paid or received on the swap agreement are
accrued and recognized as adjustments to interest expense. Interest income
related to the swap agreement for 2000 was $0.3 million. Interest expense
related to the swap agreement for 1999 and 1998 was $0.9 million and $0.7
million, respectively.
At December 29, 2000, we had $451.0 million in committed working
capital facilities, of which $202.1 million was available. The major portion of
these facilities is represented by the $450.0 million revolving credit facility.
At December 29, 2000, $2.2 million of available credit was applied towards the
issuance of letters of credit.
As of December 29, 2000, we had $485.1 million of long-term debt and
capital lease obligations, including the current portion, consisting of $246.3
million related to the revolving credit facility, $128.2 million related to the
Term Loan, $74.3 million of long-term debt related to refrigerated vessel loans,
$12.8 million of other long-term debt and $23.5 million of capital lease
obligations.
We believe that cash generated from operations and available borrowings
will be adequate to cover our cash needs during 2001. This belief is based
primarily on the additional borrowings available under our $450.0 million
revolving credit facility and our 2001 operating plans.
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,
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financial condition and liquidity. See "Business Overview--Environmental
Matters" and "Legal Proceedings."
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
RESEARCH AND DEVELOPMENT
We have ongoing research and development projects. Major projects
include reducing the cost and chemical risk of pesticides, using natural
biological agents to control pests and diseases, testing new banana, pineapple
and other fruit varieties for improved crop yield and resistance to wind damage,
increasing the productivity of low-grade soils for improved banana growth and
experimenting with various other types of produce. Our research and development
expenses were $1.9 million in 2000, $2.0 million in 1999 and $1.5 million in
1998.
PATENTS, TRADEMARKS AND LICENSES
We have exclusive rights to use the DEL MONTE(R) brand name for fresh
fruits, fresh vegetables and other fresh produce on a royalty-free basis under a
worldwide, perpetual license from Del Monte Corporation, an unaffiliated company
that owns the DEL MONTE(R) trademark. This license allows us to use the
trademark "DEL MONTE" and the words "DEL MONTE" in association with any design
or logotype associated with the brand name, and certain other trademarks and
trademark rights, on or in connection with the production, manufacture, sale and
distribution of fresh fruit, fresh vegetables, fresh produce and certain other
specified products. This license also allows us to use certain patents and trade
secrets in connection with the production, manufacture, sale and distribution of
the fresh fruit, fresh vegetables, fresh produce and certain other specified
products.
We also sell produce under several other brand names for which we have
obtained registered trademarks, including Fielder(R), Purple Mountain(R) and
UTC(R).
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
The names and positions of our directors and senior management are as follows:
Name Position Current Position Held Since (1)
---- -------- -------------------------------
Mohammad Abu-Ghazaleh................... Chairman of the Board, Director and Chief December 20, 1996
Executive Officer
Hani El-Naffy........................... President, Director and Chief Operating December 20, 1996
Officer
John F. Inserra......................... Executive Vice President and Chief December 7, 1994
Financial Officer
M. Bryce Edmonson....................... Senior Vice President-North America January 4, 1997
Jean-Pierre Bartoli..................... Senior Vice President-Europe and Africa April 1, 1997
Randolph Breschini...................... Vice President-Asia-Pacific May 19, 1998
Jose Antonio Yock....................... Senior Vice President - Central America July 20, 1994
Jose Luis Bendicho...................... Vice President - South America. March 30, 2000
Sergio Mancilla......................... Senior Vice President-Shipping Operations January 4, 1997
Dr. Thomas Young........................ Vice President-Research Development & January 15, 2001
Agricultural Services
Zoltan Pinter........................... Vice President, General Counsel and July 16, 1999
Secretary
Marissa R. Tenazas...................... Vice President-Human Resources May 1, 1999
Antolin D. Saiz......................... Vice President-Internal Audit May 24, 1999
Amir Abu-Ghazaleh....................... Director December 20, 1996
Maher Abu-Ghazaleh...................... Director December 20, 1996
Marvin P. Bush.......................... Director January 8, 1998
Stephen L. Way.......................... Director January 8, 1998
John H. Dalton.......................... Director May 11, 1999
Edward L. Boykin........................ Director November 1, 1999
-------------------
(1) Officers who held positions with us prior to December 20, 1996 held
those positions with FDP N.V.
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MOHAMMAD ABU-GHAZALEH -- CHAIRMAN OF THE BOARD, DIRECTOR AND CHIEF
EXECUTIVE OFFICER. Mr. Abu-Ghazaleh has served as our Chairman of the Board of
Directors and Chief Executive Officer since December 1996. He was also the
President and Chief Executive Officer of IAT Group Inc. Mr. Abu-Ghazaleh was
President and Chief Executive Officer of United Trading Company from 1986 to
1996. Prior to that time, he was General Manager for Metico (Dubai) from 1976 to
1986 and General Manager for Metico (Kuwait) from 1967 to 1975.
HANI EL-NAFFY -- PRESIDENT, DIRECTOR AND CHIEF OPERATING OFFICER. Mr.
El-Naffy has served as our President, Director and Chief Operating Officer since
December 1996. Prior to that time, he served as Executive Director for United
Trading Company from 1986 until December 1996. From 1976 to 1986, he was the
President and General Manager of T.C.A. Shipping.
JOHN F. INSERRA -- EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER. Mr. Inserra has served as our Executive Vice President and Chief
Financial Officer since December 1994. In April 1993, he was named our
Controller and in July 1994, he became our Vice President and Controller.
Between 1989 and April 1993, Mr. Inserra was the Controller of Del Monte
Tropical Fruit Company.
M. BRYCE EDMONSON -- SENIOR VICE PRESIDENT-NORTH AMERICA. Mr. Edmonson
has served as our Senior Vice President-North America since January 1997. Prior
to that time, he was our Vice President-Sales and Marketing for North America
from September 1995 to January 1997, and our Director of Del Monte melon
operations from 1990 to 1995. From 1987 to 1990, Mr. Edmonson was our Director
of North American Product Management.
JEAN-PIERRE BARTOLI -- SENIOR VICE PRESIDENT-EUROPE AND AFRICA. Mr.
Bartoli has served as our Senior Vice President-Europe & Africa since April
1997. Prior to that time, he served as our Financial Director for the European
and African region from 1990 to 1997. Mr. Bartoli held various financial
positions in our European operations from 1983 to 1990.
RANDOLPH BRESCHINI -- VICE PRESIDENT-ASIA-PACIFIC. Mr. Breschini has
served as our Vice President-Asia-Pacific since March 1998. Prior to that time,
he was the Chief Executive Officer and General Manager for the California 38th
District Agricultural Association from 1997 to 1998 and General Manager for Hunt
Wesson, Inc. from 1994 to 1996. From 1984 to 1994, Mr. Breschini held various
senior operational management positions with Dole Fruit Company.
JOSE ANTONIO YOCK -- SENIOR VICE PRESIDENT-CENTRAL AMERICA. Mr. Yock
has served as our Senior Vice President-Central and South America since July
1994. Prior to that time, he was our Vice President-Finance for the Latin
American region from June 1992 to July 1994. Mr. Yock joined Fresh Del Monte in
April 1982 and has served in several financial management positions.
JOSE LUIS BENDICHO -- VICE PRESIDENT - SOUTH AMERICA. Mr. Bendicho has
served as our Vice President - South America since March 2000. From September
1998 until March 2000, he served as our Finance Regional Director - Chile. From
1997 through 1998, Mr. Bendicho served as our Manager of the Administration and
Finance Division. Prior to 1997, Mr. Bendicho was with United Trading Company
Desarollo y Comercio S.A. a fresh fruit exporter - as Administration and Finance
Manager.
SERGIO MANCILLA -- SENIOR VICE PRESIDENT-SHIPPING OPERATIONS. Mr.
Mancilla has served as our Senior Vice President-Shipping Operations since
January 1997. Prior to that time, he was General Manager for Maritima Altisol,
Ltd. from October 1990 to December 1996. From January 1981 through October 1990,
Mr. Mancilla was Master Officer with several Chilean shipping companies.
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DR. THOMAS YOUNG -- VICE PRESIDENT - RESEARCH, DEVELOPMENT AND
AGRICULTURAL SERVICES. Dr. Young joined us in January 2001, from Syngenta
Corporation, formerly Novartis Crop Protection, where he served in a variety of
R&D positions coordinated national and international research programs involving
plant disease control on vegetable, field, fruit and ornamental crops. He
received his Ph.D. from the University of Florida in 1975.
ZOLTAN PINTER -- VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Mr.
Pinter has served as our Vice President, General Counsel and Secretary since
July 16, 1999. From 1998 to 1999, Mr. Pinter served as our Associate General
Counsel and Assistant Secretary. Prior to joining Fresh Del Monte, he served as
General Counsel and Secretary for IAT Group Inc. from 1997 to 1998. From 1994 to
1997, Mr. Pinter was a senior associate with Adorno & Zeder, P.A and an
associate with Popham Haik Schnobrich and Kaufman, Ltd. from 1991 to 1994. From
1989 to 1991, Mr. Pinter worked as a law clerk including a clerkship for the
Honorable Thomas E. Scott, United States District Court Judge for the Southern
District of Florida. From 1983 to 1989, Mr. Pinter held various positions with
big five accounting firms.
MARISSA R. TENAZAS -- VICE PRESIDENT-HUMAN RESOURCES. Ms. Tenazas has
served as our Vice President-Human Resources since May 1, 1999. From December
1996 to April 1999, she served as our Senior Director Human Resources. From 1989
to 1996, she served as Personnel Manager for Suma Fruit International (USA),
Inc. Prior to that time, Ms. Tenazas held various management positions for
companies in Manila, Philippines.
ANTOLIN D. SAIZ -- VICE PRESIDENT - INTERNAL AUDIT . Mr. Saiz has
served as our Vice President - Internal Audit since May 1999. From March 1996
until April 1999, he served as the Controller for Latin America for the Inacom
Corporation. From 1993 through 1996, Mr. Saiz served in Financial Controllership
roles for the Wackenhut and LifeFleet Corporations. Prior to that time, Mr. Saiz
served as an Audit Manager with BDO Seidman, CPAs.
AMIR ABU-GHAZALEH -- DIRECTOR. Mr. Abu-Ghazaleh has served as our
Director since December 1996. He is currently the General Manager for
Abu-Ghazaleh International Company and has held this position since April 1987.
He has also served as the General Manager for Ahmed Abu-Ghazaleh & Sons Company
since April 1979. From 1987 to April 1995, Mr. Abu-Ghazaleh was employed by
Metico (Dubai) as General Manager.
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 (Kuwait) from 1975 to 1995, and as its
Commercial Manager from 1971 to 1975.
MARVIN P. BUSH -- DIRECTOR. Mr. Bush has served as our Director since
January 1998. He is a co-founder and the Managing Director of Winston Partners
Group, a private investment firm based in Vienna, Virginia. He is also Managing
General Partner of Winston Growth Fund, L.P., Winston International Growth Fund,
L.P., Winston Small Cap Growth Fund, L.P., and a series of private equity
investment partnerships. Mr. Bush also serves on the Board of Directors of
Kerrco, Inc. and HCC Insurance Holdings, Inc.
STEPHEN L. WAY -- DIRECTOR. Mr. Way has served as our Director since
January 1998. He is the Chairman and Chief Executive Officer of HCC Insurance
Holdings, Inc., a New York Stock Exchange company which he founded in 1974.
JOHN H. DALTON -- DIRECTOR. Mr. Dalton has served as our Director since
May 1999. He is the Chairman and Chief Executive Officer of Metal Technology,
Inc. He has held three presidential
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appointments. Mr. Dalton served as Secretary of the Navy from July 1993 through
November 1998. Prior to serving as Secretary of the Navy he served as a member
and chairman of the Federal Home Loan Bank Board from December 1979 through July
1981. Before being appointed to the Bank Board, 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 Niagra Mohawk Holdings, Inc., Trans
Technology, Inc., Metal Technology, Inc. and the Cantor Exchange & IPG Photonics
Corp.
EDWARD L. BOYKIN -- DIRECTOR. Mr. Boykin has served as our Director
since November 1999. Following a 30-year career with Deloitte & Touche LLP., Mr.
Boykin retired in 1991 and is currently a private consultant and serves on
several corporate boards.
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 (See -
Major Shareholders). The Abu-Ghazaleh's are brothers and control the registrant.
There are no other family relationships among any of the directors or executive
officers.
COMPENSATION
The aggregate compensation expense with respect to services rendered by
all directors and senior management of our Company as a group during 2000 was
$4.4 million. This amount includes the expense attributable to an incentive
payment made annually under an agreement. Under the agreement, the annual
incentive payment is equal to the sum of (1) 2% of the amount, up to $20
million, of our consolidated net income and (2) 1 1/2% of the amount of our
consolidated net income above $20 million.
During 2000, we contributed or accrued an aggregate of $35,990 for the
accounts of our executive officers under an incentive savings and security plan
(the "Savings Plan"). The Savings Plan is a defined contribution pension plan
that is qualified under Section 401(k) of the Internal Revenue Code of 1986. We
make matching contributions for the accounts of participants in the Savings Plan
generally equal to 50% of the contributions made by each such participant to the
Savings Plan up to 6% of an employee's compensation. We also maintain certain
tax-qualified defined benefit pension plans and supplemental non-qualified
defined benefit pension plans.
BOARD PRACTICES
Our board of directors is divided into three classes, as nearly equal
in number as possible, with each Director serving a three-year term and one
class being elected at each year's annual general meeting of shareholders. Mr.
Amir Abu-Ghazaleh, Mr. Stephen Way and Mr. Edward Boykin are in the class of
directors whose term expires at the 2001 annual general meeting of our
shareholders. Mr. Maher Abu-Ghazaleh and Mr. Marvin Bush are in the class of
directors whose term expires at the 2002 annual general meeting of our
shareholders. Mr. Mohammad Abu-Ghazaleh, Mr. Hani El-Naffy and Mr. John Dalton
are in a class of directors whose term expire at the 2003 annual shareholders
meeting. At each annual general meeting of our shareholders, successors to the
class of directors whose term expires at such meeting will be elected to serve
for three-year terms and until their successors are elected and qualified.
Senior management are appointed by, and serve at the discretion of,
our board of directors.
Our board of directors has established a compensation committee and an
audit committee whose members are comprised solely of directors independent of
our management. The compensation committee establishes salaries, incentives and
other forms of compensation for our directors and officers and recommends
policies relating to our benefit plans. The audit committee oversees the
engagement of our
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independent auditors and, together with our independent auditors, reviews our
accounting practices, internal accounting controls and financial results. The
audit committee members are Mr. Edward Boykin, Mr. Marvin Bush and Mr. John
Dalton.
EMPLOYEES
At year-end 2000, we employed a total of approximately 19,000 persons
worldwide, substantially all of whom are year-round employees. Approximately
18,000 of these persons are employed in production locations and approximately
11,000 are unionized.
At year-end 1999 and 1998, we employed a total of approximately 20,000
persons worldwide, substantially all of whom were year-round employees.
Approximately 19,000 of these persons were employed in production locations and
approximately 12,000 were unionized.
