Fresh Del Monte Produce, Inc.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarter ended July 1, 2005
Fresh Del Monte Produce Inc.
(Exact Name of Registrant as Specified in Its Charter)
The Cayman Islands
(State or Other Jurisdiction of
Incorporation or Organization)
Walker House, Mary Street
P.O. Box 908GT
George Town, Grand Cayman
(Address of Registrant’s Principal Executive Office)
c/o Del Monte Fresh Produce Company
241 Sevilla Avenue
Coral Gables, Florida 33134
(Address of Registrant’s U.S. Executive Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F
or
Form 40-F.
Form 20-F þ Form 40-F o
Indicate by check mark whether the registrant by furnishing the information contained in this Form
is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes
o No þ
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with
Rule 12g3-2(b): 82-___________.
TABLE OF CONTENTS
| |
|
|
|
|
| |
|
Page |
Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
26 |
|
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions, except share and per share data)
| |
|
|
|
|
|
|
|
|
| |
|
July 1, |
|
December 31, |
| |
|
2005 |
|
2004 |
| |
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
31.8 |
|
|
$ |
42.1 |
|
Trade accounts receivable, net of allowance of
$20.5 and $20.2, respectively |
|
|
314.3 |
|
|
|
276.0 |
|
Advances to growers and other receivables, net of
allowance of $18.9 and $20.7, respectively |
|
|
83.7 |
|
|
|
54.7 |
|
Inventories |
|
|
356.2 |
|
|
|
347.3 |
|
Deferred income taxes |
|
|
6.5 |
|
|
|
3.8 |
|
Prepaid expenses and other current assets |
|
|
25.3 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
817.8 |
|
|
|
742.3 |
|
|
|
|
|
|
|
|
Investments in and advances to unconsolidated companies |
|
|
13.9 |
|
|
|
15.5 |
|
Property, plant and equipment, net |
|
|
886.5 |
|
|
|
914.7 |
|
Deferred income taxes |
|
|
29.3 |
|
|
|
33.4 |
|
Other noncurrent assets |
|
|
109.4 |
|
|
|
103.4 |
|
Goodwill |
|
|
240.2 |
|
|
|
248.7 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,097.1 |
|
|
$ |
2,058.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
396.6 |
|
|
$ |
398.3 |
|
Current portion of long-term debt and capital lease obligations |
|
|
9.0 |
|
|
|
15.8 |
|
Deferred income taxes |
|
|
15.5 |
|
|
|
14.1 |
|
Income taxes payable |
|
|
18.9 |
|
|
|
14.2 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
440.0 |
|
|
|
442.4 |
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations |
|
|
288.2 |
|
|
|
347.7 |
|
Retirement benefits |
|
|
92.3 |
|
|
|
96.0 |
|
Other noncurrent liabilities |
|
|
39.7 |
|
|
|
41.7 |
|
Deferred income taxes |
|
|
51.5 |
|
|
|
53.0 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
911.7 |
|
|
|
980.8 |
|
|
|
|
|
|
|
|
| |
Minority interests |
|
|
8.7 |
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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; 58,000,480 and 57,690,074 issued and outstanding |
|
|
0.6 |
|
|
|
0.6 |
|
Paid-in capital |
|
|
380.4 |
|
|
|
376.9 |
|
Retained earnings |
|
|
795.9 |
|
|
|
714.6 |
|
Accumulated other comprehensive loss |
|
|
(0.2 |
) |
|
|
(22.9 |
) |
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
1,176.7 |
|
|
|
1,069.2 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
2,097.1 |
|
|
$ |
2,058.0 |
|
|
|
|
|
|
|
|
See accompanying notes.
1
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(U.S. dollars in millions, except share and per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
Six months ended |
| |
|
July 1, |
|
June 25, |
|
July 1, |
|
June 25, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net sales |
|
$ |
922.8 |
|
|
$ |
763.6 |
|
|
$ |
1,761.3 |
|
|
$ |
1,477.4 |
|
Cost of products sold |
|
|
819.3 |
|
|
|
674.5 |
|
|
|
1,540.8 |
|
|
|
1,311.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
103.5 |
|
|
|
89.1 |
|
|
|
220.5 |
|
|
|
166.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
52.4 |
|
|
|
26.4 |
|
|
|
97.2 |
|
|
|
54.3 |
|
Asset impairment charges |
|
|
— |
|
|
|
— |
|
|
|
2.1 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
51.1 |
|
|
|
62.7 |
|
|
|
121.2 |
|
|
|
112.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
4.6 |
|
|
|
1.1 |
|
|
|
9.0 |
|
|
|
2.4 |
|
Interest income |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
0.3 |
|
Other income (expense), net |
|
|
2.1 |
|
|
|
— |
|
|
|
(2.4 |
) |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
48.8 |
|
|
|
61.7 |
|
|
|
110.2 |
|
|
|
111.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
2.3 |
|
|
|
2.3 |
|
|
|
5.8 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46.5 |
|
|
$ |
59.4 |
|
|
$ |
104.4 |
|
|
$ |
106.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per ordinary share — Basic |
|
$ |
0.80 |
|
|
$ |
1.03 |
|
|
$ |
1.80 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per ordinary share — Diluted |
|
$ |
0.80 |
|
|
$ |
1.03 |
|
|
$ |
1.80 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per ordinary share |
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
57,940,337 |
|
|
|
57,426,128 |
|
|
|
57,846,026 |
|
|
|
57,364,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
58,090,765 |
|
|
|
57,775,389 |
|
|
|
58,051,702 |
|
|
|
57,728,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
2
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(U.S. dollars in millions)
| |
|
|
|
|
|
|
|
|
| |
|
Six months ended |
| |
|
July 1, |
|
June 25, |
| |
|
2005 |
|
2004 |
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
104.4 |
|
|
$ |
106.4 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
44.5 |
|
|
|
33.3 |
|
Asset impairment charges |
|
|
2.1 |
|
|
|
— |
|
Other, net |
|
|
(9.6 |
) |
|
|
(1.1 |
) |
Changes in operating assets and liabilities,
net of acquisitions: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(34.9 |
) |
|
|
(17.4 |
) |
Inventories |
|
|
(10.7 |
) |
|
|
10.3 |
|
Prepaid expenses and other current assets |
|
|
(6.9 |
) |
|
|
(4.9 |
) |
Accounts payable and accrued expenses |
|
|
28.3 |
|
|
|
11.5 |
|
Other noncurrent assets and liabilities |
|
|
(5.5 |
) |
|
|
0.2 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
111.7 |
|
|
|
138.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(31.1 |
) |
|
|
(48.1 |
) |
Other investing activities, net |
|
|
(0.2 |
) |
|
|
0.7 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(31.3 |
) |
|
|
(47.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
360.1 |
|
|
|
90.0 |
|
Payments on long-term debt |
|
|
(432.0 |
) |
|
|
(98.1 |
) |
Proceeds from stock options exercised |
|
|
3.5 |
|
|
|
2.0 |
|
Payments of dividends |
|
|
(23.1 |
) |
|
|
(22.9 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(91.5 |
) |
|
|
(29.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
0.8 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(10.3 |
) |
|
|
62.8 |
|
Cash and cash equivalents, beginning |
|
|
42.1 |
|
|
|
51.0 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, ending |
|
$ |
31.8 |
|
|
$ |
113.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
9.1 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
1.4 |
|
|
$ |
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
|
|
Purchases of assets under capital lease obligations |
|
$ |
6.1 |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
See accompanying notes.
3
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Fresh Del Monte Produce Inc. (“Fresh Del Monte”) was incorporated under the laws of the Cayman
Islands on August 29, 1996 and is 43.4% owned by IAT Group Inc., which is 100% owned by members of
the Abu-Ghazaleh family. In addition, members of the Abu-Ghazaleh family directly own 8.5% of the
outstanding ordinary shares of Fresh Del Monte.
