FRESH DEL MONTE PRODUCE INC [FDP] Filings

10-Q 1 fdp-20230331.htm 10-Q fdp-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————————

FORM 10-Q

———————————

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

333-07708

(Commission file number)

———————————

FRESH DEL MONTE PRODUCE INC.

(Exact Name of Registrant as Specified in Its Charter)

———————————


Cayman Islands			N/A
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S Employer Identification No.)

c/o H&C Corporate Services Limited
P.O. Box 698, 4th Floor, Apollo House, 87 Mary Street
George Town,	Grand Cayman,	KY1-1107
Cayman Islands			N/A
(Address of Registrant’s Principal Executive Office)			(Zip Code)

(305) 520-8400

(Registrant’s telephone number including area code)

Please send copies of notices and communications from the Securities and Exchange Commission to:

c/o Del Monte Fresh Produce Company

241 Sevilla Avenue

Coral Gables, Florida 33134

(Address of Registrant’s U.S. Executive Office)

———————————

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Ordinary Shares, $0.01 Par Value Per Share	FDP	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐
Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 21, 2023, there were 47,999,922 ordinary shares of Fresh Del Monte Produce Inc. issued and outstanding.

TABLE OF CONTENTS


		Page
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

	Consolidated Balance Sheets (unaudited) as of March 3 1 , 202 3 and December 3 0 , 202 2 .	1

	Consolidated Statements of Operations (unaudited) for the quarters ended March 3 1 , 202 3 and April 1, 202 2 .	2

	Consolidated Statements of Comprehensive Income (unaudited) for the quarters ended March 31, 2023 and April 1, 2022.	3

	Consolidated Statements of Cash Flows (unaudited) for the quarters ended March 3 1 , 202 3 and April 1, 202 2 .	4

	Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interest (unaudited) for the quarters ended March 3 1 , 202 3 and April 1, 202 2 .	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23

Item 3. Quantitative and Qualitative Disclosures About Market Risk		32

Item 4. Controls and Procedures		32

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		33



Item 6. Exhibits		34

Signatures		35

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(U.S. dollars in millions, except share and per share data)


	March 31, 2023		December 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	35.7	$	17.2
Trade accounts receivable, net of allowance of $24.4 and $21.6, respectively	420.9		373.5
Other accounts receivable, net of allowance of $6.4 and $5.7, respectively	94.3		91.0
Inventories, net	646.9		669.0
Assets held for sale	21.9		67.3
Prepaid expenses and other current assets	26.2		23.4
Total current assets	1,245.9		1,241.4
Investments in and advances to unconsolidated companies	18.9		18.0
Property, plant and equipment, net	1,295.0		1,309.5
Operating lease right-of-use assets	221.3		213.8
Goodwill	423.1		422.9
Intangible assets, net	133.4		135.0
Deferred income taxes	49.1		47.4
Other noncurrent assets	56.4		70.9
Total assets	$	3,443.1	$	3,458.9
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses	$	537.7	$	549.9
Current maturities of debt and finance leases	1.4		1.3
Current maturities of operating leases	43.9		41.6
Income taxes and other taxes payable	17.9		14.2
Current liabilities held for sale	2.1		—
Total current liabilities	603.0		607.0
Long-term debt and finance leases	479.6		547.1
Retirement benefits	85.5		82.4
Deferred income taxes	74.0		71.6
Operating leases, less current maturities	153.9		147.3
Other noncurrent liabilities	27.9		28.5
Total liabilities	1,423.9		1,483.9
Commitments and contingencies (See note 9)
Redeemable noncontrolling interest	49.4		49.4
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; 47,998,746 and 47,838,680 issued and outstanding, respectively	0.5		0.5
Paid-in capital	550.7		548.1
Retained earnings	1,429.1		1,397.6
Accumulated other comprehensive loss	(39.9)		(41.5)
Total Fresh Del Monte Produce Inc. shareholders' equity	1,940.4		1,904.7
Noncontrolling interests	29.4		20.9
Total shareholders' equity	1,969.8		1,925.6
Total liabilities, redeemable noncontrolling interest and shareholders' equity	$	3,443.1	$	3,458.9

See accompanying notes.