We believe that our overall relationship with our employees and unions
is satisfactory.
SHARE OWNERSHIP
SHARE OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT
As of December 29, 2000, the aggregate number of our ordinary shares
beneficially owned by our directors and senior management was 5,952,125. This
number includes options to purchase an aggregate of 1,156,000 ordinary shares
under our Option Plans.
EMPLOYEE STOCK OPTION AND INCENTIVE PLAN
Effective immediately prior to the closing of our initial public
offering in October 1997, we adopted the 1997 Share Incentive Plan (the "1997
Plan") which provides for options to purchase an aggregate of 2,380,030 ordinary
shares to be granted to non-employee directors and employees of our company who
are largely responsible for the management, growth and protection of our
business of Fresh Del Monte and its subsidiaries ("eligible persons") in order
to provide the eligible persons with incentives to continue with Fresh Del Monte
and to attract personnel with experience and ability. On May 11, 1999, our
shareholders approved and ratified and our Board of Directors adopted the 1999
Share Incentive Plan (the "1999 Plan"), which provides for options to purchase
and aggregate of 2,000,000 ordinary shares to be granted to eligible persons.
Each option has an exercise price per share equal to the fair market value of an
ordinary share on the grant date, became exercisable with respect to 20% of the
ordinary shares subject to the option on the date of grant and will become
exercisable with respect to an additional 20% of the shares on each of the next
four anniversaries of such date and will terminate ten years after the date of
grant (unless earlier terminated under the terms of the 1997 Plan).
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The following table shows the options for ordinary shares outstanding
as of March 2, 2001 under the 1997 and 1999 Plans:
Number of Options
Outstanding Exercise Price Per Share Expiration Date
----------------- ------------------------ ---------------
1,018,000 $16.00 October 2007
90,000 $14.21875 January 2008
450,000 $15.6875 March 2009
30,000 $8.375 November 2009
1,374,000 $9.2813 November 2009
120,000 $7.875 March 2010
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 53,763,600 shares were issued and outstanding as of March 2,
2001, and 50,000,000 preferred shares having a par value of $0.01 per share,
none of which have been issued.
The following table sets forth certain information as of March 2, 2001,
with respect to each shareholder known to us to own more than 5% of our ordinary
shares and with respect to the ownership of ordinary shares by all directors and
officers of our company as a group. The information in the table has been
calculated in accordance with Rule 13d-3 under the Securities Exchange Act of
1934.
Person or Group Number of Shares Owned Percent of Class
--------------- ---------------------- ----------------
IAT Group Inc.(1)(2)......................... 30,972,836 57.6%
The estate of Ahmed Abu-Ghazaleh (2)(3)...... 30,972,836 57.6
Sumaya Abu-Ghazaleh (2)(3)................... 30,972,836 57.6
Mohammad Abu-Ghazaleh (2)(4)(5).............. 33,368,341 62.1
Oussama Abu-Ghazaleh (2)(4)(5)............... 31,756,075 59.1
Maher Abu-Ghazaleh (2)(3)(5)................. 31,756,075 59.1
Amir Abu-Ghazaleh (2)(3)(5).................. 32,032,217 59.6
All directors and officers as a group
(19 persons) (6)............................ 36,924,961 68.7%
------------------
(1) The registered office address of IAT Group Inc. is c/o Walkers,
Walker House, First Floor, Mary Street, P.O. Box 265, George Town,
Grand Cayman, Cayman Islands.
(2) The estate of Ahmed Abu-Ghazaleh and Sumaya Abu-Ghazaleh, Mohammad
Abu-Ghazaleh, Oussama Abu-Ghazaleh, Maher Abu-Ghazaleh and Amir
Abu-Ghazaleh beneficially own 20%, 10%, 17.5%, 17.5%, 17.5% and 17.5%,
respectively of IAT Group Inc.'s outstanding voting equity securities.
Mr. Ahmed Abu-Ghazaleh passed away on August 14, 2000. His estate is
currently in the process of being distributed in accordance with the
applicable law. Individually, no Abu-Ghazaleh family member owns a
controlling interest in IAT Group Inc.; however, because each of the
IAT Group Inc. shareholders votes with other family members, the
Abu-Ghazaleh family jointly controls IAT Group Inc. As a result, the
individual
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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, or 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 the estate of Ahmed Abu-Ghazaleh and Sumaya
Abu-Ghazaleh, Maher Abu-Ghazaleh and Amir Abu-Ghazaleh is c/o Ahmed
Abu-Ghazaleh & Sons Co. Ltd., No. 18, Hamariya Fruit & Vegetable
Market, Dubai, United Arab Emirates.
(4) The business address of Mohammad Abu-Ghazaleh and Oussama Abu-Ghazaleh
is c/o Del Monte Fresh Produce (Chile) S.A., Avenida Santa Maria 6330,
Vitacura, Santiago, Chile.
(5) Includes 30,972,836 ordinary shares owned directly by IAT Group Inc.
which each of the named individuals may be deemed to beneficially own
indirectly by virtue of their ownership interest in IAT Group Inc.
(6) Includes (1) 30,972,836 shares owned directly by IAT Group Inc. which
each of Mohammad Abu-Ghazaleh, Maher Abu-Ghazaleh and Amir Abu-Ghazaleh
may be deemed to beneficially own indirectly by virtue of his ownership
interest in IAT Group Inc., (2) an aggregate of 4,796,125 shares owned
directly by certain directors and officers and (3) an aggregate of
1,156,000 ordinary shares subject to vested and currently exercisable
options held by certain directors and officers.
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.
On November 25, 1998, we acquired a 62% majority interest in National
Poultry, a publicly traded company in Jordan, engaged in the poultry business. A
portion of the acquired shares were purchased from members of the Abu-Ghazaleh
family for a total purchase price of $4.5 million, based on a fairness opinion
from an independent party.
In September 1998, we acquired 14 operating subsidiaries of IAT Group
Inc. for six million ordinary shares, $25.0 million in cash and the assumption
of indebtedness of $130.0 million.
In connection with the IAT transaction, our board of directors
established a special committee comprised of disinterested outside directors to
evaluate and negotiate at arm's-length the terms of the acquisition. The special
committee retained its own legal and financial advisors and unanimously approved
the transaction. Additionally, at a special meeting of our shareholders held to
consider the acquisition, a substantial majority of our public shareholders
(excluding our controlling shareholders) voted to approve the acquisition.
Because our Articles of Association and Cayman Islands law required that holders
of a majority of all of the outstanding shares approve the acquisition, the
members of the Abu-Ghazaleh family, rather than abstaining from voting, voted
the shares beneficially owned by them for and against the acquisition in the
same proportion that all other shares were voted.
ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
Our financial statements and schedule set forth in the accompanying
Index to Consolidated Financial Statements and Supplemental Financial Statement
Schedule included in this report following Part III beginning on pages F-1 and
S-1, respectively, are hereby incorporated in this Report by reference. Our
consolidated financial statements and schedule are filed as part of this Report.
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DESCRIPTION OF REVOLVING CREDIT FACILITY
The following is a summary of the revolving credit agreement entered
into by Fresh Del Monte and certain of its subsidiaries, as amended to date (the
"Revolving Credit Agreement"). The summary does not purport to be complete and
is subject to, and qualified by reference to, the provisions of the Revolving
Credit Agreement which we have filed with the Securities and Exchange
Commission. Capitalized terms used but not defined below have the meanings
indicated in the Revolving Credit Agreement.
Borrowers:...................... Fresh Del Monte; Global Reefer Carriers,
Ltd.; Del Monte Fresh Produce (UK) Ltd.;
Wafer Limited; Del Monte Fresh Produce
International Inc.; Del Monte Fresh
Produce N.A., Inc.;
Lenders:........................ Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A., "Rabobank Nederland,"
New York Branch ("Rabobank"); ABN Amro
Bank N.V., New York Branch; Union Bank of
California, N.A.; Christiana Bank OG
Kreditkasse ASA New York Branch; Wachovia
Bank; Bank of America; The Fuji Bank
Limited; Deutsche Financial Services;
Banque Francaise de L'Orient; Harris Trust
and Savings Bank; Banque Nationale de
Paris Chicago branch; First Union National
Bank; AGFirst Farm Credit Bank; Barclays
Bank PLC; SunTrust Bank N.A.; US Bancorp;
Artesia Bank Luxembourg; Banque Artesia
Netherlands; Farm Credit of Wichita; and
Farm Credit Services of America.
Agent:.......................... Rabobank.
Facility:....................... $450 million revolving credit facility
including a letter of credit facility of
up to $35 million; a swing line facility
of up to $15 million; and a foreign
exchange contract facility of up to $20
million (increased by $5 million in May of
each year, commencing May 1, 1999).
Term Loan:...................... $135 million term loan entered into
May 10, 2000 (reduced by quarterly
principal payments of $3.4 million
commencing on September 30, 2000 and each
quarter thereafter.)
Purpose:........................ For general corporate purposes.
Guarantors:..................... Obligations under the facility are
guaranteed by FDP N.V.; Del Monte Fresh
Produce B.V.; Del Monte Fresh Produce
(Asia-Pacific) Limited; Claverton Limited;
Del Monte BVI Limited; Compania de
Desarrollo Bananero de Guatemala, S.A.;
Del Monte Fresh Produce Company; FDM
Holdings Limited; Corporacion de
Desarrollo Bananero de Costa Rica, S.A.;
Corporacion de Desarrollo Agricola Del
Monte S.A.; and each Borrower.
Termination Date:............... Earlier of (1) May 19, 2003 or (2)
termination of the facility commitment
pursuant to the Revolving Credit
Agreement. The Term Loan matures on May
10, 2005 with a balloon payment of
$70.9million.
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Interest Rate:.................. Base Rate advances bear interest at the
greater of (1) Rabobank's base rate from
time to time and (2) 0.50% per annum above
the Federal Funds Rate. LIBO Rate advances
bear interest at a rate based on the
London interbank offered rate plus a
spread that varies between 0.75% and
2.75%. The spread for LIBO Rate advances
is determined quarterly based on the level
of our Leverage Ratio for that fiscal
quarter along with the three immediately
preceding fiscal quarters and was 2.50%
for the fourth quarter of 2000. The Term
Loan commitment advances bear interest at
a rate based on the LIBO Rate plus a
spread that varies between 1.25% and
3.25%.
Commitment Fee:................. Varies between 0.25% and 0.50% per annum
on the average daily Unused Commitment,
payable monthly in arrears. The rate is
determined quarterly based on the level of
our Leverage Ratio.
Collateral:..................... The revolving credit facility is
collateralized directly or indirectly by
substantially all the assets of Fresh Del
Monte and our material subsidiaries.
Financial Covenants:............ The following financial covenants apply
to Fresh Del Monte and our Subsidiaries:
MAXIMUM LEVERAGE RATIO. Maintenance of a
ratio of Consolidated Total Debt to
Consolidated EBITDA for each fiscal
quarter along with the three immediately
preceding fiscal quarters, of not more
than 5.75 to 1.0 through March 2001, 4.50
to 1.0 through June 2001 and 3.75 to 1.0
from September 2001 and thereafter.
MINIMUM TANGIBLE NET WORTH. Maintenance of
Consolidated Tangible Net Worth as of the
end of each fiscal quarter of not less
than the sum of (1) $135,000,000, (2) 50%
of our cumulative Consolidated Net Income
for fiscal quarters ending on and after
March 27, 1998 and (3) 85% of the increase
in Tangible Net Worth resulting from the
IAT transaction.
MINIMUM INTEREST COVERAGE. Maintenance of
a ratio of Consolidated EBITDA to
Consolidated interest expense for each
fiscal quarter indicated below along with
the three immediately preceding fiscal
quarters, of not less than 2.0 to 1.0
through March 2001 and 2.5 to 1.0 from
June 2001 and thereafter.
MINIMUM FIXED CHARGES COVERAGE RATIO.
Maintenance of a Fixed Charges Coverage
Ratio for each fiscal quarter along with
the three immediately preceding fiscal
quarters, of not less than .60 to 1.0
through March 2001, 1.0 to 1.0 through
June 2001, 1.15 to 1.0 through September
2001, 1.20 to 1.0 through September 2002
and 1.25 to 1.0 for December 2002 and
thereafter.
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Certain Other Covenants:........ Other covenants applicable to the
Borrowers include limitations on liens,
the incurrence or prepayment of debt, the
payment of dividends, mergers and similar
transactions, sales of assets,
investments, amendments to the constituent
documents; a limitation on annual Capital
Expenditures of $1,000,000 if we are (or
would, as a result of the expenditure, be)
in breach of our financial covenants; a
requirement to pledge the inventory,
receivables and intellectual property of
and equity interests in any subsidiary
that becomes a Material Subsidiary; an
annual limit of $50.0 million for mergers
and investments in stock of companies
conducting a similar business; and a
negative pledge.
Events of Default:.............. Events of Default include non-payment,
material misrepresentation, covenant
default, cross-default, bankruptcy and
insolvency, certain judgments, a Change in
Control and certain Employee Retirement
Income Security Act events.
Governing Law:.................. The laws of the State of New York.
Pursuant to the Revolving Credit Agreement, the Borrowers and their
subsidiaries generally are prohibited from:
o incurring debt and related liens, with certain limited
exceptions;
o returning any capital to their stockholders, or
o making any distribution of assets, share capital, warrants,
rights, options, obligations or securities to their
stockholders, other than a distribution in shares.
So long as there is no continuing default under the Revolving Credit
Agreement and no default would result,
o we may declare and pay dividends and distributions in cash
solely out of and up to 50% of our net income (computed on a
non-cumulative, consolidated basis in accordance with U.S.
GAAP) for the fiscal year immediately preceding the year in
which the dividend or distribution is paid; and
o any subsidiary of a Borrower may declare and pay cash
dividends to the Borrower and to any other wholly-owned
subsidiary of a Borrower of which it is a direct or indirect
subsidiary; and
o any subsidiary that is not a wholly-owned subsidiary may
declare and pay cash dividends consistent with past practices.
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LEGAL PROCEEDINGS
DBCP LITIGATION
Starting in December 1993, two of our U.S. subsidiaries were named
among the defendants in a number of actions in courts in Texas, Louisiana,
Mississippi, Hawaii, Costa Rica and the Philippines involving allegations by
numerous foreign plaintiffs that they were injured as a result of exposure to a
nematocide containing the chemical dibromochloropropane ("DBCP") during the
period 1965 to 1990.
In December 1998, our U.S. subsidiaries entered into a settlement in
the amount of $4.6 million with counsel representing approximately 25,000
individuals. Of the six principal defendants in these DBCP cases, Dow Chemical
Company, Shell Oil Company, Occidental Chemical Corporation and Chiquita Brands,
Inc. have also settled these claims. Under the terms of our settlement,
approximately 22,000 of these claimants dismissed their claims with prejudice
and without payment. The 2,643 claimants who allege employment on a
company-related farm in Costa Rica and the Philippines and who demonstrated some
injury were offered a share of the settlement funds upon execution of a release.
Over 98% of these claimants accepted the terms of our settlement, the majority
of which has been recovered from our insurance carriers.