In the opinion of management, the accompanying unaudited consolidated financial statements of Fresh
Del Monte and its subsidiaries include all adjustments, consisting of normal recurring adjustments,
necessary to present fairly their financial position as of July 1, 2005 and their operating results
for the three- and six-month periods and cash flows for the six-month period then ended. Interim
results are subject to significant seasonal variations and may not be indicative of the results of
operations that may be expected for the entire 2005 year.
Certain amounts from 2004 have been reclassified to conform to the 2005 presentation.
For additional information, see Fresh Del Monte’s Consolidated Financial Statements included in
Fresh Del Monte’s Annual Report on Form 20-F/A for the year ended December 31, 2004.
| 2. |
|
Stock-Based Compensation |
As permitted under Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting
for Stock-Based Compensation — Transition and Disclosure — an amendment of FAS 123” (“SFAS 148”),
which amended SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), Fresh Del Monte
has chosen to account for its Stock Plans under the intrinsic value method as allowed by Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related
interpretations. Under APB 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 was recorded. SFAS 148 requires disclosure of the estimated fair value of employee stock
options granted and pro forma financial information assuming compensation expense was recorded
using these fair values.
For purposes of pro forma disclosures required by SFAS 148, the estimated fair value of the options
is amortized to expense over the options’ vesting period. The following information shows the
effect on net income and earnings per share as if Fresh Del Monte had applied the fair value
recognition provisions of SFAS 123 for the three and six months ended July 1, 2005 and June 25,
2004 (U.S. dollars in millions, except per share data):
4
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 2. |
|
Stock-Based Compensation (continued) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
Six months ended |
| |
|
July 1, |
|
June 25, |
|
July 1, |
|
June 25, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Reported net income |
|
$ |
46.5 |
|
|
$ |
59.4 |
|
|
$ |
104.4 |
|
|
$ |
106.4 |
|
Deduct: Stock-based compensation expense
under fair value method, net of
related tax effects |
|
|
(3.5 |
) |
|
|
(0.4 |
) |
|
|
(4.1 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, pro forma |
|
$ |
43.0 |
|
|
$ |
59.0 |
|
|
$ |
100.3 |
|
|
$ |
105.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per ordinary share, reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.80 |
|
|
$ |
1.03 |
|
|
$ |
1.80 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.80 |
|
|
$ |
1.03 |
|
|
$ |
1.80 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per ordinary share, proforma: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.74 |
|
|
$ |
1.03 |
|
|
$ |
1.73 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.74 |
|
|
$ |
1.02 |
|
|
$ |
1.73 |
|
|
$ |
1.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Can-Am Trucking/RLN Leasing Acquisition
On August 11, 2004, Fresh Del Monte acquired Can-Am Express, Inc. and RLN Leasing, Inc.
(collectively, “Can-Am”), a nationally-recognized refrigerated trucking operation based in Fargo,
North Dakota. Can-Am utilizes a suite of logistics and fleet management software to optimize
transportation services. With an owned fleet of 150 tractors and 200 trailers, and facilities in
Fargo, North Dakota; Denton, Texas; and Cincinnati, Ohio, Can-Am provides over-the-road trucking
services. Fresh Del Monte’s acquisition of Can-Am has enabled Fresh Del Monte to provide
comprehensive distribution services to our retail and foodservice customers. The total
consideration paid in connection with the Can-Am acquisition was $18.8 million.
The acquisition has been accounted for as a purchase and, accordingly, the purchase price was
allocated to the fair value of the assets acquired and liabilities assumed. The initial excess of
the purchase price over the fair value of the assets acquired and liabilities assumed amounted to
$0.3 million, of which Fresh Del Monte estimates none is tax deductible.
5
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 3. |
|
Acquisitions (continued) |
Del Monte Foods Europe Acquisition
On October 1, 2004, Fresh Del Monte acquired Del Monte Foods Europe, including its operations in
Europe, Africa and the Middle East. Del Monte Foods Europe is a vertically integrated producer,
marketer and distributor of prepared fruit and vegetables, juices, beverages, snacks and desserts
and holds a perpetual, royalty-free license to use the Del Monte® brand for processed and/or canned
foods in more than 100 countries throughout Europe, Africa and the Middle East. Del Monte® is the
leading brand for canned fruit and pineapple in many Western European markets and is a leading
brand in the United Kingdom beverage market. Fresh Del Monte acquired Del Monte Foods Europe for
$339.6 million financed through cash on hand and drawings under the Revolving Credit Facility (see
Note 5). The purchase price included $24.0 million of assumed debt. The acquisition included $6.9
million of transaction related expenses.
The acquisition has been accounted for as a purchase and, accordingly, the purchase price was
allocated to the fair value of assets acquired and liabilities assumed. The initial excess of the
purchase price over the fair value of the assets acquired and liabilities assumed amounted to $72.7
million, none of which is tax deductible. The purchase price allocation is preliminary and is
pending finalization of the fair valuation of certain assets and liabilities.
The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed at the dates of acquisition during 2004 (U.S. dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Del Monte |
| |
|
Can-Am |
|
Foods |
|
Total |
Current assets |
|
$ |
3.8 |
|
|
$ |
194.4 |
|
|
$ |
198.2 |
|
Property and equipment |
|
|
7.5 |
|
|
|
122.9 |
|
|
|
130.4 |
|
Other noncurrent assets |
|
|
— |
|
|
|
18.2 |
|
|
|
18.2 |
|
Identified intangibles |
|
|
8.6 |
|
|
|
81.7 |
|
|
|
90.3 |
|
Current liabilities |
|
|
(1.4 |
) |
|
|
(96.3 |
) |
|
|
(97.7 |
) |
Noncurrent liabilities |
|
|
— |
|
|
|
(54.0 |
) |
|
|
(54.0 |
) |
|
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
18.5 |
|
|
|
266.9 |
|
|
|
285.4 |
|
Purchase price |
|
|
18.8 |
|
|
|
339.6 |
|
|
|
358.4 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
0.3 |
|
|
$ |
72.7 |
|
|
$ |
73.0 |
|
|
|
|
|
|
|
|
|
|
|
6
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
Inventories consisted of the following (U.S. dollars in millions):
| |
|
|
|
|
|
|
|
|
| |
|
July
1, |
|
December 31, |
| |
|
2005 |
|
2004 |
Finished goods |
|
$ |
159.9 |
|
|
$ |
150.4 |
|
Raw materials and packaging supplies |
|
|
102.4 |
|
|
|
96.6 |
|
Growing crops |
|
|
93.9 |
|
|
|
100.3 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
356.2 |
|
|
$ |
347.3 |
|
|
|
|
|
|
|
|
On March 21, 2003, Fresh Del Monte, and certain wholly-owned subsidiaries entered into a $400.0
million, four-year syndicated revolving credit facility (“Revolving Credit Facility”), with
Rabobank Nederland, New York Branch, as administrative agent. On November 9, 2004, the Revolving
Credit Facility was amended to increase the total commitment to $600.0 million, to add a term loan
commitment of up to $400.0 million, to extend its maturity to November 10, 2009 and to increase the
letter of credit facility to $100.0 million.
The Revolving Credit Facility is collateralized directly or indirectly by substantially all of
Fresh Del Monte’s assets and is guaranteed by certain of Fresh Del Monte’s subsidiaries. The
Revolving Credit Facility permits borrowings with an interest rate, determined by Fresh Del Monte’s
consolidated leverage ratio, based on a spread over London Interbank Offer Rate (“LIBOR”) (4.42% at
July 1, 2005). At July 1, 2005, $263.0 million was outstanding under the Revolving Credit
Facility.
The Revolving Credit Facility requires Fresh Del Monte to be in compliance with various financial
and other covenants and limits the amount of future dividends. As of July 1, 2005, Fresh Del Monte
was in compliance with all of the financial and other covenants contained in the Revolving Credit
Facility.
At July 1, 2005, Fresh Del Monte had $311.6 million available under committed working capital
facilities, primarily all of which is represented by the Revolving Credit Facility. The Revolving
Credit Facility also includes a swing line facility and a letter of credit facility. At July 1,
2005, Fresh Del Monte applied $28.1 million to the letter of credit facility, primarily related to
the Del Monte Foods Europe acquisition, which requires Fresh Del Monte to guarantee certain
contingent obligations under the purchase agreement.