Table of Contents

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(U.S. dollars in millions, except share and per share data)


	Quarter ended
	March 31, 2023		April 1, 2022
Net sales	$	1,128.5	$	1,136.9
Cost of products sold	1,031.5		1,047.1
Gross profit	97.0		89.8
Selling, general and administrative expenses	47.6		45.2
Gain (loss) on disposal of property, plant and equipment, net	27.5		(3.8)
Asset impairment and other charges, net	2.4		1.0
Operating income	74.5		39.8
Interest expense	8.0		5.3
Interest income	0.1		—
Other expense, net	9.3		4.0
Income before income taxes	57.3		30.5
Income tax provision	9.5		5.8
Net income	$	47.8	$	24.7
Less: Net income (loss) attributable to redeemable and noncontrolling interests	8.8		(1.1)
Net income attributable to Fresh Del Monte Produce Inc.	$	39.0	$	25.8
Net income per ordinary share attributable to Fresh Del Monte Produce Inc. - Basic	$	0.81	$	0.54
Net income per ordinary share attributable to Fresh Del Monte Produce Inc. - Diluted	$	0.81	$	0.54
Dividends declared per ordinary share	$	0.15	$	0.15
Weighted average number of ordinary shares:
Basic	47,892,934		47,665,122
Diluted	48,153,540		47,856,286

See accompanying notes.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(U.S. dollars in millions)


	Quarter ended
	March 31, 2023		April 1, 2022
Net income	$	47.8	$	24.7
Other comprehensive income:
Net unrealized gain on derivatives, net of tax	—		37.8
Net unrealized foreign currency translation gain (loss)	2.0		(7.4)
Net change in retirement benefit adjustment, net of tax	(0.4)		(0.1)
Comprehensive income	$	49.4	$	55.0
Less: Comprehensive income (loss) attributable to redeemable and noncontrolling interests	8.8		(1.1)
Comprehensive income attributable to Fresh Del Monte Produce Inc.	$	40.6	$	56.1

See accompanying notes.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(U.S. dollars in millions)


	Quarter ended
	March 31, 2023		April 1, 2022
Operating activities:
Net income	$	47.8	$	24.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	22.1		23.6
Amortization of debt issuance costs	0.1		0.1
Share-based compensation expense	2.3		1.7

Change in uncertain tax positions	0.3		0.1

(Gain) loss on disposal of property, plant and equipment	(27.5)		3.8

Deferred income taxes	(3.9)		(3.3)



Other, net	1.6		(3.0)
Changes in operating assets and liabilities
Receivables	(50.6)		(82.2)
Inventories	17.4		(19.2)
Prepaid expenses and other current assets	(2.3)		(0.5)
Accounts payable and accrued expenses	1.0		53.5
Other assets and liabilities	7.2		0.4
Net cash provided by (used in) operating activities	15.5		(0.3)
Investing activities:
Capital expenditures	(10.0)		(11.1)
Proceeds from sales of property, plant and equipment	90.7		1.6




Investments in unconsolidated companies	(1.1)		(7.1)

Net cash provided by (used in) investing activities	79.6		(16.6)
Financing activities:
Proceeds from debt	143.4		262.5
Payments on debt	(210.5)		(227.5)

Distributions to noncontrolling interests	(0.3)		—

Share-based awards settled in cash for taxes	(0.5)		(0.8)

Dividends paid	(7.2)		(7.2)

Other financing activities	(0.8)		(0.3)
Net cash (used in) provided by financing activities	(75.9)		26.7
Effect of exchange rate changes on cash	(0.7)		(0.6)
Net increase in cash and cash equivalents	18.5		9.2
Cash and cash equivalents, beginning	17.2		16.1
Cash and cash equivalents, ending	$	35.7	$	25.3
Supplemental cash flow information:
Cash paid for interest	$	7.3	$	6.4
Cash paid for income taxes	$	4.1	$	2.5
Non-cash financing and investing activities:

Right-of-use assets obtained in exchange for new operating lease obligations	$	19.3	$	10.8

Dividends on restricted stock units	$	0.3	$	—

See accompanying notes.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

(Unaudited) (U.S. dollars in millions, except share data)


	Ordinary Shares Outstanding	Ordinary Shares		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Fresh Del Monte Produce Inc. Shareholders' Equity		Noncontrolling Interests		Total Shareholders' Equity		Redeemable Noncontrolling Interest
Balance as of December 30, 2022	47,838,680	$	0.5	$	548.1	$	1,397.6	$	(41.5)	$	1,904.7	$	20.9	$	1,925.6	$	49.4
Exercises of stock options	2,418	—		—		—		—		—		—		—		—

Settlement of restricted stock units	157,648	—		—		—		—		—		—		—		—
Share-based payment expense	—	—		2.3		—		—		2.3		—		2.3		—


Distribution to noncontrolling interests	—	—		—		—		—		—		—		—		(0.3)