On February 16, 1999, two of our U.S. subsidiaries were purportedly
served in the Philippines in an action entitled DAVAO BANANA PLANTATION WORKERS'
ASSOCIATION OF TIBURCIa, INC. V. SHELL OIL CO., ET AL. The action is brought by
a Banana Workers' Association purportedly on behalf of its 34,852 members for
injuries they allege to have incurred as a result of DBCP exposure. At this
time, it is not known how many, if any, of the Association's members are
claiming against our subsidiaries and whether these are the same individuals who
have already settled their claims against our subsidiaries. Our subsidiaries
filed motions to dismiss the action and for reconsideration on jurisdictional
grounds, which were denied. Accordingly, our subsidiaries answered the
plaintiffs' complaint denying all the plaintiffs' allegations. Our United States
subsidiaries have not settled the DBCP claims of approximately 3,500 claimants
represented by different counsel who have filed actions in Mississippi in 1996
and Hawaii in 1997. Each of those actions was dismissed by federal district
court on grounds of FORUM NON CONVENIENS in favor of the courts of the
plaintiffs' home countries. In each case, the plaintiffs appealed the dismissal.
On January 19, 2001, the Court of Appeals for the Fifth Circuit affirmed the
dismissal of our subsidiary for FORUM NON CONVENIENS and lack of personal
jurisdiction for the Mississippi actions. The Hawaiian plaintiffs' appeal of the
dismissal remains pending.
On October 19, 2000, the Court of Appeals for the Fifth Circuit
affirmed the dismissal of 23 non settling defendants who had filed actions in
the United States District Court in Houston, Texas. As a result, the 23
plaintiffs who did not accept the settlement are precluded from filing any new
DBCP actions in the United States.
On June 19, 1995, a group of several thousand plaintiffs in an action
entitled LUCAS PASTOR CANALES MARTINEZ, ET AL. V. DOW CHEMICAL CO. ET AL. sued
one our subsidiaries along with several other defendants in the District Court
for the Parish of St. Charles, Louisiana asserting claims similar to those
arising in the Texas cases arising from the alleged exposure to DBCP. That
action was removed to the United States District Court in New Orleans and was
subsequently remanded in September 1996. Our subsidiary has answered the
complaint and asserted substantial defenses. Following the decision of the
United States Court of Appeals for the Fifth Circuit in the Texas actions, this
action was re-removed to federal court in November 2000.
On November 15, 1999, one of our U.S. subsidiaries was served in two
actions entitled, GODOY RODRIGUEZ, ET AL. V. AMVAC CHEMICAL CORP., ET AL and
MARTINEZ PUERTO, ET AL. V. AMVAC CHEMICAL CORP., ET AL., in the 29th Judicial
District Court for the Parish of St. Charles, Louisiana. These actions were
removed to
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federal court, where they have been consolidated. These actions are brought on
behalf of claimants represented by the same counsel who filed the Mississippi
and Hawaii actions as well as a number of the claimants who have not accepted
our settlement offer. Our subsidiary has been given an indefinite extension of
time to respond to the complaints. At this time, it is not known how many of the
2,962 GODOY RODRIGUEZ and MARTINEZ PUERTO plaintiffs are claiming against our
subsidiaries. At this time, it is premature to evaluate the likelihood of a
favorable or unfavorable outcome with respect to any of the non-settled DBCP
claims.
HAWAIIAN LITIGATION
On December 4, 2000, the Honolulu Board of Water Supply (Board) amended
its complaint (the complaint did not include Fresh Del Monte as a defendant) in
state court to include one of our subsidiaries as one of several defendants for
alleged contamination of certain water wells in Honolulu, Hawaii. In January
2001, the Board agreed to dismiss our subsidiary without prejudice. The parties
are in the process of filing the dismissal.
On January 8, 2001, local residents of Honululu, Hawaii amended their
complaint (the complaint did not include Fresh Del Monte as a defendant) in
federal court to include one of our subsidiaries as one of several defendants
for injuries allegedly caused by consuming contaminated water. Our subsidiary is
in the process of filing its denial of all the Plaintiffs' claims and asserting
substantial defenses.
KUNIA WELL SITE
In 1980, elevated levels of certain chemicals were detected in the soil
and ground water at one of our subsidiaries' leased plantation in Hawaii (Kunia
Well Site). Shortly thereafter, we discontinued the use of the Kunia Well site
and provided an alternate water source to area well users and commenced our own
voluntary cleanup operation. In 1993, the Environmental Protection Agency (EPA)
identified the Kunia Well Site for potential listing on the National Priorities
List (NPL) under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended. On December 16, 1994, the EPA issued a final
rule adding the Kunia Well Site to the NPL. One of our subsidiaries entered into
an order with the EPA for the Kunia Well Site on September 28, 1995. Under the
terms of the order, our subsidiary submitted a remedial investigation report in
November 1998 for review by the EPA. The remedial investigation report was
approved by the EPA in February 1999. A final draft feasibility study was
submitted for EPA review in December 1999, and our subsidiary expects that the
feasibility study will be finalized by the first half of 2001.
Based on the draft feasibility study submitted to the EPA in December
1999, the estimated remediation costs associated with this matter are expected
to be between $4.2 million and $28.1 million (a portion of these estimates have
been discounted using a 5% interest rate. The undiscounted estimates are between
approximately $5.0 million and $30.0 million). As of December 29, 2000, we
recorded a liability of approximately $4.2 million, which is included in other
noncurrent liabilities in the accompanying balance sheet.
In addition to the foregoing, we are involved from time to time in
various claims and legal actions incident to our operations, both as plaintiff
and defendant. In the opinion of management, after consulting with legal
counsel, none of these other claims are currently expected to have a material
adverse effect on us.
DIVIDEND POLICY
We have not declared or paid any cash or other dividends on our
ordinary shares since our initial public offering in October 1997. Furthermore,
because we are a holding company, our ability to pay dividends and to meet our
debt service obligations depends primarily on receiving sufficient funds from
our subsidiaries. It is possible that countries in which one or more of our
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subsidiaries are located could institute exchange controls which could prevent
those subsidiaries from remitting dividends or other payments to us.
ITEM 9. THE OFFER AND LISTING
ORDINARY SHARE PRICES AND RELATED MATTERS
The Company's ordinary shares are traded solely on the New York Stock
Exchange, under the symbol FDP, and commenced trading on October 24, 1997.
The following table presents the high and low sales prices of the
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 26, 1997 (commencing October 24,
1997).................................................. $18.00 $13.13
Year ended January 1, 1999............................. $23.63 $10.50
Year ended December 31, 1999........................... $21.00 $ 6.31
Year ended December 29, 2000........................... $ 9.94 $ 3.38
1999
First quarter.......................................... $21.00 $15.25
Second quarter......................................... $18.44 $13.00
Third quarter.......................................... $15.69 $10.56
Fourth quarter......................................... $11.38 $ 6.31
2000
First quarter.......................................... $ 9.75 $ 6.75
Second quarter......................................... $ 9.94 $ 6.06
Third quarter.......................................... $ 7.06 $ 5.38
Fourth quarter......................................... $ 6.48 $ 3.38
MOST RECENT SIX MONTHS
September 2000......................................... $ 6.56 $ 5.38
October 2000........................................... $ 6.44 $ 3.38
November 2000.......................................... $ 5.56 $ 3.94
December 2000.......................................... $ 4.63 $ 3.75
January 2001........................................... $ 6.50 $ 4.56
February 2001.......................................... $ 8.89 $ 6.13
As of December 29, 2000, there were 53,763,600 ordinary shares
outstanding. We believe that approximately 30% of the outstanding ordinary
shares were held by holders in the United States, as of February 20, 2001.
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ITEM 10. ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
REGISTERED OFFICE
The Company has been assigned registration number CR-68097 by the
registrar of companies in the Cayman Islands. The registered office is located
at Walkers, attorneys-at-law, P.O. Box 265 GT Walker House, Mary Street, George
Town, Grand Cayman, Cayman Islands. The telephone number at that location is
(345) 949-0100.
OBJECTS AND PURPOSE
Paragraph 3 of the Amended and Restated Memorandum of Association
(Memorandum of Association) provides that the objects and purpose of the Company
is to perform all corporate activities not prohibited by any law as provided by
Section 6(4) of The Companies Law (1995 Revision).
DIRECTORS
Articles 82 and 83 of the Amended and Restated Articles of Association
of the Company (Articles of Association) provide that a director may vote in
respect of any contract or proposed contract or arrangement notwithstanding such
director's interest and that such an interested director will not be liable to
the Company for any profit realized through any such contract or arrangement.
Article 60 provides that directors' compensation shall from time to time be
determined by the renumeration committee appointed by the board of directors in
accordance with the Articles of Association. Article 74 provides that directors
may exercise all the powers of the Company to borrow money and to mortgage or
charge its undertaking, property and uncalled property or any part thereof, to
issue debentures, debenture stock and other securities wherever money is
borrowed or as security for any debt, liability or obligation of the Company or
of any third party. Such borrowing power can only be altered through an
amendment of the Articles of Association. Article 61 provides that the directors
of the Company are not required to own shares of the Company in order to serve
as directors unless fixed by the Company at a shareholders'meeting.
ORDINARY SHARES
The Company's Memorandum of Association authorize the issuance of
200,000,000 ordinary shares with a par value of US$.01 per share. Upon issuance
and once payment is received, the ordinary shares are fully paid and accordingly
no further capital may be called for by the Company from any holder of the
ordinary shares outstanding. Under Cayman Island law, non-residents may freely
hold, vote and transfer ordinary shares in the same manner as Cayman Islands
residents, subject to the provisions of The Companies Law (2000 Revision) and
the Articles of Association. No Cayman Islands laws or regulations restrict the
export or import or capital, or affect the payment of dividends to non-residents
holders of the ordinary shares.
DIVIDENDS
The holders of ordinary shares are entitled to receive, when, as if
declared by the board of directors of the Company out of legally available
funds, dividends and other distribution in cash, shares or property of the
Company. Dividends or distributions so declared by the Company's board of
directors shall be paid ratably to the holders of ordinary shares.
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VOTING
Except as provided by statute or the Articles of Association, holders
of ordinary shares have the sole right and power to vote on all matters on which
a vote of the Company's shareholders is to be taken. At every meeting of the
shareholders, each holder of the ordinary shares is entitled to cast one vote
provided such holder is present in person or by proxy for each ordinary share
standing in its name as of the record date for such a vote.
LIQUIDATION
In case of the voluntary or involuntary liquidation, dissolution or
winding up of the Company, after the payment of creditors of the Company, the
remaining assets and funds of the Company available for distribution to the
Company's shareholders shall be divided among and paid ratably to the holders of
the ordinary shares.
ELECTION AND REMOVAL OF DIRECTORS
The holders of ordinary shares are entitled, by a majority vote of
those present, to elect and remove directors from the board of directors of the
Company. The Company has a classified board of directors serving staggered
terms.
PREFERRED SHARES
The Memorandum of Association authorizes the issuance of 50,000,000
preferred shares with a par value of US$.01 per share. The Company's board of
directors may, from time to time, direct the issuance of preferred shares in
series and may, at the time of issue, determine the rights, preferences and
limitations of each series. Satisfaction of any dividend preferences of
outstanding preferred shares will reduce the amount of funds available for the
payment of dividends on ordinary shares. Holders of the preferred shares may be
entitled to received a preference payment in the event of any liquidation,
dissolution or winding up of the Company before any payment is made to the
holders of ordinary shares. 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 the Company's securities or the removal of incumbent management.
CERTAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION HAVING THE EFFECT OF
DELAYING, DEFERRING OR PREVENTING A CHANGE IN CONTROL
The Articles of Association provide that shareholder action can only be
taken at a general meeting of the shareholders and cannot be taken by written
consent in lieu of a meeting. The Articles of Association provide that, except
as otherwise required by law, general meetings of the shareholders can only be
called pursuant to a resolution adopted by a majority of the board of directors
or by the chairman of the board of directors. Shareholders are not permitted to
call for a general meeting or require the board of directors to call for a
meeting.
The Articles of Association establish an advance notice procedure for
shareholder proposals to be brought before a general meeting of shareholders of
the Company, including proposed nominations of persons for election to the Board
of Directors.
Shareholders at a general meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the board of directors or by a shareholder who was a
shareholder of record on the record date of the meeting, who is entitled to vote
at the
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meeting and who has provided or put forward a proposal or nomination for
consideration at a general meeting in accordance with the Articles. Although the
Articles of Association do not provide the board of directors the power to
approve or disapprove shareholder nominations of candidates or proposals
regarding other business to be conducted at a general meeting, they may have the
effect of precluding the conduct of certain business at a meeting if the proper
procedures are not followed or may discourage or deter a potential acquiror from
conducting solicitation proxies to elect its own slate of directors or otherwise
to obtain control of the Company.
Cayman Islands law provides that the affirmative vote of holders of at
least two-thirds of the total votes eligible to be cast and present at any
meeting and casted at a general meeting of the Company is required to amend,
alter, change or repeal provisions of the Articles of Association. This
requirement of a special resolution to approve amendments to the Articles of
Association could enable a minority of the Company's shareholders to exercise
veto power over any such amendments.
The Articles of Association provide for the board of directors to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one third of the board of directors will be
elected each year.
MATERIAL CONTRACTS
Other than the contracts listed under Item 19. Exhibits, in the past
two years we have not entered into any material contracts other than contracts
entered into in the ordinary course of our business.
EXCHANGE CONTROLS
The Articles authorizes us to issue an aggregate of 200,000,000
ordinary shares with a par value of $0.01 per share. Of those 200,000,000
authorized ordinary shares, 53,763,600 shares were issued and outstanding as of
March 2, 2001, all of which are fully paid or credited as fully paid. We may not
call for any further capital from any holder of ordinary shares outstanding.
Under Cayman Islands law, non-residents of the Cayman Islands may freely hold,
vote and transfer ordinary shares in the same manner as Cayman Islands
residents, subject to the provisions of the Companies Law (2000 Revision) and
our Articles. No Cayman Islands laws or regulations restrict the export or
import of capital, or affect the payment of dividends to non-resident holders of
ordinary share.
TAXATION
CAYMAN ISLANDS
There is at present no direct taxation in the Cayman Islands on
interest, dividends and gains payable to or by Fresh Del Monte and all such
monies will be received free of all Cayman Islands taxes. Accordingly, U.S.
holders of ordinary shares are not presently subject to Cayman Islands income or
withholding taxes with respect to such holdings. We are an exempted company
incorporated under Cayman Islands law and have obtained an undertaking as to tax
concessions pursuant to Section 6 of the Tax Concessions Law (Revised) which
provides that for a period of 20 years from April 22, 1997, no law thereafter
enacted in the Cayman Islands imposing any taxes or duty to be levied on
profits, income, gains or appreciations or which is in the nature of estate duty
or inheritance tax shall be payable by us on or in respect of our shares or
other obligations.
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UNITED STATES
The following discussion summarizes some of the principal U.S. federal
income tax considerations that may be relevant to you if you invest in ordinary
shares and are a U.S. holder. You will be a U.S. holder if you are:
o an individual who is a citizen or resident of the United
States,
o a U.S. domestic corporation, or
o any other person that is subject to U.S. federal income tax on
a net income basis in respect of its investment in ordinary
shares.