7
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
The following table sets forth comprehensive income of Fresh Del Monte for the three and six months
ended July 1, 2005 and June 25, 2004 (U.S. dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
Six months ended |
| |
|
July 1, |
|
June 25, |
|
July 1, |
|
June 25, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46.5 |
|
|
$ |
59.4 |
|
|
$ |
104.4 |
|
|
$ |
106.4 |
|
Net unrealized gains on derivatives |
|
|
36.4 |
|
|
|
8.5 |
|
|
|
57.6 |
|
|
|
14.2 |
|
Net unrealized foreign currency
translation (losses) gains |
|
|
(23.4 |
) |
|
|
0.2 |
|
|
|
(35.9 |
) |
|
|
0.5 |
|
Reduction in additional minimum
pension liability |
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
59.5 |
|
|
$ |
68.1 |
|
|
$ |
127.1 |
|
|
$ |
121.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DBCP Litigation
Beginning 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 from 1965 to 1990.
In December 1998, these subsidiaries entered into a settlement in the amount of $4.6 million (the
majority of which was recovered from the insurance carriers) with counsel representing
approximately 25,000 individuals. Under the terms of the settlement, approximately 22,000 of these
claimants dismissed their claims with prejudice and without payment. The 2,643 claimants who
alleged employment on a company-related farm in Costa Rica and the Philippines and who demonstrated
some injury were offered a share of the settlement funds upon execution of a release. Over 98% of
these claimants accepted the terms of the settlement. A number of plaintiffs represented by new
counsel in the Philippines have challenged before the Philippine court whether the settlement funds
were properly distributed to their clients.
On February 16, 1999, two of Fresh Del Monte’s U.S. subsidiaries were served in the Philippines in
an action entitled Davao Banana Plantation Workers’ Association of Tiburcia, Inc. v. Shell Oil Co.,
et al. The action was brought by the Banana Workers’ Association (the “Association”) on behalf of
its 34,852 members for injuries they allege to have incurred as a result of DBCP exposure.
Approximately 13,000 members of the Association claim employment on a farm that was under contract
to one of Fresh Del Monte’s subsidiaries at the time of the alleged DBCP use. Fresh Del Monte’s
subsidiaries filed motions to dismiss and for reconsideration on jurisdictional grounds, which were denied. Accordingly, Fresh
Del Monte’s subsidiaries answered the complaint denying all of the plaintiff’s allegations. Fresh
Del Monte’s subsidiaries believe substantial defenses exist to the claims asserted by the
Association. On October 3,
8
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 7. |
|
Contingencies (continued) |
2002, the Philippine Court of Appeals ruled that the method of service
used by the Association to serve the defendants was improper and dismissed the Association’s
complaint. As a result of this decision, the trial court suspended the proceedings indefinitely.
The Association filed a motion for reconsideration of the dismissal of its complaint, which remains
pending.
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 the plaintiffs appealed
this decision. As a result of the dismissal of the Hawaiian actions, several Costa Rican and
Guatemalan individuals filed the same type of actions in those countries. The Guatemalan action
was dismissed for plaintiff’s failure to prosecute the action. On January 19, 2001, the Court of
Appeals for the Fifth Circuit affirmed the dismissal of the Mississippi actions against Fresh Del
Monte’s subsidiaries for forum non conveniens and lack of personal jurisdiction, and on October 1,
2001, the United States Supreme Court denied plaintiffs’ petition for an appeal. On April 22,
2003, the Hawaiian plaintiffs’ appeal of the dismissal was affirmed by the Supreme Court of the
United States, thereby remanding the action to the Hawaiian State Court.
On October 19, 2000, the Court of Appeals for the Fifth Circuit affirmed the dismissal of 23
non-settling defendants who had filed actions in the United States District Court in Houston,
Texas. As a result, the 23 plaintiffs who did not accept the settlement are precluded from filing
any new DBCP actions in the United States.
On June 19, 1995, a group of several thousand plaintiffs in an action entitled Lucas Pastor Canales
Martinez, et al. v. Dow Chemical Co. et al. sued one of Fresh Del Monte’s U.S. subsidiaries along
with several other defendants in the District Court for the Parish of St. Charles, Louisiana,
asserting claims similar to those arising in the Texas cases due to 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 answered the complaint and asserted
substantial defenses. Following the decision of the United States Court of Appeals for the Fifth
Circuit in the Texas actions, this action was re-removed to federal court in November 2000. Fresh
Del Monte’s subsidiary settled with all but 13 of the Canales Martinez plaintiffs. On October 25,
2001, defendants filed a motion to dismiss the action on grounds of forum non conveniens in favor
of plaintiffs’ home countries. On July 16, 2002, the district court denied that motion and the
defendants filed a motion requesting immediate review by the Court of Appeals, which was denied by
the district court on August 21, 2002. On August 28, 2002, defendants filed a petition for a writ
of mandamus before the Court of Appeals with respect to the district court’s denial of defendants’
motion to dismiss the action on grounds of forum non conveniens. As a result of the Supreme
Court’s decision in the Hawaiian action, the district court remanded these actions to state court
in Louisiana.
On November 15, 1999, one of Fresh Del Monte’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 were 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. As a result of the
Supreme Court’s decision in the Hawaiian action, the district court remanded these actions to state
court in Louisiana. At
9
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 7. |
|
Contingencies (continued) |
this time, it is not known how many of the 2,962 Godoy Rodriguez and
Martinez Puerto plaintiffs are making claims against Fresh Del Monte’s subsidiaries.
On October 14, 2004, two of Fresh Del Monte’s subsidiaries were served with a complaint in an
action styled Angel Abarca, et al. v. Dole Food Co., et al. filed in the Superior Court of the
State of California for the County of Los Angeles on behalf of more than 2,600 Costa Rican banana
workers who claim injury from exposure to DBCP. On October 8, 2004 (prior to service on Fresh Del
Monte’s subsidiaries), a co-defendant removed the action to the United States District Court for
the Central District of California. An initial review of the plaintiffs in the Abarca action
denotes that a substantial number of the plaintiffs were claimants in prior DBCP actions in Texas
and may have participated in the settlement of those actions. On December 9, 2004,
plaintiffs’ counsel served notices of voluntary dismissal pursuant to Federal Rule 41(a)(1) to all
defendants except for The Dow Chemical Co (“Dow”). The same day, the District Court granted
plaintiffs’ motion to remand. Fresh Del Monte, its subsidiaries and the other defendants apart
from Dow, jointly moved to quash service before the state court on the grounds that they have been
dismissed from the action.
On April 25, 2005, two of Fresh Del Monte’s subsidiaries were served with a complaint styled Juan
Jose Abrego, et.al. v. Dole Food Company, et al. filed in the Superior Court of the State of
California for the County of Los Angeles on behalf of 955 Guatemalan residents who claim injury
from exposure to DBCP. An initial review of the Plaintiffs in the Abrego action denotes that a
substantial number of the plaintiffs released their claims with prejudice as part of the December
1998 settlement with Fresh Del Monte’s subsidiaries as well as in prior settlement with other
defendants. On May 13, 2005, co-defendant Dow removed the action to the United States District
Court for the Central District of California. Plaintiffs filed a motion to remand on June 15,
2005, which Dow opposed, and on July 18, 2005, the District Court granted Dow 45 days to conduct
limited discovery to determine whether the amount in controversy requirement had been sufficiently
met to invoke federal jurisdiction.
On April 25, 2005, two of Fresh Del Monte’s subsidiaries were served in a complaint styled Antonio
Abrego, et al. v. Dole Food Company, et al. filed in the Superior Court of California for the
County of Los Angeles on behalf of 612 Panamanian residents who claim injury from exposure to DBCP.