Dividend declared	—	—		0.3		(7.5)		—		(7.2)		—		(7.2)		—
Comprehensive income:
Net income	—	—		—		39.0		—		39.0		8.5		47.5		0.3
Unrealized gain on derivatives, net of tax	—	—		—		—		—		—		—		—		—

Net unrealized foreign currency translation gain	—	—		—		—		2.0		2.0		—		2.0		—
Change in retirement benefit adjustment, net of tax	—	—		—		—		(0.4)		(0.4)		—		(0.4)		—
Comprehensive income										40.6		8.5		49.1		0.3
Balance as of March 31, 2023	47,998,746	$	0.5	$	550.7	$	1,429.1	$	(39.9)	$	1,940.4	$	29.4	$	1,969.8	$	49.4


	Ordinary Shares Outstanding	Ordinary Shares		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Fresh Del Monte Produce Inc. Shareholders' Equity		Noncontrolling Interests		Total Shareholders' Equity		Redeemable Noncontrolling Interest
Balance as of December 31, 2021	47,554,695	$	0.5	$	541.0	$	1,327.7	$	(66.9)	$	1,802.3	$	21.7	$	1,824.0	$	49.5
Settlement of restricted stock units	263,148	—		—		—		—		—		—		—		—
Share-based payment expense	—	—		1.7		—		—		1.7		—		1.7		—

Disposal of noncontrolling interest	—	—		—		—		—		—		0.3		0.3		—

Dividend declared	—	—		—		(7.2)		—		(7.2)		—		(7.2)		—
Comprehensive income:
Net income (loss)	—	—		—		25.8		—		25.8		(0.3)		25.5		(0.8)
Unrealized gain on derivatives, net of tax	—	—		—		—		37.8		37.8		—		37.8		—
Net unrealized foreign currency translation loss	—	—		—		—		(7.4)		(7.4)		—		(7.4)		—

Change in retirement benefit adjustment, net of tax	—	—		—		—		(0.1)		(0.1)		—		(0.1)		—
Comprehensive income (loss)										56.1		(0.3)		55.8		(0.8)
Balance at April 1, 2022	47,817,843	$	0.5	$	542.7	$	1,346.3	$	(36.6)	$	1,852.9	$	21.7	$	1,874.6	$	48.7

See accompanying notes.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. General

Reference in this Report to “Fresh Del Monte”, “we”, “our” and “us” and the “Company” refer to Fresh Del Monte Produce Inc. and its subsidiaries, unless the context indicates otherwise.

Nature of Business

We were incorporated under the laws of the Cayman Islands in 1996. We are one of the world’s leading vertically integrated producers, marketers and distributors of high-quality fresh and fresh-cut fruit and vegetables, as well as a leading producer and marketer of prepared fruit and vegetables, juices, beverages and snacks in Europe, Africa and the Middle East. We market our products worldwide under the Del Monte® brand, a symbol of product innovation, quality, freshness and reliability since 1892. Our major sales markets are organized as follows: North America, Europe, the Middle East (which includes North Africa) and Asia. Our global sourcing and logistics system allows us to provide regular delivery of consistently high-quality produce and value-added services to our customers. Our major producing operations are located in North, Central and South America, Asia and Africa. Our products are sourced from company-owned operations and through supply contracts with independent growers.

Our business is comprised of three reportable segments, two of which represent our primary businesses of fresh and value-added products and banana, and one that represents our other ancillary businesses.

•Fresh and value-added products - includes pineapples, fresh-cut fruit, fresh-cut vegetables (which includes fresh-cut salads), melons, vegetables, non-tropical fruit (including grapes, apples, citrus, blueberries, strawberries, pears, peaches, plums, nectarines, cherries and kiwis), other fruit and vegetables, avocados, and prepared foods (including prepared fruit and vegetables, juices, other beverages, and meals and snacks).

•Banana

•Other products and services - includes our third-party freight and logistic services business and our Jordanian poultry and meats business.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements for the quarter ended March 31, 2023 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for fair presentation have been included. Operating results for the quarter ended March 31, 2023 are subject to significant seasonal variations and are not necessarily indicative of the results that may be expected for the year ending December 29, 2023. For further information, refer to the Consolidated Financial Statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 30, 2022.