This summary deals only with U.S. holders that hold ordinary shares as
capital assets. It does not address considerations that may be relevant to you
if you are an investor that is subject to special tax rules, such as a bank,
thrift, real estate investment trust, regulated investment company, insurance
company, dealer in securities or currencies, trader in securities or commodities
that elects mark-to-market treatment, person that will hold ordinary shares as a
position in a "straddle" or conversion transaction, tax exempt organization,
person whose "functional currency" is not the dollar, or person that holds 10%
or more of our voting shares.
Dividends paid with respect to ordinary shares to the extent of our
current and accumulated earnings and profits as determined under U.S. federal
income tax principles will be taxable to you as ordinary income at the time that
you receive such amounts. Dividends generally will be foreign source income and
will not be eligible for the dividends-received deduction available to domestic
corporations.
Upon a sale, exchange or other taxable disposition of ordinary shares
you generally will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (1) the sum of the amount of cash and the
fair market value of any property you receive and (2) your tax basis in the
ordinary shares that you dispose of. Such gain or loss will generally be
long-term capital gain or loss if you have held the ordinary shares for more
than one year. Net long-term capital gain recognized by an individual U.S.
holder generally will be subject to a maximum rate of 20% for ordinary shares
held for more than one year. The ability of U.S. holders to offset capital
losses against ordinary income is limited. Any gain generally will be treated as
U.S. source income.
You may be subject to backup withholding at a rate of 31% with respect
to dividends paid on ordinary shares or the proceeds of a sale, exchange or
other disposition of ordinary shares, unless you:
o are a corporation or come within another exempt category, and,
when required, you demonstrate this fact or
o provide a correct taxpayer identification number, certify that
you are not subject to backup withholding and otherwise comply
with applicable requirements of the backup withholding rules.
Any amount withheld under these rules will be creditable against your
federal income tax liability. You should consult your tax advisor regarding your
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and
currency exchange rates which may adversely affect our results of operations and
financial condition. We seek to minimize the risks from these interest rate and
currency exchange rate fluctuations through our regular operating and financing
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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 market risk by restricting the use of derivative financial
instruments to hedging activities and by limiting potential interest and
currency rate exposures to amounts that are not material to our consolidated
results of operations and cash flows. 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 interest and currency 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 44% of our net sales in 2000 was received in currencies other than
the dollar. We generally are unable to adjust our non-dollar local currency
sales prices to reflect changes in exchange rates between the dollar and the
relevant local currency. As a result, changes in exchange rates between Euro,
Japanese yen or other currencies in which we receive sale proceeds and the
dollar have a direct impact on our operating results. In addition, there is
normally a time lag between our sales and collection of the related sales
proceeds.
To seek to reduce currency exchange risk, we generally exchange local
currencies for dollars promptly upon receipt. We periodically enter into
currency forward contracts as a hedge against currency exposures, however, we
may not enter into these contracts during any particular period. As of December
29, 2000, we had $23.9 million (notional amount) of currency forward contracts
outstanding with an unrealized loss of $0.7 million.
The results of a uniform 10% strengthening in the value of the dollar
at January 1, 2000 relative to the currencies other than the dollar in which a
significant portion of our net sales and related costs are denominated would
result in a decrease in gross profit of approximately $45 million for the year
ended December 29, 2000. 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.
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.
INTEREST RATE RISK
We utilize primarily variable-rate debt as described in Note 12 of the
notes to our consolidated financial statements. We use an interest rate swap
agreement to limit our exposure under the revolving credit agreement to
short-term interest rate movements.
At December 29, 2000, our variable rate long-term debt had a carrying
value of $407.5 million. The fair value of the debt approximates the carrying
value because the variable rates approximate market rates.
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A 10% increase in the period end interest rate would result in a negative impact
of approximately $3.7 million on our results of operations.
At December 29, 2000, the notional amount of the interest rate swap
agreement was $96.4 million. The carrying value and fair value of the asset for
this agreement was zero and ($0.3) million, respectively. Based upon a
hypothetical 10% increase in the period end market interest rate, the fair value
of this asset would increase by approximately $0.3 million.
These amounts are determined by considering the impact of the
hypothetical interest rates on our borrowing cost and the interest rate swap
agreement. These analyses do not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of such a change, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in our financial structure.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There are no defaults, dividend arrearages or delinquencies that are
required to be disclosed.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
There are no material modifications to the rights of security holders
that are required to be disclosed.
PART III
ITEM 17. FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements have been prepared in
accordance with Item 18 hereof.
ITEM 18. FINANCIAL STATEMENTS
The Company's financial statements and schedule set forth in the
accompanying Index to Consolidated Financial Statements and Supplemental
Financial Statement Schedule included in this report following Part II beginning
on pages F-1 and S-1, respectively, are hereby incorporated herein by this
reference. Such consolidated financial statements and schedule are filed as part
of this Report.
50
53
CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Certified Public Accountants........................ F-1
Consolidated Balance Sheets at December 29, 2000 and December 31, 1999...................... F-2
Consolidated Statements of Income for the years ended December 29, 2000,
December 31, 1999 and January 1, 1999........................................................ F-4
Consolidated Statements of Cash Flows for the years ended December 29, 2000,
December 31, 1999 and January 1, 1999........................................................ F-5
Consolidated Statements of Shareholders' Equity for the years ended
December 29, 2000, December 31, 1999 and January 1, 1999..................................... F-7
Notes to Consolidated Financial Statements................................................... F-8
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
Report of Ernst & Young LLP, Independent Certified Public Accountants........................ S-1
Schedule II - Valuation and Qualifying Accounts.............................................. S-2
ITEM 19. EXHIBITS
1.1 Amended and Restated Memorandum of Association of
Fresh Del Monte Produce Inc. (incorporated by
reference from Exhibit 3.6 to Registration Statement
on Form F-1 (File No. 333-7708) filed by Fresh Del
Monte Produce Inc.)
1.2 Amended and Restated Articles of Association of Fresh
Del Monte Produce Inc. (incorporated by reference
from Exhibit 3.7 to Registration Statement on Form
F-1 (File No. 333-7708) filed by Fresh Del Monte
Produce Inc.)
4.1 Form of Registration Rights Agreement dated as of
October 15, 1997 by and between the Registrant and
the FG Holdings Limited (incorporated by reference
from Exhibit 10.9 to Registration Statement on Form
F-1 (File No. 333-7708) filed by Fresh Del Monte
Produce Inc.)
4.2 Strategic Alliance Agreement dated as of August 29,
1997 by and between the Registrant and IAT 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.)
4.3 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 Registration Statement on Form F-1
(File No. 333-7708) filed by Fresh Del Monte Produce
Inc.)
4.4 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
Registration Statement on Form F-1 (File No.
333-7708) filed by Fresh Del Monte Produce Inc.)
51
54
4.5 License Agreement, dated as of December 5, 1989,
between Del Monte Corporation and Del Monte Fresh
Fruit International, Inc. (the "Direct DMC-DMFFI
License") (incorporated by reference from Exhibit
10.5 to Registration Statement on Form F-1 (File No.
333-7708) filed by Fresh Del Monte Produce Inc.)
4.6 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 Registration Statement on Form F-1 (File No.
333-7708) filed by Fresh Del Monte Produce Inc.)
4.7 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 Registration Statement on Form
F-1 (File No. 333-7708) filed by Fresh Del Monte
Produce Inc.)
4.8 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
Registration Statement on Form F-1 (File No.
333-7708) filed by Fresh Del Monte Produce Inc.)
4.9 $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 Annual Report on Form 20-F for
the year ended January 1, 1999 filed by Fresh Del
Monte Produce Inc.)
4.10 Amendment and Consent to the Revolving Credit
Agreement dated as of December 15, 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., 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 Annual
Report on Form 20-F for the year ended January 1,
1999 filed by Fresh Del Monte Produce Inc.)
4.11 Second Amendment to the Revolving Credit Agreement
dated as of January 5, 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., 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 Annual
Report on Form 20-F for the year ended January 1,
1999 filed by Fresh Del Monte Produce Inc.)
52
55
4.12 Third Amendment and Consent dated as of January 8,
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 2.4 to Annual Report on Form 20-F for
the year ended January 1, 1999 filed by Fresh Del
Monte Produce Inc.)
4.13 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 Annual Report on Form 20-F for
the year ended December, 31, 1999 filed by Fresh Del
Monte Produce Inc.)
4.14 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 isntitutions 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 Annual Report on Form 20-F for
the year ended December, 31, 1999 filed by Fresh Del
Monte Produce Inc.)
4.15 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 isntitutions and other institutional
lenders a party to the Revolving Credit Agreement
dated as of May 19, 1998 (incorporated by reference
from Exhibit 2.3 to Annual Report on Form 20-F for
the year ended December 31, 1999 filed by Fresh Del
Monte Produce Inc.)
4.16 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 isntitutions 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 Annual Report on Form 20-F for
the year ended December 31, 1999 filed by Fresh Del
Monte Produce Inc.)
53
56
4.17 Eight 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.
4.18 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.
4.19 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.
8.1 List of Subsidiaries
10.1 Consent of Ernst & Young LLP
54
57
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report on Form 20-F or amendments
thereto to be signed on its behalf by the undersigned, thereunto duly
authorized.
FRESH DEL MONTE PRODUCE INC.
Date: March 7, 2001 By: /s/ Hani El-Naffy
------------------------------------------
Hani El-Naffy
President and Chief Operating Officer
By: /s/ John F. Inserra
------------------------------------------
John F. Inserra
Executive Vice President and
Chief Financial Officer
55
58
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Fresh Del Monte Produce Inc.
We have audited the accompanying consolidated balance sheets of Fresh Del Monte
Produce Inc. and subsidiaries as of December 29, 2000 and December 31, 1999, and
the related consolidated statements of income, cash flows and shareholders'
equity for each of the three years in the period ended December 29, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Fresh Del Monte
Produce Inc. and subsidiaries at December 29, 2000 and December 31, 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 29, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ ERNST & YOUNG LLP
Miami, Florida
February 14, 2001
F-1
59
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN MILLIONS)
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 10.6 $ 31.2
Trade accounts receivable, net of allowance
of $12.5 and $9.9, respectively 142.7 136.4
Advances to growers and other receivables, net
of allowance of $4.9 and $4.5, respectively 56.3 52.3
Inventories 188.8 198.9
Prepaid expenses and other current assets 6.5 13.4
-------- --------
Total current assets 404.9 432.2
-------- --------
Investments in unconsolidated companies 51.7 51.9
Property, plant and equipment, net 635.6 590.6
Other noncurrent assets 47.9 62.1
Goodwill, net of accumulated amortization of
$9.3 and $5.9, respectively 81.5 79.4
-------- --------
Total assets $1,221.6 $1,216.2
======== ========
F-2
60
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(U.S. DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 0.4 $ 3.2
Accounts payable and accrued expenses 187.1 195.2
Current portion of long-term debt and capital lease
obligations 51.1 24.9
Income taxes payable 9.4 5.2
-------- --------
Total current liabilities 248.0 228.5
-------- --------
Long-term debt 416.6 467.7
Capital lease obligations 17.4 8.3
Retirement benefits 53.2 53.9
Other noncurrent liabilities 9.6 8.7
Deferred income taxes 8.5 11.3
-------- --------
Total liabilities 753.3 778.4
-------- --------
Minority interest 11.1 12.0
Commitments and contingencies
Shareholders' equity:
Preferred shares, $0.01 par value; 50,000,000 shares
authorized; none issued or outstanding -- --
Ordinary shares, $0.01 par value; 200,000,000 shares
authorized; 53,763,600 shares issued and outstanding 0.5 0.5
Paid-in capital 327.1 327.1
Retained earnings 140.2 107.1
Accumulated other comprehensive loss (10.6) (8.9)
-------- --------
Total shareholders' equity 457.2 425.8
-------- --------
Total liabilities and shareholders' equity $1,221.6 $1,216.2
======== ========
F-3
61
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED STATEMENTS OF INCOME
(U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
YEAR ENDED
-------------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
-------------- -------------- --------------
Net sales $ 1,859.3 $ 1,743.2 $ 1,600.1
Cost of products sold 1,692.4 1,592.6 1,405.4
-------------- -------------- --------------
Gross profit 166.9 150.6 194.7
Selling, general and administrative expenses 80.9 63.5 58.3
Amortization of goodwill 3.4 2.6 1.7
Acquisition related expenses -- -- 4.0
Hurricane Mitch charge -- -- 26.5
-------------- -------------- --------------
Operating income 82.6 84.5 104.2
Interest expense 43.2 30.2 30.3
Interest income 2.7 2.6 4.3
Other income (loss), net (6.1) 14.7 11.4
-------------- -------------- --------------
Income before provision for income taxes and
extraordinary item 36.0 71.6 89.6
Provision for income taxes 2.9 14.7 12.2
-------------- -------------- --------------
Income before extraordinary item 33.1 56.9 77.4
Extraordinary charge on early extinguishment of debt -- -- 18.1
-------------- -------------- --------------
Net income $ 33.1 $ 56.9 $ 59.3
============== ============== ==============
Basic and diluted per share income:
Before extraordinary item $ 0.62 $ 1.06 $ 1.44
Extraordinary charge $ -- $ -- $ (0.34)
Net income $ 0.62 $ 1.06 $ 1.10
Weighted average number of ordinary shares outstanding:
Basic 53,763,600 53,763,600 53,632,656
Diluted 53,764,383 53,805,237 53,774,831
F-4
62
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN MILLIONS)
YEAR ENDED
---------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
OPERATING ACTIVITIES:
Net income $ 33.1 $ 56.9 $ 59.3
Adjustments to reconcile net income to cash provided by
operating activities:
Goodwill amortization 3.4 2.6 1.7
Depreciation and amortization other than
goodwill 54.4 42.6 34.1
Deferred credit vessel leases (2.9) (4.8) (3.9)
Equity in earnings of unconsolidated companies,
net of dividends (1.4) 2.1 (3.6)
Extraordinary charge on early extinguishment of
debt -- -- 18.1
Write-off of fixed assets related to Hurricane
Mitch -- -- 18.8
Gain on insurance proceeds related to Hurricane
Mitch -- (13.5) --
Unrealized loss on available-for-sale
marketable securities 5.2 -- --
Deferred income taxes (2.8) 6.4 1.4
Other, net 2.3 2.0 0.1
Changes in operating assets and liabilities:
Receivables (10.6) (22.9) (31.6)
Inventories 7.4 (40.3) (22.8)
Accounts payable and accrued expenses (2.5) (1.6) 17.7
Prepaid expenses and other current assets 6.9 21.6 (20.9)
Other noncurrent assets and liabilities 6.0 (12.2) (4.4)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 98.5 38.9 64.0
INVESTING ACTIVITIES:
Capital expenditures (75.5) (100.8) (53.8)
Capital expenditures due to Hurricane Mitch, net of
insurance proceeds (3.1) (2.8) --
Proceeds from sale of assets 5.9 0.1 4.6
F-5
63
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(U.S. DOLLARS IN MILLIONS)
YEAR ENDED
---------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
INVESTING ACTIVITIES (CONTINUED):
Purchase of subsidiaries, net of cash acquired $ (9.9) $(67.7) $(11.4)
Other investing activities, net 1.4 (1.1) (8.5)
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (81.2) (172.3) (69.1)
FINANCING ACTIVITIES:
Proceeds from issuance of ordinary shares -- -- 2.6
Proceeds from long-term debt 273.5 321.6 433.5
Payments on long-term debt (307.8) (181.4) (412.7)
Proceeds from short-term borrowings 5.8 10.6 211.5
Payments on short-term borrowings (8.5) (5.9) (261.8)
Dividend paid in connection with the IAT transaction -- -- (25.0)
Other, net (0.7) (0.4) 3.7
------ ------ ------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (37.7) 144.5 (48.2)
Effect of exchange rate changes on cash and cash
equivalents (0.2) (4.5) 0.4
------ ------ ------
Cash and cash equivalents:
Net change (20.6) 6.6 (52.9)
Beginning balance 31.2 32.8 85.7
Net cash change due to change in year end of
subsidiaries -- (8.2) --
------ ------ ------
Ending balance $ 10.6 $ 31.2 $ 32.8
====== ====== ======
SUPPLEMENTAL NON-CASH ACTIVITIES:
Capital lease obligations for new assets $ 13.9 $ 2.5 $ 10.3
====== ====== ======
F-6
64
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(U.S. DOLLARS IN MILLIONS)
ACCUMULATED
ORDINARY OTHER TOTAL
SHARES ORDINARY PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
OUTSTANDING SHARES CAPITAL EARNINGS INCOME (LOSS) EQUITY
----------- ------ ------- -------- ------------- -------------
Balance at December 26, 1997 53,600,600 $ 0.5 $ 311.7 $ 32.3 $ (1.7) $ 342.8
Capital contributions -- -- 8.0 -- -- 8.0
Issuance of ordinary shares upon
exercise of stock options 163,000 -- 2.6 -- -- 2.6
Dividend -- -- -- (4.0) -- (4.0)
Dividend paid in connection with
the IAT transaction -- -- 4.8 (29.8) -- (25.0)
Comprehensive income:
Net income -- -- -- 59.3 -- 59.3
Currency translation adjustment -- -- -- -- (1.2) (1.2)
----------
Comprehensive income 58.1
---------- ---------- ---------- ---------- ---------- ----------
Balance at January 1, 1999 53,763,600 0.5 327.1 57.8 (2.9) 382.5
Net loss of IAT for the three
month period ended January 1,
1999 -- -- -- (7.6) -- (7.6)
Comprehensive income:
Net income -- -- -- 56.9 -- 56.9
Unrealized loss on
available-for-sale marketable
securities -- -- -- -- (3.7) (3.7)
Currency translation adjustment -- -- -- -- (2.3) (2.3)
----------
Comprehensive income 50.9
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 53,763,600 0.5 327.1 107.1 (8.9) 425.8
Comprehensive income:
Net income -- -- -- 33.1 -- 33.1
Unrealized loss on
available-for-sale marketable
securities, net of
reclassification for losses of
$5.2 included in net income -- -- -- -- 3.6 3.6
Currency translation adjustment -- -- -- -- (5.3) (5.3)
----------
Comprehensive income 31.4
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 29, 2000 53,763,600 $ 0.5 $ 327.1 $ 140.2 $ (10.6) $ 457.2
========== ========== ========== ========== ========== ==========
F-7
65
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 57.6% owned by IAT Group Inc.