Fresh Del Monte and its subsidiaries have never owned, managed or otherwise been involved with any
banana growing operations in Panama. On May 13, 2005, co-defendant Dow removed the action to the
United States District Court for the Central District of California. On June 10, 2005, the Court
directed Dow to show cause in writing as to why the amount in controversy requirement had been
sufficiently met to invoke federal jurisdiction, which Dow subsequently filed on June 17, 2005.
The case remains pending before the District Court.
On April 25, 2005, two of Fresh Del Monte’s subsidiaries were served with a complaint styled Miguel
Jose Acosta et al. v. Dole Food Company, et al. filed in the Superior Court of the State of
California for the County of Los Angeles on behalf of 633 Honduran residents who claim exposure to
DBCP. Fresh Del Monte and its subsidiaries have never owned, managed or otherwise been involved
with any banana growing operations in Honduras. The complaint was subsequently amended to add an
additional 469 plaintiffs (for a total of 1,102), and re-styled Prospero Aceituno Linares, et al.
v. Dole Food Company, et al. On May 13, 2005, co-defendant Dow removed the action to the United
States District Court for the Central District of California. The District Court sua sponte
remanded the action on May 16, 2005, and
10
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 7. |
|
Contingencies (continued) |
subsequently rejected an amended notice of removal on May
27, 2005. On May 31, 2005, Dow filed a petition before the Court of Appeals for the Ninth Circuit
seeking permission to appeal the District Court’s remand order, which remains pending.
Former Shareholders Litigation
On November 13, 2002, Eastbrook Caribe A.V.V. (“Eastbrook”), an Aruba company, which claims to be
an assignee of certain individuals and entities purporting to be former indirect shareholders of
Fresh Del Monte’s predecessor, filed in the Supreme Court of the State of New York (Trial Court),
County of New York, a summons with notice purporting to assert claims against Fresh Del Monte, one
of Fresh Del Monte’s subsidiaries and certain current and former directors, officers and
shareholders of Fresh Del Monte and its predecessor (the “New York Complaint”). On April 16, 2003,
Fresh Del Monte was served with the New York Complaint in this matter.
On December 30, 2002, Fresh Del Monte was served with a complaint filed on December 18, 2002 in the
Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida by 11
Mexican individuals and corporations, who claim to have been former indirect shareholders of Fresh
Del Monte’s predecessor, against Fresh Del Monte, and certain current and former directors,
officers and shareholders of Fresh Del Monte and its predecessor (the “Florida Complaint”).
The New York Complaint and the Florida Complaint both allege that instead of proceeding with a
prospective buyer who offered superior terms, the former chairman of Fresh Del Monte’s predecessor
and majority shareholder, agreed to sell Fresh Del Monte’s predecessor to its current majority
shareholder at a below market price as the result of commercial bribes allegedly paid by Fresh Del
Monte’s current majority shareholder and chief executive officer to Fresh Del Monte’s predecessor’s
former chairman. On February 20, 2003, Fresh Del Monte filed a motion to dismiss the Florida
Complaint and the oral argument was heard on June 19, 2003. On July 22, 2003, the court granted
in part and denied in part Fresh Del Monte’s motion to dismiss the Florida Complaint. The court
dismissed two of the 11 counts of the Florida Complaint. Mediation of the Florida Complaint is
scheduled for August 19, 2005. On May 19, 2003, Fresh Del Monte filed a motion to dismiss the New
York Complaint which was granted by the court on January 13, 2004. On October 14, 2004, the
Appellate Division of the New York State Supreme Court affirmed the dismissal of the New York
Complaint, and on April 5, 2005, the New York Court of Appeals denied Eastbrook’s leave to appeal
thereby rendering the dismissal of the New York Complaint final and not subject to any further
appeals. Fresh Del Monte believes that the allegations of the remaining Florida Complaint are
entirely without merit.
Class Action Litigation
| |
a. |
|
Pineapple Class Actions |
On April 16, 2004, four fruit wholesalers filed a consolidated complaint against two of Fresh Del
Monte’s subsidiaries in the United States District Court for the Southern District of New York.
The plaintiffs claim to have purchased Del Monte Goldä pineapples from Fresh Del Monte’s
subsidiaries. This consolidated action is brought as a putative class action on behalf of all
direct purchasers of Del Monte Goldä pineapples from March 1, 1996 through the present. The
court directed the plaintiffs to file a new consolidated
11
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 7. |
|
Contingencies (continued) |
complaint, which was filed on August 2,
2004 and consists of the four fruit wholesalers and two individual consumers who had filed their
complaints in the federal court for the Southern District of New York. In addition to these six
actions, other class actions against Fresh Del Monte were transferred to the United States District
Court for the Southern District of New York by the Judicial Panel on Multidistrict Litigation
(“JPML”) and then remanded as described below. The new consolidated complaint alleges claims for:
(1) monopolization and attempted monopolization; (2) restraint of trade; (3) unfair and deceptive
trade practices; and (4) unjust enrichment.
On March 5, 2004, an alleged individual consumer filed a putative class action complaint against
Fresh Del Monte’s subsidiaries in the state court of Tennessee on behalf of consumers who purchased
(other than for resale) Del Monte Goldä pineapples in Tennessee from March 1, 1996 to May 6,
2003. The complaint alleges violations of the Tennessee Trade Practices Act and the Tennessee
Consumer Protection Act. On April 14, 2004, Fresh Del Monte’s subsidiaries removed this action to federal
court. The plaintiffs filed a motion for remand to state court which was granted by the court on
July 7, 2004. This action will now proceed in the state court of Tennessee. On February 18, 2005,
Fresh Del Monte’s subsidiaries filed a motion to dismiss the complaint which remains pending.
On March 17, 2004, an alleged individual consumer filed a putative class action complaint against
Fresh Del Monte and its subsidiaries in the state court of California on behalf of residents of
California who purchased (other than for re-sale) Del Monte Goldä pineapples between March 1,
1996 and May 6, 2003. The complaint alleges violations of the Cartwright Act, unfair competition
in violation of the California Business and Professional Code, common law monopolization and unjust
enrichment. On April 19, 2004, Fresh Del Monte removed this action to federal court. The
plaintiffs filed a motion for remand to state court which was granted by the court on July 8, 2004.
This action will now proceed in the state court of California. On October 29, 2004, Fresh Del
Monte filed a motion to dismiss the plaintiff’s complaint which was granted in part and denied in
part. The court dismissed plaintiff’s unjust enrichment and disgorgement claims. Plaintiff filed
an amended complaint on January 4, 2005. The court granted Fresh Del Monte and its subsidiaries’
motion to dismiss with respect to plaintiff’s claims for monopolization and violation of the
California Business and Professional Code. On April 14, 2005, the plaintiff filed a second amended
class action complaint for unfair competition under the California Business and Professional Code.
On March 18, 2004, two alleged individual consumers filed putative class action complaints against
Fresh Del Monte and its subsidiaries in the state court of California on behalf of residents of
California who purchased (other than for re-sale) Del Monte Goldä pineapples between March 1,
1996 and May 6, 2003. The complaints allege common law monopolization, unfair competition in
violation of the California Business and Professional Code, unjust enrichment and violations of the
Consumer Legal Remedies Act. On April 19, 2004, Fresh Del Monte removed these actions to federal
court. The plaintiffs filed a motion for remand to the state court of California and Fresh Del
Monte opposed that motion. In addition, Fresh Del Monte filed a motion to stay the actions which
was granted by the federal court. On October 25, 2004, these actions were transferred to the
United States District Court for the Southern District of New York by the JPML. On May 11, 2005,
the court granted plaintiff’s motion to remand and these cases will now proceed in California state
court.
On April 19, 2004, an alleged individual consumer filed a putative class action complaint against
Fresh
12
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 7. |
|
Contingencies (continued) |
Del Monte’s subsidiaries in the state court of Florida on behalf of Florida residents who
purchased (other than for re-sale) Del Monte Goldä pineapples between March 1, 1996 and May
6, 2003. The complaint alleges fraudulent concealment/tolling of statute of limitations,
violations of the Florida Deceptive and Unfair Trade Practices Act and unjust enrichment. On May
11, 2004, Fresh Del Monte’s subsidiaries removed this action to federal court. The plaintiffs filed
a motion for remand to state court and Fresh Del Monte’s subsidiaries opposed that motion. The
court granted plaintiff’s motion to remand. The case will now proceed in state court of Florida.
On October 27, 2004, Fresh Del Monte filed a motion to dismiss the plaintiff’s complaint, which
remains pending.
On April 29, 2004, an alleged individual consumer filed a putative class action complaint against
Fresh Del Monte’s subsidiaries in the state court of Arizona on behalf of residents of Arizona who
purchased (other than for re-sale) Del Monte Gold™ pineapples between November 1997 and January
2003. The complaint alleges monopolization and attempted monopolization in violation of the
Arizona Consumer Fraud Act, and unjust enrichment in violation of common law. On May 24, 2004,
Fresh Del Monte’s subsidiaries removed this action to federal court. The plaintiffs filed a motion
for remand and Fresh Del Monte’s subsidiaries opposed that motion. Fresh Del Monte’s subsidiaries
are not required to respond to the complaint until 20 days after the resolution of plaintiffs’
motion to remand. On October 25, 2004, this action was transferred to the United States District
Court for the Southern District of New York by the JPML. The plaintiffs filed a motion for remand
which was granted by the court on April 20, 2005. This action will now proceed in Arizona state
court.
On July 2, 2004, an alleged individual consumer filed a putative class action which was served on
August 24, 2004 against Fresh Del Monte’s subsidiaries in the state court of Nevada on behalf of
residents of Nevada who purchased (other than for re-sale) Del Monte Gold™ pineapples between
November 1997 and January 2003. The complaint alleges restraint of trade in violation of Nevada
statutes, common law monopolization and unjust enrichment. On September 13, 2004, Fresh Del
Monte’s subsidiaries removed this action to federal court. On November 15, 2004, this action was
transferred to the United States District Court for the Southern District of New York by the JPML.
The plaintiffs filed a motion for remand which was granted by the court on April 20, 2005. This
action will now proceed in Nevada state court.
On July 25, 2005, a Texas partnership served a putative class action complaint against Fresh Del
Monte, one of its subsidiaries and several other corporations in the United States District Court
for the Southern District of Florida on behalf of all direct purchasers of bananas for the period
from May 2003 to the present. The complaint alleges that the defendants engaged in a continuing
agreement, understanding and conspiracy to restrain trade by artificially raising, fixing and
maintaining the prices of, and otherwise restricting the sale of, bananas in the United States in
violation of Section 1 of the Sherman Act.
On July 29, 2005, a New York corporation served a putative class action complaint against Fresh Del
Monte, one of its subsidiaries and several other corporations in the United States District Court
for the Southern District of Florida on behalf of all direct purchasers of bananas for the period
from July 2001 to the present. The complaint alleges that the defendants engaged in a continuing
agreement, understanding
13
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 7. |
|
Contingencies (continued) |
and conspiracy to restrain trade by artificially raising, fixing and
maintaining the prices of, and otherwise restricting the sale of, bananas in the United States in
violation of Section 1 of the Sherman Act.
On August 1, 2005, a Pennsylvania corporation served a putative class action complaint against
Fresh Del Monte, one of its subsidiaries and several other corporations, in the United States
District Court for the Southern District of Florida on behalf of all direct purchasers of bananas
for the period from May 2003 to the present. The complaint alleges that the defendants engaged in
a continuing agreement, understanding and conspiracy to restrain trade by artificially raising,
fixing and maintaining the prices of, and otherwise restricting the sale of, bananas in the United
States in violation of Section 1 of the Sherman Act.
On July 21, 2005, a New York corporation filed (but did not serve) a putative class action
complaint against Fresh Del Monte, one of its subsidiaries and several other corporations in the
United States District Court for the Southern District of Florida on behalf of all direct
purchasers of bananas for the period from May 2003 to the present. The complaint alleges that the
defendants engaged in a continuing agreement, understanding and conspiracy to restrain trade by
artificially raising, fixing and maintaining the prices of, and otherwise restricting the sale of,
bananas in the United States in violation of Section 1 of the Sherman Act.
Germany’s European Union Antitrust Investigation
On June 2, 2005, one of Fresh Del Monte’s German subsidiaries was visited by Germany’s European
Union (“EU”) antitrust authority which is investigating Fresh Del Monte’s subsidiary for possible
violations of the EU’s competition laws. Germany’s EU antitrust authority has not communicated
with Fresh Del Monte or its subsidiary since its visit. Fresh Del Monte and its subsidiary are
fully cooperating and will continue to fully cooperate with the investigation.
Fresh Del Monte and its subsidiaries intend to vigorously defend themselves in all of the above
matters. At this time, management is not able to evaluate the likelihood of a favorable or
unfavorable outcome in any of the above-described matters. Accordingly, management is not able to estimate the range or
amount of loss, if any, from any of the above-described matters and no accruals or expenses have
been recorded as of July 1, 2005, except as related to the Kunia Well Site discussed below.
Kunia Well Site
In 1980, elevated levels of certain chemicals were detected in the soil and ground-water at a
plantation leased by one of Fresh Del Monte’s U.S. subsidiaries in Honolulu, Hawaii (“Kunia Well
Site”). Shortly thereafter, Fresh Del Monte’s subsidiary discontinued the use of the Kunia Well
Site and provided an alternate water source to area well users and the subsidiary commenced its own
voluntary cleanup operation. In 1993, the Environmental Protection Agency (“EPA”) identified the
Kunia Well Site for potential listing on the National Priorities List (“NPL”) under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. On
December 16, 1994, the EPA issued a final rule adding the Kunia Well Site to the NPL. On September
28, 1995, Fresh Del Monte’s subsidiary entered into an order (the “Order”) with the EPA to conduct
the remedial investigation and the feasibility study of the Kunia Well Site. Under the terms of
the Order, Fresh Del Monte’s subsidiary
14
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 7. |
|
Contingencies (continued) |
submitted a remedial investigation report in November 1998
and a final draft feasibility study in December 1999 (which was updated from time to time) for
review by the EPA. The EPA approved the remedial investigation report in February 1999 and the
feasibility study on April 22, 2003.
As a result of communications with the EPA in 2001, Fresh Del Monte recorded a charge of $15.0
million in the third quarter of 2001 to increase the recorded liability to the estimated expected
future cleanup cost for the Kunia Well Site to $19.1 million. Based on conversations with the EPA
in the third quarter of 2002 and consultation with Fresh Del Monte’s legal counsel and other
experts, Fresh Del Monte recorded a charge of $7.0 million during the third quarter of 2002 to
increase the accrual for the expected future clean up costs for the Kunia Well Site to $26.1
million. As of July 1, 2005, $23.4 million is included in other long-term liabilities for the
Kunia Well Site clean-up.
On September 25, 2003, the EPA issued the Record of Decision (“ROD”). The EPA estimates in the ROD
that the remediation costs associated with the clean up of the Kunia Well Site will range from
$12.9 million to $25.4 million and will last approximately 10 years. Certain portions of the EPA’s
estimates have been discounted using a 5% interest rate. The undiscounted estimates are between
$14.8 million and $28.7 million. On January 13, 2004, the EPA deleted a portion of the Kunia Well
Site (Northeast section) from the NPL. On May 2, 2005, Fresh Del Monte’s subsidiary signed a
consent decree with the EPA for the performance of the clean up work for the Kunia Well Site. The
consent decree will be submitted to the United States District Court for the District of Hawaii
during the third quarter of 2005.
Other
In addition to the foregoing, Fresh Del Monte and its subsidiaries are involved from time to time
in various claims and legal actions incident to Fresh Del Monte and its subsidiaries’ operations,
both as plaintiff and defendant. In the opinion of management, after consulting with legal
counsel, none of these other claims are currently expected to have a material adverse effect on the
results of operations, financial position or cash flows of Fresh Del Monte and its subsidiaries.