which is 100% beneficially owned by members of the Abu-Ghazaleh family. In
addition, members of the Abu-Ghazaleh family directly own 9.3% of the
outstanding ordinary shares of Fresh Del Monte.
On September 17, 1998, Fresh Del Monte acquired 14 wholly owned operating
companies from IAT Group Inc. and its shareholders (collectively, such companies
are known as IAT and their acquisition is known as the IAT transaction). At the
time of the IAT transaction, IAT Group Inc. owned approximately 86% of FG
Holdings Limited, which in turn owned approximately 63% of Fresh Del Monte. As a
result, the IAT transaction has been accounted for as a combination of entities
under common control using the as if pooling of interests method of accounting.
The consideration given in the IAT transaction consisted of $25.0 million in
cash, the assumption of existing debt of approximately $130.0 million and the
issuance to companies controlled by the Abu-Ghazaleh family of six million of
Fresh Del Monte's ordinary shares. IAT had operations in Chile, the United
States, the Netherlands and Uruguay. IAT was a private international grower and
exporter of primarily deciduous fresh fruit and vegetables.
Under the as if pooling of interests method of accounting, the historical
results of Fresh Del Monte have been restated to combine the operations of Fresh
Del Monte and IAT for all periods subsequent to August 29, 1996, the date Fresh
Del Monte and IAT came under common control. The recorded assets and liabilities
of Fresh Del Monte and IAT have been carried forward to Fresh Del Monte's
consolidated financial statements at their historical amounts. Consolidated
earnings of Fresh Del Monte include the earnings of Fresh Del Monte and IAT for
all periods subsequent to the date Fresh Del Monte and IAT came under common
control.
In connection with the IAT transaction, Fresh Del Monte incurred $4.0 million of
acquisition expenses, which were expensed in 1998. Acquisition expenses include
professional, legal, accounting and other fees.
Prior to January 2, 1999, IAT's fiscal year end was September 30. Effective
January 2, 1999, IAT's fiscal year end was changed to conform to Fresh Del
Monte's fiscal year end. As a result of this change in fiscal year ends, the
year ended December 31, 1999 reflects the operating results of Fresh Del Monte
and subsidiaries, including IAT, for the same months. The results of operations
for IAT for the period from October 1, 1998 to January 1, 1999 are not included
in the consolidated statements of income or cash flows for any of the periods
presented, but are reflected as an adjustment to retained earnings as of January
2, 1999. For the period from October 1, 1998 to January 1, 1999, IAT incurred a
net loss of $7.6 million.
Fresh Del Monte and its subsidiaries are engaged primarily in the worldwide
production, transportation and marketing of fresh produce. Fresh Del Monte and
its subsidiaries source their products (bananas and other fresh produce which
includes pineapples, deciduous fruit, melons and other fresh produce) from 15
locations in North, Central and South America, the Asia-Pacific region and
Africa and distribute their products in North America, Europe, the Asia-Pacific
region and South America. Products are sourced from company-owned or leased
farms, through joint venture arrangements and through supply contracts with
independent growers.
F-8
66
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Fresh Del Monte
and its majority owned subsidiaries which Fresh Del Monte controls. Fresh Del
Monte's fiscal year end is the last Friday of the calendar year or the first
Friday subsequent to the end of the calendar year, whichever is closest to the
end of the calendar year. All significant intercompany accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES
Preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS
Fresh Del Monte classifies as cash equivalents all highly liquid investments
with a maturity of three months or less at the time of purchase.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is computed using
the weighted average cost method for fresh produce, principally in-transit, and
the first-in first-out, actual cost or average cost methods for raw materials
and packaging supplies. Raw materials inventory consists primarily of
agricultural supplies, linerboard, packaging materials and spare parts.
GROWING CROPS
Expenditures on pineapple, deciduous fruit and melon growing crops are valued at
the lower of cost or market and are deferred and charged to income when the
related crop is harvested and sold. The deferred growing costs consist primarily
of land preparation, cultivation, irrigation and fertilization costs.
Expenditures related to banana crops are expensed as incurred.
INVESTMENTS IN UNCONSOLIDATED COMPANIES
Investments in unconsolidated companies are accounted for under the equity
method of accounting for investments in 20% to 50% owned companies and for
investments in over 50% owned companies over which Fresh Del Monte does not have
control.
F-9
67
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is recorded
following the straight-line method over the estimated useful lives of the
assets, which ranges from 10 to 30 years for buildings, 10 to 20 years for ships
and containers, 2 to 20 years for machinery and equipment, 3 to 20 years for
furniture, fixtures and office equipment and 2 to 10 years for automotive
equipment. Leasehold improvements are amortized over the life of the lease or
the related asset, whichever is shorter. When assets are retired or disposed of,
the costs and accumulated depreciation or amortization are removed from the
respective accounts and any related gain or loss is recognized. Maintenance and
repairs are charged to expense when incurred. Significant expenditures, which
extend useful lives of assets, are capitalized. Costs related to land
improvements for bananas, pineapple, deciduous fruit and other agricultural
projects are deferred during the formative stage and are amortized over the
estimated life of the project.
GOODWILL
Goodwill is amortized on a straight-line basis over its estimated useful life
which ranges from 10 to 40 years. Fresh Del Monte continually assesses the
carrying value of its goodwill in order to determine whether an impairment has
occurred. This assessment takes into account both historical and forecasted
results of operations including consideration of a terminal value.
IMPAIRMENT OF LONG-LIVED ASSETS
Fresh Del Monte accounts for the impairment of long-lived assets under Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121).
SFAS No. 121 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. Based on current circumstances, Fresh Del Monte does not
believe that a write-down of any of its long-lived assets is necessary.
REVENUE RECOGNITION
Revenue is recognized on sales of products when the customer receives title to
the goods, generally upon delivery.
COST OF PRODUCTS SOLD
Cost of products sold includes the cost of produce, packaging materials, labor
and overhead, ocean and inland freight and other distribution costs, including
shipping and handling costs incurred to deliver fresh produce to the customer.
F-10
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year end, based on enacted tax laws and statutory tax
rates applicable to the year in which the differences are expected to affect
taxable income. Valuation allowances are established when it is deemed more
likely than not that future taxable income will not be sufficient to realize
income tax benefits. Generally, income tax expense is the tax payable for the
year and the net change during the year in deferred tax assets and liabilities.
ENVIRONMENTAL REMEDIATION LIABILITIES
Losses associated with environmental remediation obligations are accrued when
such losses are probable and can be reasonably estimated.
DEFERRED CREDIT VESSEL LEASES
Deferred credit vessel leases represents the excess of amounts due under
long-term operating leases of six vessels over the estimated fair value of such
leases. At December 31, 1999, $2.9 million was included in accrued expenses.
This amount was amortized over the remaining life of the leases, which expired
during 2000.
CURRENCY TRANSLATION
For Fresh Del Monte's operations in countries where the functional currency is
other than the U.S. dollar, balance sheet amounts are translated using the
exchange rate in effect at the balance sheet date. Income statement amounts are
translated at the average exchange rate for the year. The gains and losses
resulting from the changes in exchange rates from year to year are recorded as a
component of accumulated other comprehensive loss.
For Fresh Del Monte's other operations where the functional currency is the U.S.
dollar or where the operations are located in highly inflationary countries,
non-monetary assets are translated at historical exchange rates. Other balance
sheet amounts are translated at the exchange rates in effect at the balance
sheet date. Income statement accounts, excluding depreciation, are translated at
the average exchange rate for the year. These translation adjustments are
included in the determination of net income.
Other income (loss), net in the accompanying consolidated statements of income
includes approximately $4.7 million, $3.6 million and $1.5 million in net losses
on foreign exchange for 2000, 1999 and 1998, respectively. These amounts include
the effect of foreign currency translation and realized foreign currency gains
and losses.
F-11
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) encourages, but does not require, companies to
record stock-based compensation plans at fair value. Fresh Del Monte has chosen,
as allowed by the provisions of SFAS No. 123, to account for its Stock Plan
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB No. 25) and related interpretations. Under APB No. 25,
because the exercise price of Fresh Del Monte's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recorded. SFAS No. 123 requires disclosure of the estimated fair
value of employee stock options granted after 1994 and pro forma financial
information assuming compensation expense was recorded using these fair values.
OFF BALANCE SHEET RISK
Fresh Del Monte enters into currency forward contracts as a hedge against
certain currency exposures, principally relating to sales made in Europe and in
the Asia-Pacific region. Gains and losses on the currency forward contracts are
included in other income (loss), net when the contracts are closed.
RECLASSIFICATIONS
Certain amounts from 1999 and 1998 have been reclassified to conform to the 2000
presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), as amended, which was
adopted by Fresh Del Monte for fiscal year 2001. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Due to Fresh Del Monte's minimal use of derivatives as of
December 29, 2000, management believes that the adoption of SFAS No. 133 will
not have a significant effect on the earnings or the financial position of the
Company.
3. ACQUISITIONS
BELGIAN ACQUISITION
On January 14, 1999, Fresh Del Monte acquired all of the outstanding shares of
Banana Marketing Belgium N.V. (BMB) and executed a long-term banana purchase
agreement with a subsidiary of C.I. Banacol S.A. (Banacol). Banacol is a
significant producer of bananas and BMB was Banacol's exclusive marketing
company in Europe.
F-12
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
BELGIAN ACQUISITION (CONTINUED)
The total consideration paid in connection with the acquisition of BMB was $58.7
million. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
acquired of $36.9 million, consisting primarily of European banana import
licenses, based on an appraisal. The value assigned to the banana import
licenses is included in other noncurrent assets and is being amortized over
their estimated life of five years (See Note 17). The excess of the purchase
price over the fair value of net assets acquired of $21.8 million was classified
as goodwill and is being amortized over 20 years.
NATIONAL POULTRY
On November 25, 1998, Fresh Del Monte acquired a 62% majority interest in
National Poultry Company PLC (National Poultry), a publicly traded company in
Jordan, engaged in the poultry business. The total consideration paid was $11.9
million, of which approximately $6.4 million was used to pay down existing debt.
A portion of the acquired shares were purchased from members of the Abu-Ghazaleh
family for a total purchase price of $4.5 million in 1998, based on a fairness
opinion from an independent party. During 1999 and 2000, Fresh Del Monte
acquired an additional 24% interest in National Poultry. The acquisitions were
accounted for using the purchase method of accounting and, accordingly, the
purchase prices were allocated to the assets acquired and liabilities assumed
based on estimates of their underlying fair values.
The following unaudited pro forma information presents a summary of 1998
consolidated results of operations of Fresh Del Monte as if the acquisition of
National Poultry had occurred on December 27, 1997 (U.S dollars in millions,
except per share data):
1998
----
Net sales $ 1,615.1
Income before extraordinary item $ 74.2
Net income $ 56.1
Net income per ordinary share $ 1.04
Number of ordinary shares used in computation 53,774,831
The unaudited pro forma results do not purport to be indicative of the results
of operations which actually would have resulted had the acquisition of National
Poultry occurred on December 27, 1997, or of future results of operations of the
consolidated entities.
F-13
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories consisted of the following (U.S. dollars in millions):
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
Fresh produce, principally in-transit $ 52.4 $ 57.9
Raw materials and packaging supplies 79.3 89.0
Growing crops 57.1 52.0
------- -------
$ 188.8 $ 198.9
======= =======
5. INVESTMENTS IN UNCONSOLIDATED COMPANIES
Fresh Del Monte utilizes the equity method of accounting for investments in 20%
to 50% owned companies and for investments in over 50% owned companies over
which Fresh Del Monte does not have control. Investments in unconsolidated
companies accounted for under the equity method amounted to $51.7 million and
$51.9 million at December 29, 2000 and December 31, 1999, respectively. At
December 29, 2000 and December 31, 1999, net amounts receivable from
unconsolidated companies amounted to $13.7 million and $9.6 million,
respectively.