15
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
Basic and diluted per share income are calculated as follows (U.S. dollars in millions, except
share and per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
Six months ended |
| |
|
July 1, |
|
June 25, |
|
July 1, |
|
June 25, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46.5 |
|
|
$ |
59.4 |
|
|
$ |
104.4 |
|
|
$ |
106.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares — Basic |
|
|
57,940,337 |
|
|
|
57,426,128 |
|
|
|
57,846,026 |
|
|
|
57,364,985 |
|
Effect of dilutive securities — stock options |
|
|
150,428 |
|
|
|
349,261 |
|
|
|
205,676 |
|
|
|
363,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares — Diluted |
|
|
58,090,765 |
|
|
|
57,775,389 |
|
|
|
58,051,702 |
|
|
|
57,728,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per ordinary share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.80 |
|
|
$ |
1.03 |
|
|
$ |
1.80 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.80 |
|
|
$ |
1.03 |
|
|
$ |
1.80 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9. |
|
Retirement and Other Employee Benefits |
The following table sets forth the net periodic cost of Fresh Del Monte’s defined benefit pension
plans and postretirement plan for the three and six months ended July 1, 2005 and June 25, 2004
(U.S. dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Plans |
|
Postretirement Plan |
| |
|
Three months ended |
|
Three months ended |
| |
|
July 1, |
|
June 25, |
|
July 1, |
|
June 25, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Service cost |
|
$ |
0.6 |
|
|
$ |
0.1 |
|
|
$ |
— |
|
|
$ |
0.1 |
|
Interest cost |
|
|
1.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Expected return on assets |
|
|
(0.7 |
) |
|
|
(0.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic costs |
|
$ |
1.1 |
|
|
$ |
— |
|
|
$ |
0.3 |
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Six months ended |
|
Six months ended |
| |
|
July 1, |
|
June 25, |
|
July 1, |
|
June 25, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Service cost |
|
$ |
1.2 |
|
|
$ |
0.2 |
|
|
$ |
— |
|
|
$ |
0.1 |
|
Interest cost |
|
|
2.4 |
|
|
|
0.5 |
|
|
|
0.6 |
|
|
|
0.6 |
|
Expected return on assets |
|
|
(1.5 |
) |
|
|
(0.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic costs |
|
$ |
2.1 |
|
|
$ |
0.2 |
|
|
$ |
0.6 |
|
|
$ |
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 9. |
|
Retirement and Other Employee Benefits (continued) |
Pension plan net periodic costs for the three and six months ended July 1, 2005 includes $0.8
million and $1.6 million, respectively, related to a defined benefit plan in the United Kingdom,
the obligations of which were assumed and the assets of which were acquired by Fresh Del Monte with
the acquisition of Del Monte Foods Europe on October 1, 2004.
| 10. |
|
Business Segment Data |
Fresh Del Monte is principally engaged in one major line of business: production, distribution and
marketing of bananas, other fresh produce and prepared foods products. Fresh Del Monte’s products
are sold in markets throughout the world, with its major producing operations located in North,
Central and South America, Asia, Europe and Africa.
Fresh Del Monte’s operations are aggregated on the basis of its products: bananas, other fresh
produce and other products and services. Other fresh produce includes pineapples, melons, tomatoes,
potatoes, onions, strawberries, non-tropical fruit (including grapes, citrus, apples, pears,
peaches, plums, nectarines, apricots and kiwis), fresh-cut produce and other fruit and vegetables.
Other products and services include a third-party freight business, a plastic product and box
manufacturing business, a poultry business and a grain business. With the acquisition of Del Monte
Foods Europe on October 1, 2004, Fresh Del Monte’s product lines now also include prepared foods
products.
17
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 10. |
|
Business Segment Data (continued) |
Fresh Del Monte evaluates performance based on several factors, of which net sales and gross profit
are the primary financial measures (U.S. dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
| |
|
July 1, 2005 |
|
June 25, 2004 |
| |
|
Net Sales |
|
Gross Profit |
|
Net Sales |
|
Gross Profit |
Product net sales and gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bananas |
|
$ |
309.0 |
|
|
$ |
24.5 |
|
|
$ |
287.9 |
|
|
$ |
26.3 |
|
Other fresh produce |
|
|
485.5 |
|
|
|
60.6 |
|
|
|
441.6 |
|
|
|
60.0 |
|
Prepared foods products |
|
|
90.0 |
|
|
|
17.0 |
|
|
|
— |
|
|
|
— |
|
Other products and services |
|
|
38.3 |
|
|
|
1.4 |
|
|
|
34.1 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
922.8 |
|
|
$ |
103.5 |
|
|
$ |
763.6 |
|
|
$ |
89.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Six months ended |
| |
|
July 1, 2005 |
|
June 25, 2004 |
| |
|
Net Sales |
|
Gross Profit |
|
Net Sales |
|
Gross Profit |
Product net sales and gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bananas |
|
$ |
581.8 |
|
|
$ |
58.3 |
|
|
$ |
551.4 |
|
|
$ |
40.9 |
|
Other fresh produce |
|
|
926.3 |
|
|
|
126.3 |
|
|
|
859.5 |
|
|
|
119.6 |
|
Prepared foods products |
|
|
168.6 |
|
|
|
29.5 |
|
|
|
— |
|
|
|
— |
|
Other products and services |
|
|
84.6 |
|
|
|
6.4 |
|
|
|
66.5 |
|
|
|
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
1,761.3 |
|
|
$ |
220.5 |
|
|
$ |
1,477.4 |
|
|
$ |
166.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
July
1, |
|
December 31, |
| |
|
2005 |
|
2004 |
Identifiable assets: |
|
|
|
|
|
|
|
|
North America |
|
$ |
425.2 |
|
|
$ |
409.6 |
|
Europe |
|
|
686.9 |
|
|
|
676.7 |
|
Africa |
|
|
115.2 |
|
|
|
129.1 |
|
Asia |
|
|
94.8 |
|
|
|
73.4 |
|
Central and South America |
|
|
520.5 |
|
|
|
507.4 |
|
Maritime equipment (including containers) |
|
|
134.0 |
|
|
|
142.3 |
|
Corporate |
|
|
120.5 |
|
|
|
119.5 |
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
2,097.1 |
|
|
$ |
2,058.0 |
|
|
|
|
|
|
|
|
| 11. |
|
Variable Interest Entity |
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest
Entities (revised December 2003)” (“FIN 46R”), which requires a variable interest entity (“VIE”)
to be consolidated by its primary beneficiary. A primary beneficiary is the party that absorbs a
majority of the entity’s expected losses or receives a majority of the entity’s expected
residual returns, or both, as a result of ownership, contractual or other financial interests in
the entity.
18
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 11. |
|
Variable Interest Entity (continued) |
In May 2005, Fresh Del Monte began consolidating a corporation named Southern Fresh Products Inc.
(“SFPI”). SFPI was created expressly for the purpose of selling all of its gold pineapple
production to Fresh Del Monte. SFPI was incorporated in the Philippines by the issuance of 625,000
shares of common equity, of which Del Monte Fresh Fruit Far East BV, a wholly-owned subsidiary of
Del Monte Fresh Produce BV which is wholly-owned by Fresh Del Monte, owns 249,998 shares, or a 40%
minority interest.
Although Fresh Del Monte is the minority owner of SFPI, Fresh Del Monte and SFPI have
profit-sharing arrangements that result in Fresh Del Monte realizing 70% of SFPI’s profits. Based
on the criteria of FIN 46R, SFPI is considered to be a VIE and Fresh Del Monte is the primary
beneficiary of SFPI’s expected residual returns. Although Fresh Del Monte is the primary
beneficiary, the creditors of SFPI do not have recourse against Fresh Del Monte’s general credit.