These unconsolidated companies are engaged in the manufacturing of corrugated
boxes (Compania Industrial Corrugadora Guatemala, S.A. - 50% owned) and the
production and distribution of fresh fruit and other produce (Davao Agricultural
Ventures Corporation - 40% owned; Agricola Villa Alegre, Ltda - 50% owned;
various melon farms - 50% owned; and Internationale Fruchtimport Gesellschaft
Weichert & Co. (Interfrucht) - a non-controlling 80% interest).
Purchases from unconsolidated companies were $77.9 million, $58.7 million and
$55.5 million for 2000, 1999 and 1998, respectively.
Combined financial data of unconsolidated companies is summarized as follows
(U.S. dollars in millions):
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
Current assets $ 53.2 $ 52.4
Noncurrent assets 83.2 82.5
Current liabilities (37.7) (36.5)
Noncurrent liabilities (6.6) (7.7)
------ ------
Net worth $ 92.1 $ 90.7
====== ======
F-14
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN UNCONSOLIDATED COMPANIES (CONTINUED)
YEAR ENDED
--------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
Net sales $206.0 $228.4 $263.0
Gross profit 15.9 14.0 23.6
Net income 5.8 6.3 12.4
Fresh Del Monte's portion of earnings in unconsolidated companies amounted to
$3.6 million, $3.7 million and $8.9 million, in 2000, 1999 and 1998,
respectively, and is included in other income (loss), net. Dividends received
from unconsolidated subsidiaries amounted to $2.1 million, $5.8 million and $5.3
million in 2000, 1999 and 1998, respectively.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (U.S. dollars in
millions):
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
Land and land improvements $ 228.6 $ 209.0
Buildings and leasehold improvements 155.0 141.3
Maritime equipment (including containers) 207.2 182.2
Machinery and equipment 125.6 106.4
Furniture, fixtures and office equipment 50.6 41.8
Automotive equipment 15.9 15.6
Construction-in-progress 23.2 26.8
-------- --------
806.1 723.1
Less accumulated depreciation and
amortization (170.5) (132.5)
------- -------
$ 635.6 $ 590.6
======== ========
Depreciation and amortization expense amounted to $46.2 million, $36.3 million
and $33.1 million for 2000, 1999 and 1998, respectively.
Buildings, containers, machinery and equipment and automotive equipment under
capital leases totaled $33.6 million and $17.2 million at December 29, 2000 and
December 31, 1999, respectively. Accumulated amortization for assets under
capital leases was $6.2 million and $2.7 million at December 29, 2000 and
December 31, 1999, respectively.
F-15
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. HURRICANE MITCH
Fresh Del Monte recorded a charge in 1998 of $26.5 million in asset write-offs
and other costs, net of insurance proceeds received of $3.0 million, due to
damage incurred to its Guatemalan operations as a result of excessive flooding
caused by Hurricane Mitch. Additional insurance recoveries related to Hurricane
Mitch of $13.5 million during 1999 are included in other income (loss), net for
the year ended December 31, 1999.
Fresh Del Monte maintains insurance for both property damage and business
interruption applicable to its production facilities, including its operations
in Guatemala. The policies providing the coverages for losses caused by
Hurricane Mitch were subject to deductibles of $0.1 million for property damage
and business interruption. Fresh Del Monte is pursuing additional recoveries
under its business interruption coverages related to the damage of its
operations in Guatemala caused by Hurricane Mitch. The amount of total
recoveries under business interruption coverages cannot be estimated at this
time.
8. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following (U.S. dollars in
millions):
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
Currency translation adjustment $ (10.5) $ (5.2)
Unrealized loss on available-for-sale securities (0.1) (3.7)
------- -------
$ (10.6) $ (8.9)
======= =======
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following (U.S. dollars
in millions):
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
Trade payables $ 93.2 $ 90.3
Payroll and employee benefits 9.7 10.2
Vessel and port operating expenses 16.4 19.6
Accrued interest payable 3.0 3.1
Current portion of deferred
credit vessel leases -- 2.9
Other payables and accrued expenses 64.8 69.1
------- -------
$ 187.1 $ 195.2
======= =======
F-16
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following (U.S. dollars in
millions):
YEAR ENDED
---------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
Current:
U.S. federal income tax $ -- $ 2.5 $ 4.5
State -- 0.3 0.5
Non-U.S 5.7 5.8 4.9
------- ------- -------
5.7 8.6 9.9
Deferred:
U.S (1.0) 1.7 1.5
Non-U.S (1.8) 4.4 0.8
------- ------- -------
(2.8) 6.1 2.3
------- ------- -------
Provision for income taxes $ 2.9 $ 14.7 $ 12.2
======= ======= =======
Total income tax payments during 2000, 1999 and 1998 were $3.9 million, $5.9
million, and $7.4 million, respectively.
Income (loss) before provision for income taxes and extraordinary item consisted
of the following (U.S. dollars in millions):
YEAR ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
United States $ (13.5) $ 3.3 $ 13.8
Non-U.S 49.5 68.3 75.8
------- ------- -------
$ 36.0 $ 71.6 $ 89.6
======= ======= =======
F-17
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PROVISION FOR INCOME TAXES (CONTINUED)
The differences between the reported provision for income taxes and income taxes
computed at the U.S. statutory federal income tax rate are explained in the
following reconciliation (U.S. dollars in millions):
YEAR ENDED
--------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
Income tax provision computed at the U.S.
statutory federal income tax rate $ 12.6 $ 25.1 $ 31.4
Effect of non-U.S. operations and tax rates (9.7) (10.5) (19.1)
Other -- 0.1 (0.1)
------- ------- -------
$ 2.9 $ 14.7 $ 12.2
======= ======= =======
Deferred income tax assets and liabilities consisted of the following (U.S.
dollars in millions):
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
DEFERRED TAX LIABILITIES:
Inventories $ (8.6) $ (8.5)
Investments -- (1.8)
Depreciation (14.2) (12.7)
Equity in earnings of unconsolidated companies (4.1) (4.0)
------- -------
Total deferred tax liabilities (26.9) (27.0)
DEFERRED TAX ASSETS:
Pension liability 1.1 1.4
Post-retirement benefits other than pension 6.7 6.7
Net operating loss carryforwards 29.8 23.6
Other, net 8.6 5.2
------- -------
Total deferred tax assets 46.2 36.9
Valuation allowance (27.8) (21.2)
------- -------
Net deferred tax liabilities $ (8.5) $ (11.3)
======= =======
F-18
76
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PROVISION FOR INCOME TAXES (CONTINUED)
The valuation allowance established with respect to the deferred tax assets
relates primarily to net operating losses and employee benefit accruals in
taxing jurisdictions where, due to Fresh Del Monte's current and foreseeable
operations within the various jurisdictions, it is deemed more likely than not
that future taxable income will not be sufficient within such jurisdictions to
realize the related income tax benefits. During 2000, the valuation allowance
increased by $6.6 million.
At December 29, 2000, Fresh Del Monte had approximately $127.3 million of tax
operating loss carry forwards expiring as follows (U.S. dollars in millions):
EXPIRATION AMOUNT
---------- ------
2001 $ 36.3
2002 12.1
2003 0.4
2004 1.5
2005 and beyond 13.4
No expiration 63.6
-------
$127.3
=======
11. NOTES PAYABLE TO BANKS
Fresh Del Monte has a $1.0 million working capital revolving credit facility
with a bank in Japan. This facility expires on April 30, 2001 and bears
interest, as of December 29, 2000, at 2.5%. As of December 31, 1999, Fresh Del
Monte also had working capital revolving credit facilities with various banks in
Central America and Europe. These facilities were closed during 2000. At
December 29, 2000 and December 31, 1999, there was $0.4 million and $3.2
million, respectively, of borrowings outstanding under these credit facilities.
The weighted average interest rate on borrowings under these short-term credit
facilities as of December 29, 2000 and December 31, 1999 was 2.5% and 6.94%,
respectively. The cash payments for interest on notes payable to banks and other
financial institutions was $0.3 million, $0.2 million and $6.1 million for 2000,
1999 and 1998, respectively.
F-19
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LONG-TERM DEBT
The following is a summary of long term-debt (U.S. dollars in millions):
DECEMBER 29, DECEMBER 31,
2000 1999
------------ ------------
$450.0 million five-year syndicated credit facility (see below) $246.3 $397.8
$135.0 million five-year term loan (see below) 128.2 --
Term notes bearing interest at various rates ranging from 8.62% to
LIBOR plus 1.25% (7.91% at December 29, 2000), payable in quarterly
installments of principal and interest maturing in January 2003 and
January 2004, secured by mortgages on five of Fresh Del Monte's vessels 11.9 --
Term notes bearing interest at 8.62%, payable in quarterly
installments of principal and interest maturing in January 2003, secured
by mortgages on five of Fresh Del Monte's vessels 17.2 22.3
Term notes bearing interest at various rates ranging from 6.88% to 7.14% and
LIBOR plus 1.25% (8.06% at December 29, 2000), payable in quarterly
installments of principal and interest maturing from August 2001 to
January 2005, with a balloon payment of $6.9 million due in January 2005,
secured by mortgages on five of Fresh Del Monte's vessels 22.6 28.2
Term notes payable to financial institutions, bearing interest at
LIBOR plus 1% (7.76% at December 29, 2000) due October 2003, secured by
mortgages on five of Fresh Del Monte's vessels 22.6 29.2
Various other notes payable 12.8 11.8
------ ------
Total 461.6 489.3
Less current portion (45.0) (21.6)
------ ------
$416.6 $467.7
====== ======
On May 19, 1998, Fresh Del Monte completed a tender offer to purchase $200.0
million of outstanding 10% notes due 2003 (N.V. Notes). Approximately 98.4%, or
$196.8 million, of the N.V. Notes were purchased in the tender offer. The
purchase was funded by a drawdown of $207.9 million from the $350.0 million,
five-year syndicated credit facility (the Revolving Credit Facility) entered
into by Fresh Del Monte, and certain wholly-owned subsidiaries of Fresh Del
Monte, with Rabobank International, New York Branch, as agent. The remaining
N.V. Notes were redeemed in June 1998 at a redemption price of $1,050 for each
$1,000 principal amount of N.V. Notes being redeemed, plus accrued interest to
the date of redemption. Completion of the tender offer and the redemption
resulted in an extraordinary charge of $18.1 million.
F-20
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LONG-TERM DEBT (CONTINUED)
On December 15, 1998, the Revolving Credit Facility was amended to increase the
borrowing level to $389.0 million and on May 20, 1999, the Revolving Credit
Facility was amended to increase the borrowing level to $450.0 million. The
Revolving Credit Facility includes a swing line facility, a letter of credit
facility and an exchange contract facility. The Revolving Credit Facility is
collateralized directly or indirectly by substantially all of the assets of
Fresh Del Monte and its subsidiaries. The facility expires on May 19, 2003, and
permits borrowings with an interest rate based on a spread over the London
Interbank offered rate (LIBOR). Outstanding borrowings at December 29, 2000 were
$246.3 million, bearing interest at an average rate of 9.22%. At December 29,
2000, Fresh Del Monte applied $2.2 million of available credit under this
facility towards the issuance of letters of credit.
On May 10, 2000, Fresh Del Monte amended its $450.0 million Revolving Credit
Facility to include a five-year term loan (Term Loan) of $135.0 million giving
Fresh Del Monte a total borrowing capacity under this facility of $585.0
million. The Term Loan has similar terms and conditions as the Revolving Credit
Facility, is payable in quarterly installments of $3.4 million which commenced
in September 2000, and bears interest based on a spread over LIBOR (9.66% at
December 29, 2000). The Term Loan matures on May 10, 2005 with a balloon payment
of $70.9 million. Fresh Del Monte used the total proceeds from the $135.0
million Term Loan to pay-down a portion of the outstanding balance on the $450.0
million five-year Revolving Credit Facility. The unpaid balance at December 29,
2000 of the Term Loan was $128.2 million.
The Revolving Credit Facility contains covenants, which require Fresh Del Monte
to maintain certain minimum financial ratios and limits the payment of future
dividends. In connection with the Revolving Credit Facility, Fresh Del Monte
entered into an interest rate swap agreement expiring in 2003 with the same bank
to limit the effect of increases in interest rates on a portion of the Revolving
Credit Facility. The nominal amount of the swap decreases over its life from
$150.0 million in the first three months, to $53.6 million in the last three
months. The cash differentials paid or received on the swap agreement are
accrued and recognized as adjustments to interest expense. Interest income
related to the swap agreement for 2000 amounted to $0.3 million. Interest
expense related to the swap agreement for 1999 and 1998 amounted to $0.9 million
and $0.7 million, respectively.
Cash payments of interest on long-term debt were $39.2 million, $29.4 million
and $22.3 million for 2000, 1999 and 1998, respectively.
Maturities on long-term debt during the next five years are (U.S. dollars in
millions):
2001 $45.0
2002 39.8
2003 276.9
2004 17.0
2005 81.4
Thereafter 1.5
------
$461.6
======
F-21
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. CAPITAL LEASE OBLIGATIONS
Fresh Del Monte leases certain buildings, machinery and equipment, and
containers under capital leases. These lease obligations are payable in monthly
installments. The future minimum lease payments at December 29, 2000 are as
follows (U.S. dollars in millions):
2001 $ 7.6
2002 7.2
2003 5.6
2004 3.7
2005 0.8
Thereafter 3.5
-------
Total payments remaining under capital leases 28.4
Less amount representing interest (4.9)
-------
Present value of capital leases 23.5
Less current portion (6.1)
-------
Capital lease obligations, net of current portion $ 17.4
======
14. EARNINGS PER SHARE
Basic and diluted per share income is calculated as follows (U.S. dollars in
millions, except per share data):
YEAR ENDED
------------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
-------------- -------------- --------------
NUMERATOR:
Income before extraordinary item $ 33.1 $ 56.9 $ 77.4
Extraordinary charge on early extinguishment of debt -- -- 18.1
-------------- -------------- --------------
Net income $ 33.1 $ 56.9 $ 59.3
============== ============== ==============
DENOMINATOR:
Denominator for basic earnings per share - weighted average
number of ordinary shares outstanding 53,763,600 53,763,600 53,632,656
Effect of dilutive securities:
Employee stock options 783 41,637 119,152
Shares issuable in connection with an acquisition -- -- 23,023
-------------- -------------- --------------
Denominator for diluted earnings per share 53,764,383 53,805,237 53,774,831
============== ============== ==============
Basic and diluted per share income:
Before extraordinary item $ 0.62 $ 1.06 $ 1.44
Extraordinary charge $ -- $ -- $ (0.34)
Net income $ 0.62 $ 1.06 $ 1.10
F-22
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. EARNINGS PER SHARE (CONTINUED)
The number of outstanding stock options considered antidilutive for either part
or all of the fiscal year and not included in the calculation of diluted net
income per share for 2000 and 1999 were 3,082,000, 3,078,000, respectively.
There were no antidilutive stock options in 1998.
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS
U.S. PLANS
Fresh Del Monte sponsors two non-contributory defined benefit pension plans,
which cover substantially all of its U.S. based employees. These plans provide
benefits based on the employees' years of service and qualifying compensation.