At July 1, 2005, SFPI had $1.8 million of current assets, primarily composed of cash and crop
inventory, $0.5 million of other assets, primarily composed of buildings and machinery, $0.5
million of payables and accruals, including intercompany payables, and $1.8 million in minority
interest and other equity which are included in the accompanying consolidated balance sheet at July
1, 2005. For the inception-to-date period ended July 1, 2005, SFPI’s operating results were
inconsequential and are included in the accompanying consolidated statements of income.
| 12. |
|
New Accounting Pronouncements |
In December 2004, the FASB issued SFAS 123R, “Share Based Payment.” SFAS 123R is a revision to SFAS
123 and supersedes APB 25, “Accounting for Stock Issued to Employees,” and amends SFAS 95,
“Statement of Cash Flows.” This statement requires a public entity to expense the cost of employee
services received in exchange for an award of equity instruments. This statement also provides
guidance on valuing and expensing these awards, as well as disclosure requirements of these equity
arrangements. This statement was effective for the first interim reporting period beginning after
June 15, 2005. However, on April 14, 2005, the Securities and Exchange Commission (“SEC”) amended
the compliance date for public companies to implement SFAS 123R to be the beginning of the first
annual period after December 15, 2005 which, for Fresh Del Monte, is December 31, 2005 (the first
day of its 2006 fiscal year). As previously disclosed, the adoption of SFAS 123R’s fair value
method will have an impact, possibly significant, on Fresh Del Monte’s results of operations but no
impact on our overall financial position. The ultimate impact is also dependent on future
issuances of stock options, if any. However, as of yet, Fresh Del Monte has not yet completed the
analysis of the ultimate impact that this new pronouncement will have on its results of operations.
On March 29, 2005, the Staff of the SEC (“Staff”) issued Staff Accounting Bulletin No. 107,
“Share-Based Payment” (“SAB 107”). Although not altering any conclusions reached in SFAS 123R, SAB
107 provides the views of the Staff regarding the interaction between SFAS 123R and certain SEC
rules and regulations and, among other things, provides the Staff’s views regarding the valuation
of share-based payment arrangements for public companies. Fresh Del Monte intends to follow the
interpretative guidance on share-based payment set forth in SAB 107 during its adoption of SFAS
123R.
19
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)(Unaudited)
| 12. |
|
New Accounting Pronouncements (continued) |
In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement
Obligations” (“FIN 47”), an interpretation of SFAS 143, “Accounting for Asset Retirement
Obligations”. FIN 47 clarifies that an entity must record a liability for a “conditional” asset
retirement obligation if the fair value of the obligation can be reasonably estimated. The types
of asset retirement obligations that are covered by FIN 47 are those for which an entity has a
legal obligation to perform an asset retirement activity, however the timing and (or) method of
settling the obligation are conditional on a future event that may or may not be within the control
of the entity. FIN 47 also clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later
than the end of fiscal years ending after December 15, 2005. Fresh Del Monte does not believe that
the adoption of FIN 47 will have a material impact on its results of operations, financial position
or cash flows.
In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections – replacement of
APB Opinion No. 20 and FASB Statement No. 3”. SFAS 154 changes the accounting for and reporting of
a change in accounting principle by requiring retrospective application of changes in accounting
principles to prior periods’ financial statements unless impracticable. SFAS 154 is effective for
accounting changes made in fiscal years beginning after December 15, 2005. Fresh Del Monte does
not expect the adoption of SFAS 154 will have a material impact on its results of operations,
financial position or cash flows.
20
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited)
Liquidity and Capital Resources
Net cash provided by operating activities was $111.7 million for the first half of 2005 as compared
to $138.3 million of cash provided by operating activities for the first half of 2004. The
decrease in cash provided by operating activities is attributable to funding higher levels of
working capital in the first half of 2005 compared with 2004, partially offset by an increase in
depreciation and amortization expense.
Working capital was $377.8 million at July 1, 2005, compared to $299.9 million at December 31,
2004, an increase of $77.9 million. This increase is attributable to increases in trade accounts
receivable and inventories, related to the new prepared foods products business in Europe and
increased fresh-cut sales, partially offset by increases in accounts payable and accrued expenses.
Net cash used in investing activities for the first half of 2005 was $31.3 million compared with
net cash used in investing activities of $47.4 million for the first half of 2004. Net cash used
in investing activities for the first half of 2005 consisted primarily of capital expenditures of $31.1
million for the expansion of production operations in South America and fresh-cut
facilities in North America and for information technology initiatives. Net cash used in investing
activities for the first half of 2004 consisted primarily of capital expenditures of $48.1 million
for the expansion of production operations in South America, distribution centers and fresh-cut
facilities in Europe and North America and for information technology.
Net cash used in financing activities for the first half of 2005 was $91.5 million compared with
$29.0 million of net cash used in financing activities for the first half of 2004. Net cash used
in financing activities for the first half of 2005 consisted primarily of net repayments of
long-term debt of $71.9 million and $23.1 million of cash payments of dividends partially offset by
$3.5 million in cash proceeds received from stock options exercised. Net cash used in financing
activities for the first half of 2004 consisted primarily of net repayments of long-term debt of
$8.1 million and payments of cash dividends of $22.9 million partially offset by $2.0 million of
cash proceeds received from stock options exercised.
On March 21, 2003, Fresh Del Monte, and certain wholly-owned subsidiaries entered into a $400.0
million, four-year syndicated revolving credit facility (“Revolving Credit Facility”), with
Rabobank Nederland, New York Branch, as administrative agent. On November 9, 2004, the Revolving
Credit Facility was amended to increase the total commitment to $600.0 million, to add a term loan
commitment of up to $400.0 million, to extend its maturity to November 10, 2009 and to increase the
letter of credit facility to $100.0 million.
The Revolving Credit Facility is collateralized directly or indirectly by substantially all of
Fresh Del Monte’s assets and is guaranteed by certain Fresh Del Monte’s subsidiaries. The
Revolving Credit Facility permits borrowings with an interest rate, depending on Fresh Del Monte’s
consolidated leverage ratio, based on a spread over London Interbank Offer Rate (“LIBOR”) (4.42% at
July 1, 2005). At July 1, 2005, there was $263.0 million outstanding under the Revolving Credit
Facility.
The Revolving Credit Facility requires Fresh Del Monte to be in compliance with various financial
and other covenants and limits the amount of future dividends. As of July 1, 2005, Fresh Del Monte
was in compliance with all of the financial and other covenants contained in the Revolving Credit
Facility.
At July 1, 2005, Fresh Del Monte had $311.6 million available under committed working capital
facilities, primarily all of which is represented by the Revolving Credit Facility. The Revolving
Credit Facility also includes a swing line facility and a letter of credit facility. At July 1,
2005, Fresh Del Monte applied $28.1
21
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)(Unaudited)
Liquidity and Capital Resources (continued)
million to the letter of credit facility, primarily related to the Del Monte Foods Europe
acquisition, which requires Fresh Del Monte to guarantee certain contingent obligations under the
purchase agreement.
As of July 1, 2005, Fresh Del Monte had $297.2 million of long-term debt and capital lease
obligations, including the current portions, consisting of $263.0 million outstanding under the
Revolving Credit Facility, $26.0 million of capital lease obligations and $8.2 million of other
long-term debt and notes payable.
As of July 1, 2005, Fresh Del Monte had cash and cash equivalents of $31.8 million.
Results of Operations
Second Quarter 2005 Compared with Second Quarter 2004
Net Sales. Net sales for the second quarter of 2005 were $922.8 million compared with $763.6
million for the second quarter of 2004. The increase in net sales of $159.2 million was primarily
attributable to net sales of the new prepared foods business in Europe of $90.0 million combined
with higher net sales of other fresh produce of $43.9 million, higher net sales of bananas of $21.1
million and higher net sales of other products and services of $4.2 million. The increase in net
sales of other fresh produce was principally due to a 44% increase in net sales of fresh-cut fruit
and vegetables as a result of higher volumes sold due to an expanding customer base, combined with
higher net sales of melons, other fruit and tomatoes, partially offset by lower net sales of
non-tropical fruit and vegetables. The increase in net sales of bananas was primarily attributable
to higher selling prices in Europe.
Net sales were positively impacted by a weaker U.S. dollar versus the euro, British pound, Japanese
yen and Korean won. The net effect of foreign exchange in the second quarter of 2005 compared with
the same period of 2004 was an increase in net sales of approximately $22.7 million.