Fresh Del Monte's funding policy for these plans is to contribute amounts
sufficient to meet the minimum funding requirements of the Employee Retirement
Income Security Act of 1974, as amended, or such additional amounts as
determined appropriate to assure that assets of the plans would be adequate to
provide benefits. Substantially all of the plans' assets are invested in fixed
income and equity funds.
As of July 31, 1997, a subsidiary of Fresh Del Monte "froze" (i.e., ceased
accruing benefits under) its cash balance pension plan covering all salaried
employees who are U.S. based and work a specified minimum number of hours. The
hypothetical account balances under such plan continued to be credited with
monthly interest and participants who are not fully vested in such plan
continued to earn vesting services after July 31, 1997. Fresh Del Monte adopted
an amendment to terminate the cash balance plan effective as of December 31,
1999 and a settlement distribution of $10.1 million was paid during 2000. The
loss recognized in 2000 due to settlement amounted to $1.1 million.
Fresh Del Monte provides contributory health care benefits to its U.S. retirees
and their dependents. Fresh Del Monte has recorded a liability equal to the
unfunded accumulated benefit obligation as required by the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (SFAS No. 106). SFAS No. 106
requires that the cost of these benefits, which are primarily for health care
and life insurance, be recognized in the financial statements throughout the
employees' active working careers. Claims under the plan are funded by Fresh Del
Monte as they are incurred and, accordingly, the plan has no assets.
The weighted average discount rate used in determining the accumulated benefit
obligation for postretirement pension benefit obligation was 7.25% and 7.5% at
December 29, 2000 and December 31, 1999, respectively. For measuring the
liability as of December 29, 2000, a 5.75% annual rate of increase in real
medical inflation, declining gradually to 4.75% by the year 2003 and thereafter,
were assumed.
F-23
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The assumptions used in the calculation of the actuarial present value of the
projected benefit obligation and expected long-term return on plan assets for
Fresh Del Monte's defined benefit pension plans consisted of the following:
DECEMBER 29, DECEMBER 31,
2000 1999
------------- ---------------
Weighted average discount rate 6.00% - 7.50% 6.00% - 6.75%
Rate of increase in compensation levels 4.50% 4.50%
Expected long-term return on assets 7.75% - 8.75% 7.75% - 8.75%
The following table sets forth a reconciliation of benefit obligations, plan
assets and funded status for Fresh Del Monte's defined benefit pension plans and
post retirement pension plan as of December 29, 2000 and December 31, 1999 (U.S.
dollars in millions):
POSTRETIREMENT PLAN DEFINED BENEFIT PLANS
-------------------------- --------------------------
DECEMBER 29, DECEMBER 31, DECEMBER 29, DECEMBER 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation at beginning of period $ 12.5 $ 11.2 $ 21.2 $ 33.7
Service cost 0.5 0.4 0.3 0.4
Interest cost 0.9 0.9 1.4 2.1
Actuarial (gain)/loss 0.2 0.5 2.0 (1.0)
Benefits paid (0.4) (0.5) (0.7) (2.6)
Settlements -- -- (10.1) (11.0)
Foreign exchange translation -- -- (0.1) (0.4)
------- ------- ------- -------
Benefit obligation at end of period $ 13.7 $ 12.5 $ 14.0 $ 21.2
======= ======= ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
period $ -- $ -- $ 18.5 $ 29.6
Actual return on plan assets -- -- 1.2 1.5
Employer contribution 0.4 0.5 1.9 1.0
Benefits paid (0.4) (0.5) (0.7) (2.6)
Settlements -- -- (10.1) (11.0)
------- ------- ------- -------
Fair value of plan assets at end of period
$ -- $ -- $ 10.8 $ 18.5
======= ======= ======= =======
RECONCILIATION:
Funded status $ (13.7) $ (12.5) $ (3.2) $ (2.7)
Unrecognized net (gain)/loss (5.6) (6.3) 0.9 (0.1)
------- ------- ------- -------
Accrued benefit cost $ (19.3) $ (18.8) $ (2.3) $ (2.8)
======= ======= ======= =======
F-24
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the net periodic pension cost of Fresh Del
Monte's defined benefit pension plans for 2000, 1999 and 1998 (U.S. dollars in
millions):
YEAR ENDED
--------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
Service cost-benefits earned during the period $0.3 $0.4 $0.3
Interest cost on projected benefit obligation 1.4 2.1 2.2
Expected return on assets (1.3) (2.1) (2.1)
---- ---- ----
Net periodic pension expense for defined benefit
plans $0.4 $0.4 $0.4
==== ==== ====
The following table sets forth the net periodic cost of Fresh Del Monte's
postretirement plan for 2000, 1999 and 1998 (U.S. dollars in millions):
YEAR ENDED
--------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
Service cost-benefits earned during the period $0.5 $0.4 $0.3
Interest cost on accumulated postretirement benefit
obligation 0.9 0.9 0.7
Net amortization of deferred gain (0.4) (0.3) (0.6)
----- ----- ----
Net periodic postretirement benefit cost $1.0 $1.0 $0.4
==== ==== ====
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 $1.9 million as of December 29,
2000 and the total of service cost plus interest cost by $0.2 million for 2000.
In addition, decreasing the trend rate by 1% would decrease the accumulated
postretirement benefit obligation by $1.6 million as of December 29, 2000 and
the total of the service cost plus interest cost by $0.2 million for 2000.
F-25
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
Fresh Del Monte also sponsors a defined contribution plan established pursuant
to Section 401(k) of the Internal Revenue Code. Subject to certain dollar
limits, employees may contribute a percentage of their salaries to the plan, and
Fresh Del Monte will match a portion of each employee's contribution. This plan
is in effect for U.S. based employees only. The expense pertaining to this plan
was $0.4 million, $0.4 million and $0.3 million for 2000, 1999 and 1998,
respectively.
NON U.S. PLANS
Fresh Del Monte provides retirement benefits to substantially all employees who
are not U.S. based. Generally, benefits under these programs are based on an
employee's length of service and level of compensation. The majority of these
programs are commonly referred to as termination indemnities which provide
retirement benefits in accordance with programs mandated by the governments of
the countries in which such employees work. The expense pertaining to these
programs was $4.5 million, $7.5 million and $6.4 million for 2000, 1999 and
1998, respectively. The decrease in the expense in 2000 was caused primarily by
a decrease in the number of employees covered by the program due to terminations
during 1999 and 2000.
Funding generally occurs when employees cease active service. The most
significant of these programs pertains to one of Fresh Del Monte's subsidiaries
in Central America for which a liability of $15.6 million and $15.8 million was
recorded at December 29, 2000 and December 31, 1999, respectively. Expenses for
this program for 2000, 1999 and 1998 amounted to $1.8 million, $3.3 million and
$3.4 million, respectively, including service cost earned of $0.9 million, $1.6
million and $1.7 million, and interest cost of $0.9 million, $1.7 million and
$1.7 million, respectively.
As of August 31, 1997, a subsidiary of the Fresh Del Monte "froze" (i.e., ceased
accruing benefits under) its salary continuation plan covering all Central
American management personnel. At December 29, 2000 and December 31, 1999, Fresh
Del Monte had $8.7 million and $8.2 million, respectively, accrued for this
plan.
16. STOCK BASED COMPENSATION
Effective upon the completion of its Initial Public Offering in October 1997,
Fresh Del Monte established a share option plan pursuant to which options to
purchase ordinary shares may be granted to certain directors, officers and key
employees of Fresh Del Monte chosen by the Board of Directors (the 1997 Plan).
Under the 1997 Plan, the Board of Directors is authorized to grant options to
purchase an aggregate of 2,380,030 ordinary shares. Under this plan, options
have been granted to directors, officers and other key employees to purchase
ordinary shares of Fresh Del Monte at the fair market value of the ordinary
shares at the date of grant.
F-26
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FRESH DEL MONTE PRODUCE INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK BASED COMPENSATION (CONTINUED)
On May 11, 1999, Fresh Del Monte's shareholders approved and ratified the 1999
Share Incentive Plan (the 1999 Plan). Under the 1999 Plan, the Board of
Directors is authorized to grant options to purchase an aggregate of 2,000,000
ordinary shares. Under this plan, options have been granted to directors,
officers and other key employees to purchase ordinary shares of Fresh Del Monte
at the fair market value of the ordinary shares at the date of grant.
Under the plans, twenty percent of the options vest immediately and the
remaining options vest in equal installments over the next four years and may be
exercised over a period not in excess of ten years. During 2000, the vesting
schedule for 120,000 options granted during the year was accelerated so that
100% of the options vested within six months.
A summary of Fresh Del Monte's stock option activity and related information is
as follows:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Options Outstanding at December 26, 1997 1,355,000 $16.00
Granted 60,000 $14.22
Exercised (163,000) $16.00
Canceled (25,000) $16.00
-----------
Options Outstanding at January 1, 1999 1,227,000 $15.91
Granted 1,960,000 $10.89
Canceled (79,000) $15.32
Options Outstanding at December 31, 1999 3,108,000 $12.08
Granted 150,000 $ 9.14
Canceled (176,000) $13.90
Options Outstanding at December 29, 2000 3,082,000 $12.52
=========
Exercisable at January 1, 1999 390,000 $15.95
========== ======
Exercisable at December 31, 1999 1,155,000 $14.10
========= ======
Exercisable at December 29, 2000 1,698,000 $13.10
========= ======
Options outstanding at December 29, 2000 have a range of exercise prices from
$7.88 to $16.00. Their weighted average remaining contractual life at December
29, 2000 is approximately eight years.
F-27
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK BASED COMPENSATION (CONTINUED)
SFAS No. 123 requires pro forma information regarding net income and earnings
per share determined as if Fresh Del Monte had accounted for its employee stock
options under the fair value method of SFAS No. 123. The fair value for the
outstanding options was estimated at the date of grant using a Black-Scholes
option pricing model. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected stock
price volatility.
The weighted-average fair value of each option granted during 2000, 1999 and
1998 is estimated at $1.37, $5.18 and $9.25, respectively, on the date of grant
using the Black-Scholes option-pricing model using the following assumptions:
dividend yield of 0%, expected volatility of 0.53, 0.45 and 0.766 in 2000, 1999
and 1998, respectively, risk free interest rate of 5.02%, 6.13% and 4.53% in
2000, 1999 and 1998, respectively, and expected lives of two to five years.
For purposes of pro forma disclosures required by SFAS No. 123, the estimated
fair value of the options is amortized to expense over the options' vesting
period. Fresh Del Monte's 2000, 1999 and 1998 pro forma information follows
(U.S. dollars in millions, except per share data):
YEAR ENDED
-------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
2000 1999 1999
------------ ------------ ----------
Net income $27.8 $52.4 $56.9
Net income per ordinary share $0.52 $0.97 $1.06
In accordance with APB No. 25, because the exercise price of Fresh Del Monte's
employee stock options equaled the market price of the underlying stock on the
date of grant, no compensation expense was recorded for 2000, 1999 or 1998 in
connection with the 1997 Plan and the 1999 Plan.
17. COMMITMENTS AND CONTINGENCIES
Fresh Del Monte leases agricultural land and certain property, plant and
equipment, including office facilities and vessels, under operating leases. The
aggregate minimum rental payments under all operating leases with initial terms
of one year or more at December 29, 2000 are as follows (U.S. dollars in
millions):
2001 $10.5
2002 10.5
2003 8.1
2004 6.4
2005 5.8
Thereafter 14.2
------
$55.5
======
F-28
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FRESH DEL MONTE PRODUCE INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rent expense for all operating leases amounted to $39.0 million, $55.2
million and $59.7 million for 2000, 1999 and 1998, respectively, of which $22.1
million, $40.9 million and $43.4 million pertained to vessel charter lease
commitments in 2000, 1999 and 1998, 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, Panama, South Africa and the Philippines. Total
purchases under these agreements amounted to $494.8 million, $560.9 million and
$481.2 million for 2000, 1999 and 1998, respectively.
Two of Fresh Del Monte's subsidiaries guarantee the debt on a vessel owned by
Interfrucht, an unconsolidated subsidiary of Fresh Del Monte. The debt totaled
$0.6 million and $1.9 million at December 29, 2000 and December 31, 1999,
respectively.
Fresh Del Monte is waiting for the clarification as to whether the European
Union will implement a new banana import system or continue with the current
system. If the European Union implements a new import system that does not
require banana import licenses as used in the current system, Fresh Del Monte
may have to record a non-cash charge due to the write-off of the unamortized
value assigned to European banana import licenses acquired in connection with
the Belgian Acquisition (See Note 3).
18. LITIGATION
Starting in December 1993, two of Fresh Del Monte's U.S. subsidiaries were named
among the defendants in a number of actions in courts in Texas, Louisiana,
Mississippi, Hawaii, Costa Rica and the Philippines involving allegations by
numerous foreign plaintiffs that they were injured as a result of exposure to a
nematocide containing the chemical dibromochloropropane (DBCP) during the period
1965 to 1990.
In December 1998, these subsidiaries entered into a settlement in the amount of
$4.6 million with counsel representing approximately 25,000 individuals. Of the
six principal defendants in these DBCP cases, Dow Chemical Company, Shell Oil
Company, Occidental Chemical Corporation and Chiquita Brands, Inc. have also
settled these claims. Under the terms of our settlement, approximately 22,000 of
these claimants dismissed their claims with prejudice and without payment. The
2,643 claimants who allege employment on a company-related farm in Costa Rica
and the Philippines and who demonstrated some injury were offered a share of the
settlement funds upon execution of a release. Over 98% of these claimants
accepted the terms of our settlement, the majority of which has been recovered
from our insurance carriers. The remaining claimants did not accept the
settlement proceeds and approximately $268,000 was returned to the Company's
subsidiaries.
On February 16, 1999, two of Fresh Del Monte's U.S. subsidiaries were
purportedly served in the Philippines in an action entitled DAVAO BANANA
PLANTATION WORKERS' ASSOCIATION OF TIBURCIA, INC. V. SHELL OIL CO., ET AL. The
action is brought by a Banana Workers' Association purportedly on behalf of its
34,852 members for injuries they allege to have incurred as a result of DBCP
exposure. At this time, it is not known how many, if any, of the Association's
members are claiming against the Fresh Del Monte's subsidiaries
F-29
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. LITIGATION (CONTINUED)
and whether these are the same individuals who have already settled their claims
against the Company's subsidiaries.
Fresh Del Monte's subsidiaries filed motions to dismiss and for reconsideration
on jurisdictional grounds, which were denied. Accordingly, Fresh Del Monte's
subsidiaries answered the complaint denying all of plaintiff's allegations.
Fresh Del Monte's U.S. subsidiaries have not settled the DBCP claims of
approximately 3,500 claimants represented by different counsel who filed actions
in Mississippi in 1996 and Hawaii in 1997. Each of those actions was dismissed
by a federal district court on grounds of FORUM NON CONVENIENS in favor of the
courts of the plaintiffs' home countries and appealed by the plaintiffs. On
January 19, 2001, the Court of Appeals for the Fifth Circuit affirmed the
dismissal of Fresh Del Monte's subsidiary for FORUM NON CONVENIENS and lack of
personal jurisdiction for the Mississippi actions. The Hawaiian plaintiffs'
appeal of the dismissal remains pending.
On October 19, 2000, the Court of Appeals for the Fifth Circuit affirmed the
dismissal of 23 non settling defendants who had filed actions in the United
States District Court in Houston, Texas. As a result, the 23 plaintiffs who did
not accept the settlement are precluded from filing any new DBCP actions in the
United States.
On June 19, 1995, a group of several thousand plaintiffs in an action entitled
LUCAS PASTOR CANALES MARTINEZ, ET AL. V. DOW CHEMICAL CO. ET AL. sued one of the
Fresh Del Monte's subsidiaries along with several other defendants in the
District Court for the Parish of St. Charles, Louisiana asserting claims similar
to those arising in the Texas cases due from the alleged exposure to DBCP. That
action was removed to the United States District Court in New Orleans and was
subsequently remanded in September 1996. Fresh Del Monte's subsidiary has
answered the complaint and asserted substantial defenses. Following the decision
of the United States Court of Appeals for the Fifth Circuit in the Texas
actions, this action was re-removed to federal court in November 2000.
On November 15, 1999, one of Fresh Del Monte's U.S. subsidiaries was served in
two actions entitled, GODOY RODRIGUEZ, ET AL. V. AMVAC CHEMICAL CORP., ET AL and
MARTINEZ PUERTO, ET AL. V. AMVAC CHEMICAL CORP., ET AL., in the 29th Judicial
District Court for the Parish of St. Charles, Louisiana. These actions were
removed to federal court, where they have been consolidated. These actions are
brought on behalf of claimants represented by the same counsel who filed the
Mississippi and Hawaii actions as well as a number of the claimants who have not
accepted the settlement offer. Fresh Del Monte's subsidiary has been given an
indefinite extension of time to respond to the complaints. At this time, it is
not known how many of the 2,962 GODOY RODRIGUEZ and MARTINEZ PUERTO plaintiffs
are claiming against the Fresh Del Monte's subsidiary and it is premature to
evaluate the likelihood of a favorable or unfavorable outcome with respect to
any of the non-settled DBCP claims.
On December 4, 2000, the Honolulu Board of Water Supply (Board) amended its
complaint (the original complaint did not include Fresh Del Monte as a
defendant) in state court to include one of Fresh Del Monte's subsidiaries as
one of several defendants for alleged contamination of certain water wells in
F-30
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. LITIGATION (CONTINUED)
Honolulu, Hawaii. In January 2001, the Board agreed to dismiss Fresh Del Monte's
subsidiary without prejudice. The parties are in the process of filing the
dismissal.
On January 8, 2001, local residents of Honolulu, Hawaii amended their complaint
(the original complaint did not include Fresh Del Monte as a defendant) in
federal court to include one of Fresh Del Monte's subsidiaries as one of several
defendants for injuries allegedly caused by consuming contaminated water. Fresh
Del Monte's subsidiary is in the process of filing its denial of all the
Plaintiffs' claims and asserting substantial defenses.
Fresh Del Monte's subsidiaries intend to vigorously defend themselves in all of
these matters. At this time, management is not able to evaluate the likelihood
of a favorable or unfavorable outcome in any of the above-described matters.
Accordingly, management is not able to estimate the range or amount of loss, if
any, on any of the above-described matters and no accruals have been recorded as
of December 29, 2000.
In 1980, elevated levels of certain chemicals were detected in the soil and
ground water at a plantation leased by one of Fresh Del Monte's subsidiaries in
Honolulu, Hawaii (Kunia Well Site). Shortly thereafter, Fresh Del Monte's
subsidiary discontinued the use of the Kunia Well site and provided an alternate
water source to area well users and the subsidiary commenced its own voluntary
cleanup operation. In 1993, the Environmental Protection Agency (EPA) identified
the Kunia Well Site for potential listing on the National Priorities List (NPL)
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended. On December 16, 1994, the EPA issued a final rule adding
the Kunia Well Site to the NPL. On September 28, 1995, Fresh Del Monte's
subsidiary entered into an order (Order) with the EPA to conduct the remedial
investigation and the feasibility study of the Kunia Well Site. Under the terms
of the Order, Fresh Del Monte's subsidiary submitted a remedial investigation
report in November 1998 for review by the EPA. The EPA approved the remedial
investigation report in February 1999. A final draft feasibility study was
submitted for EPA review in December 1999, and it is expected that the
feasibility study will be finalized by the first half of 2001.
Based on the draft feasibility study submitted to the EPA in December 1999, the
estimated remediation costs associated with this matter are expected to be
between $4.2 million and $28.1 million. Certain portions of these estimates have
been discounted using a 5% interest rate. The undiscounted estimates are between
$5.0 million and $30.0 million. An accrual of $4.2 million is included in other
noncurrent liabilities in the accompanying balance sheets.
In addition to the foregoing, Fresh Del Monte's subsidiaries are involved from
time to time in various claims and legal actions incident to their operations,
both as plaintiff and defendant. In the opinion of management, after consulting
with legal counsel, none of these other claims are currently expected to have a
material adverse effect on Fresh Del Monte.
F-31
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Fresh Del Monte to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. Fresh Del Monte places its temporary cash investments with
highly-rated financial institutions. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers comprising
Fresh Del Monte's customer base, and their dispersion across many different
geographical regions. Generally, Fresh Del Monte does not require collateral or
other security to support customer receivables.
OFF BALANCE SHEET RISK
Fresh Del Monte enters into currency forward contracts as a hedge against
certain currency exposures, principally relating to sales made in Europe and the
Asia-Pacific region. Gains and losses on these contracts are included in other
income (loss), net when the contracts are closed. At December 29, 2000, Fresh
Del Monte had $15.2 million (notional amount) of currency forward contracts
outstanding for the Euro with an unrealized loss of $0.8 million and $8.7
million (notional amount) of currency forward contracts outstanding for Japanese
Yen with an unrealized gain of $0.1 million. At December 31, 1999, there was
$10.8 million (notional amount) of currency forward contracts outstanding for
Japanese Yen with an unrealized gain of $0.2 million.
Counterparties expose Fresh Del Monte to credit loss in the event of
non-performance on currency forward contracts. 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.
Fresh Del Monte, in estimating its fair value disclosures for financial
instruments, used the following methods and assumptions:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ADVANCES TO GROWERS, AND
ACCOUNTS PAYABLE: The carrying value reported in the balance sheet for these
items approximates their fair value.
CAPITAL LEASE OBLIGATIONS. The carrying value of Fresh Del Monte's capital lease
obligations approximate their fair value based on current interest rates for
similar instruments.
NOTES PAYABLE AND LONG-TERM DEBT: The carrying value of Fresh Del Monte's notes
payable and long-term debt approximate their fair value since they bear interest
at variable rates or fixed rates which approximate market.
F-32
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (CONTINUED)
OFF BALANCE SHEET RISK (CONTINUED)
The carrying amounts and fair values of Fresh Del Monte's financial instruments
are as follows (U.S. dollars in millions):
DECEMBER 29, 2000 DECEMBER 31, 1999
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
Cash and cash equivalents $ 10.6 $ 10.6 $ 31.2 $ 31.2
Accounts receivables 142.7 142.7 136.4 136.4
Accounts payable (93.2) (93.2) (90.3) (90.3)
Long-term debt (461.6) (461.6) (489.3) (489.3)
Capital lease obligations (23.5) (23.5) (11.6) (11.6)
Forward contracts -- (0.7) -- (0.2)
Swap agreement -- (0.3) -- 1.5
20. RELATED PARTY TRANSACTIONS
Fresh Del Monte's products are distributed in Northern Europe by Interfrucht, an
unconsolidated subsidiary. Receivables from Interfrucht, included in accounts
receivable, were $2.8 million and $4.5 million at December 29, 2000 and December
31, 1999, respectively. Sales to this distributor amounted to $85.8 million,
$112.5 million and $131.2 million for 2000, 1999 and 1998, respectively.
Sales to Ahmed Abu-Ghazaleh & Sons Company, a related party through common
ownership, were $17.3 million, $8.7 million and $1.9 million in 2000, 1999 and
1998, respectively. At December 29, 2000 and December 31, 1999 there were $1.2
million and $0.7 million, respectively, of receivables from this related party,
which are included in trade accounts receivable.
F-33
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FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following summarizes certain quarterly operating data (U.S. dollars in
millions, except per share data):
QUARTER ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 29, DECEMBER 29,
2000 2000 2000 2000
-------- -------- -------- -----------
Net sales $ 536.1 $ 516.2 $ 395.8 $ 411.2
Gross profit 71.3 48.3 21.9 25.4
Net income (loss) $ 38.5 $ 17.2 $ (14.1) $ (8.5)
Net income (loss) per share $ 0.72 $ 0.32 $ (0.26) $ (0.16)
QUARTER ENDED
------------------------------------------------------------------------
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
1999 1999 1999 1999
-------- -------- ---------- -------------
Net sales $ 493.4 $ 476.2 $ 369.1 $ 404.5
Gross profit 64.9 54.2 26.2 5.3
Net income (loss) $ 35.4 $ 33.5 $ 6.6 $ (18.6)
Net income (loss) per share $ 0.66 $ 0.62 $ 0.12 $ (0.35)
22. BUSINESS SEGMENT DATA
Fresh Del Monte is principally engaged in one major line of business, the
production, distribution and marketing of bananas and other fresh produce. Fresh
Del Monte's products are sold in markets throughout the world, with its major
producing operations located in North, Central and South America, the
Asia-Pacific region and Africa.
Fresh Del Monte's operations have been aggregated on the basis of products;
bananas, other fresh produce and non-produce.
Fresh Del Monte evaluates performance based on several factors, of which gross
profit by product and total assets by geographic region are the primary
financial measures (U.S. dollars in millions):
YEAR ENDED
--------------------------------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999 JANUARY 1, 1999
------------------------ ----------------------- -----------------------
GROSS GROSS GROSS
NET SALES PROFIT NET SALES PROFIT NET SALES PROFIT
--------- ------ --------- ------ --------- ------
Bananas $ 921.0 $ 6.3 $ 951.3 $ (4.0) $ 897.5 $ 32.7
Other fresh produce 838.9 162.1 701.3 155.5 638.2 160.6
Non-produce 99.4 (1.5) 90.6 (0.9) 64.4 1.4
-------- ------ -------- ------ -------- ------
TOTAL $1,859.3 $166.9 $1,743.2 $150.6 $1,600.1 $194.7
======== ====== ======== ====== ======== ======
F-34
92
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. BUSINESS SEGMENT DATA (CONTINUED)
YEAR ENDED
-------------------------------------------------------------------
DECEMBER 29, 2000 DECEMBER 31, 1999 JANUARY 1, 1999
------------------ ------------------ ---------------
NET SALES BY GEOGRAPHIC REGION:
North America $ 922.2 $ 830.4 $ 781.0
Europe 572.7 601.5 522.8
Asia-Pacific 324.5 280.7 237.7
Other 39.9 30.6 58.6
-------- -------- --------
TOTAL NET SALES $1,859.3 $1,743.2 $1,600.1
======== ======== ========
PROPERTY PLANT AND EQUIPMENT: DECEMBER 29, 2000 DECEMBER 31, 1999
----------------- -----------------
North America $ 55.9 $ 40.3
Europe 49.0 42.2
Asia-Pacific 2.3 1.7
Central and South America 345.9 340.9
Maritime equipment (including
containers) 159.4 146.7
Corporate 23.1 18.8
------ ------
TOTAL PROPERTY, PLANT AND EQUIPMENT $635.6 $590.6
====== ======
IDENTIFIABLE ASSETS: DECEMBER 29, 2000 DECEMBER 31, 1999
------------------ ------------------
North America $ 213.7 $ 184.2
Europe 220.8 234.6
Asia-Pacific 34.3 38.2
Central and South America 507.0 529.2
Maritime equipment (including
containers) 159.4 146.7
Corporate 86.4 83.3
-------- --------
TOTAL ASSETS $1,221.6 $1,216.2
======== ========
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93
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. BUSINESS SEGMENT DATA (CONTINUED)
Fresh Del Monte's earnings are heavily dependent on operations located
worldwide. These operations are a significant factor in the economies of some of
the countries in which Fresh Del Monte operates and are subject to the risks
that are inherent in operating in such countries, including government
regulations, currency and ownership restrictions and risk of expropriation.
Fresh Del Monte has three principal sales agreements for the distribution of its
fresh produce, which principally cover sales in the European and Japanese
markets. Sales made through these agreements approximated 17%, 21% and 21% of
total net sales for 2000, 1999 and 1998, respectively.
Identifiable assets by geographic area represent those assets used in the
operations of each geographic area. Corporate assets consist of an allocation of
goodwill, leasehold improvements and furniture and fixtures.
F-36
94
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Fresh Del Monte Produce Inc.
We have audited the consolidated financial statements of Fresh Del Monte Produce
Inc. and subsidiaries as of December 29, 2000 and December 31, 1999, and for
each of the three years in the period ended December 29, 2000, and have issued
our report thereon dated February 14, 2001 (included elsewhere in this Form
20-F). Our audits also included the financial statement schedule listed in Item
18 of this Form 20-F. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Miami, Florida
February 14, 2001
S-1
95
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FRESH DEL MONTE PRODUCE INC.
AND SUBSIDIARIES
(U.S. DOLLARS IN MILLIONS)
Col. A Col. B Col. C Col. D Col. E
------------------------------------ -------------------- ---------------------------------- ----------- ------------------
Additions
----------------------------------
Balance at Beginning Charged to Costs Charged to other Deduction Balance at End of
Description of Period and Expenses Accounts Period
------------------------------------ -------------------- ---------------------------------- ----------- ------------------
Period ended December 29, 2000:
Deducted from asset accounts:
Valuation accounts:
Trade accounts receivable $9.9 $3.5 ($0.1) ($0.8) $12.5
Advances to growers and other
receivables 4.5 1.2 0.0 (0.8) 4.9
Deferred tax asset valuation 21.2 6.6 0.0 0.0 27.8
-------------------- ---------------------------------- ----------- ------------------
Total $35.6 $11.3 ($0.1) ($1.5) $45.3
==================== ================================== =========== ==================
Period ended December 31, 1999:
Deducted from asset accounts:
Valuation accounts:
Trade accounts receivable $8.5 $2.8 $0.0 ($1.4) $9.9
Advances to growers and other
receivables 2.6 2.7 0.0 (0.8) 4.5
Deferred tax asset valuation 14.2 7.0 0.0 0.0 21.2
-------------------- ---------------------------------- ----------- ------------------
Total $25.3 $12.5 $0.0 ($2.2) $35.6
==================== ================================== =========== ==================
Period ended January 1, 1999:
Deducted from asset accounts:
Valuation accounts:
Trade accounts receivable $5.0 $3.3 $0.3 ($0.1) $8.5
Advances to growers and other
receivables 3.1 1.2 (0.2) (1.5) 2.6
Deferred tax asset valuation 36.5 0.0 0.0 (22.3) 14.2
-------------------- ---------------------------------- ----------- ------------------
Total $44.6 $4.5 $0.1 ($23.9) $25.3
==================== ================================== =========== ==================
S-2