Cost of Products Sold. Cost of products sold was $819.3 million for the second quarter of 2005
compared with $674.5 million for the second quarter of 2004, an increase of $144.8 million. This
increase in cost of products sold was primarily attributable to the new prepared foods business in
Europe, which contributed $73.0 million of the increase in cost of products sold, combined with
higher fruit procurement, ocean freight, inland transportation and other operating costs, including
a 9% increase in containerboard costs and a 55% increase in fuel costs. These increased costs are
expected to continue going forward.
Gross Profit. Gross profit was $103.5 million for the second quarter of 2005 compared with $89.1
million for the same period in 2004, an increase of $14.4 million. The increase in gross profit is
principally due to the new prepared foods business in Europe, combined with higher gross profit on
melons, other fruit and fresh-cut fruit and vegetables partially offset by reduced gross profit on
deciduous fruit, tomatoes, gold pineapples and bananas. The increase in gross profit on melons,
other fruit and fresh-cut fruit and vegetables is primarily due to improved per unit selling prices
and higher sales volume. The decrease in gross profit on deciduous fruit, tomatoes, gold
pineapples and bananas is principally due to higher fruit procurement, containerboard, ocean
freight and distribution costs.
22
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)(Unaudited)
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased $26.0 million from $26.4 million in the second quarter of 2004 to $52.4 million for the
second quarter of 2005. The increase is principally due to the new prepared foods business in
Europe, which contributed $16.0 million of the increase, combined with higher selling and
promotional activities, information technology costs and professional fees including costs
associated with implementing the requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”).
Operating income. Operating income for the second quarter of 2005 decreased by $11.6 million to
$51.1 million compared with $62.7 million for the second quarter of 2004. The decrease in
operating income was due to increased selling, general and administrative expenses, partially
offset by higher gross profit.
Interest Expense. Interest expense increased by $3.5 million to $4.6 million for the second
quarter of 2005 compared with $1.1 million for the second quarter of 2004, as a result of higher
average debt balances related to the new prepared foods acquisition in Europe.
Other Income (Expense), Net. Other income (expense), net, was $2.1 million in the second quarter
of 2005. There was no other income (expense), net in the second quarter of 2004. The increase in
other income (expense), net, during the second quarter of 2005 as compared with the second quarter
of 2004 is primarily due to foreign exchange gains, partially offset with reduced equity income
from unconsolidated subsidiaries.
Provision for Income Taxes. Provision for income taxes was $2.3 million in both of the second
quarters of 2005 and 2004. The overall effective tax rate of between approximately 4% and 5%
during the second quarter of 2005 was consistent with 2004.
First Half of 2005 Compared with First Half of 2004
Net Sales. Net sales for the first half of 2005 were $1,761.3 million compared with $1,477.4
million for the first half of 2004. The increase in net sales of $283.9 million was primarily
attributable to net sales of the new prepared foods business in Europe of $168.6 million, combined
with higher net sales of other fresh produce of $66.8 million, higher net sales of bananas of $30.4
million and higher net sales of other products and services of $18.1 million. The increase in net
sales of other fresh produce was principally due to a 48% increase in net sales of fresh-cut fruit
and vegetables as a result of higher volumes sold due to an expanding customer base, combined with
higher sales volume and per unit selling prices of melons and other fruit, partially offset by
lower net sales of non-tropical fruit and vegetables. The increase in net sales of bananas was
attributable to higher selling prices in Europe and North America partially offset by reduced sales
volume in those regions and lower per unit sales prices in the Asia-Pacific region. The increase
in net sales of other products and services is principally due to higher sales of third-party
freight service and our poultry business.
Net sales were positively impacted by a weaker dollar versus the euro, British pound, Japanese yen
and Korean won. The net effect of foreign exchange in the first half of 2005 compared with the
same period of 2004 was an increase in net sales of approximately $42.5 million.
Cost of Products Sold. Cost of products sold was $1,540.8 million for the first half of 2005
compared with $1,311.1 million for the first half of 2004, an increase of $229.7 million. This
increase in cost of products sold was primarily attributable to the new prepared foods business in
Europe, which contributed
23
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)(Unaudited)
$139.1 million of the increase in cost of products sold, combined with higher fruit procurement,
containerboard, ocean freight, inland transportation and other operating costs, including a 27%
increase in containerboard costs and a 43% increase in fuel costs. These cost increases are
expected to continue going forward.
Gross Profit. Gross profit was $220.5 million for the first half of 2005 compared with $166.3
million for the same period in 2004, an increase of $54.2 million. The increase in gross profit is
principally due to the new prepared foods business in Europe, combined with higher gross profit on
bananas, melons and fresh-cut fruit and vegetables, partially offset by reduced gross profit on
tomatoes, gold pineapples and deciduous fruit. The increase in banana gross profit was principally
due to higher per unit selling prices in Europe, partially offset by reduced worldwide volume,
lower per unit selling prices in the Asia Pacific region and increased ocean freight, distribution
and other operating costs. The reduced gross profit on tomatoes, gold pineapples and deciduous
fruit was primarily due to higher fruit procurement, containerboard, ocean freight and distribution
costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased $42.9 million from $54.3 million in the first half of 2004 to $97.2 million for the first
half of 2005. The increase is principally due to the new prepared foods business in Europe, which
contributed $29.0 million of the increase, higher information technology costs and professional
fees including costs associated with implementing the requirements of Sarbanes-Oxley.
Asset Impairment Charges. Based on the underutilization of a facility and equipment in North
America related to the other fresh produce segment, charges totaling $2.1 million for impairments
of long-lived assets were recorded in the first half of 2005.
Operating income. Operating income for the first half of 2005 increased by $9.2 million to $121.2
million compared with $112.0 million for the first half of 2004. The increase in operating income
was due to higher gross profit partially offset by increased selling, general and administrative
expenses and an asset impairment charge.
Interest Expense. Interest expense increased by $6.6 million to $9.0 million for the first half of
2005 compared with $2.4 million for the first half of 2004, principally as a result of higher
average debt balances related to the new prepared foods acquisition in Europe.
Other Income (Expense), Net. Other income (expense), net, decreased by $4.1 million from income of
$1.7 million for the first half of 2004 to expense of $2.4 million in the first half of 2005. The
decrease is due to foreign exchange losses, combined with reduced equity income from unconsolidated
subsidiaries.
Provision for Income Taxes. Provision for income taxes increased from $5.2 million in the first
half of 2004 to $5.8 million in the first half of 2005. The overall effective tax rate of
approximately 5% during the first half of 2005 was consistent with the first half of 2004.
Seasonality
Interim results are subject to significant seasonal variations and may not be indicative of the
results of operations for the entire 2005 year.
24
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
DISCLOSURE CONTROLS AND PROCEDURES
Fresh Del Monte carried out an evaluation, under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of its disclosure controls and procedures as of July 1, 2005. There
are inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives. Based upon that evaluation, Fresh Del
Monte’s Chief Executive Officer and Chief Financial Officer concluded that these disclosure
controls and procedures were effective as of such date to ensure that information required to be
disclosed in the reports that it files or submits under the SEC rules and forms. Such officers
also confirm that there was no change in Fresh Del Monte’s internal control over financial
reporting during the quarter ended July 1, 2005 that has materially affected, or is reasonably
likely to materially affect, the Fresh Del Monte’s internal control over financial reporting.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
|
|
| |
|
Fresh Del Monte Produce Inc. |
|
|
|
|
|
Date: August 4, 2005
|
|
By:
|
|
/s/ Hani El-Naffy |
|
|
|
|
|
|
|
|
|
Hani El-Naffy |
|
|
|
|
President & Chief Operating Officer |
|
|
|
|
|
|
|
By:
|
|
/s/ John F. Inserra |
|
|
|
|
|
|
|
|
|
John F. Inserra |
|
|
|
|
Executive Vice President & |
|
|
|
|
Chief Financial Officer |
26