We are required to evaluate events occurring after March 31, 2023 for recognition and disclosure in the unaudited Consolidated Financial Statements for the quarter ended March 31, 2023. Events are evaluated based on whether they represent information existing as of March 31, 2023, which require recognition in the unaudited Consolidated Financial Statements, or new events occurring after March 31, 2023 which do not require recognition but require disclosure if the event is significant to the unaudited Consolidated Financial Statements. We evaluated events occurring subsequent to March 31, 2023 through the date of issuance of these unaudited Consolidated Financial Statements.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

2. Recently Issued Accounting Pronouncements

New Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and subsequent amendments to the guidance, ASU 2021-01 in January 2021 and ASU 2022-06 in December 2022. The amendments in these updates provide optional guidance to companies to ease the potential burden associated with reference rate reform. Specifically, the guidance provides optional expedients and exceptions to apply generally accepted accounting principles to contract modifications and hedging relationships, subject to certain criteria, that reference LIBOR or another reference rate expected to be discontinued. As of December 30, 2022, we had LIBOR-based borrowings and interest rate swaps that referenced LIBOR. Effective January 3, 2023, we amended our agreements and transitioned to the Term Secured Overnight Financing Rate (Term SOFR) for these instruments. We adopted the optional guidance in Topic 848 in conjunction with our contract amendments which allowed us to (i) account for the modification to our debt agreement as a continuation of the existing contract and (ii) continue applying hedge accounting for our interest rate swaps. The adoption of this guidance did not have a material impact on our consolidated financial statements.

3. Asset Impairment and Other Charges, Net

The following represents a summary of asset impairment and other charges, net recorded during the quarters ended March 31, 2023 and April 1, 2022 (U.S. dollars in millions):


	Quarter ended						Quarter ended
	March 31, 2023						April 1, 2022
	Long-lived and other asset impairment		Exit activity and other charges		Total		Long-lived and other asset impairment		Exit activity and other charges		Total








Other (1):
2023 cybersecurity incident expenses (2)	—		2.4		2.4		—		—		—
Former President/COO severance expense	—		—		—		—		1.0		1.0
Total asset impairment and other charges, net	$	—	$	2.4	$	2.4	$	—	$	1.0	$	1.0

(1) Asset impairment and other charges, net for the quarters ended March 31, 2023 and April 1, 2022 were unrelated to any of our business segments. As such, they are classified as "other."

(2) $2.4 million charge for the quarter ended March 31, 2023 associated with a cybersecurity incident that resulted in costs primarily related to the engagement of specialized legal counsel and other incident response advisors. The Company has cyber incident insurance, with a $1.0 million deductible, and has submitted these charges to its insurer for reimbursement.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

4. Income Taxes

In connection with the examination of the tax returns in two foreign jurisdictions, the taxing authorities have issued income tax deficiencies related to transfer pricing aggregating approximately $152.1 million (including interest and penalties) for tax years 2012 through 2016. We strongly disagree with the proposed adjustments and have filed a protest with each of the taxing authorities as we believe that the proposed adjustments are without technical merit.

In one of the foreign jurisdictions, we are currently contesting tax assessments related to the 2012-2015 audit years and the 2016 audit year in both the administrative court and the judicial court. During 2019 and 2020, we filed actions contesting the tax assessment in the administrative office. Our initial challenge to each of these tax assessments was rejected, and we subsequently lost our appeals at the administrative court. We have subsequently filed actions to contest each of these tax assessments in the country’s judicial courts. In addition, we have filed a request for injunction to the judicial court to stay the tax authorities' collection efforts for these two tax assessments, pending final judicial decisions. The court granted our injunction with respect to the 2016 audit year, however denied our injunction with respect to the 2012-2015 audit years. We timely appealed the denial of the injunction, and on August 10, 2022 the appellate court overturned the denial and granted our injunction for the 2012-2015 audit years. Pursuant to local law, we registered real estate collateral with an approximate fair market value of $7.0 million in connection with the grant of the 2016 audit year injunction. This real estate collateral has a net book value of $3.8 million as of the quarter ended March 31, 2023. In addition, in connection with the grant of the 2012-2015 audit year injunction, we registered real estate collateral with an approximate fair market value of $28.0 million, and a net book value of $4.6 million as of the quarter ended March 31, 2023. The registration of this real estate collateral does not affect our operations in the country.

In the other foreign jurisdiction, the administrative court denied our appeal, and on March 4, 2020 we filed an action in the judicial court to contest the administrative court's decision. The case is still pending.

We will continue to vigorously contest the adjustments and to exhaust all administrative and judicial remedies necessary in both jurisdictions to resolve the matters, which could be a lengthy process.

Income tax provision was $9.5 million for the first quarter of 2023 when compared with $5.8 million for the first quarter of 2022. The increase in the income tax provision was primarily due to increased earnings in certain higher tax jurisdictions.

5. Allowance for Credit Losses

We estimate expected credit losses on our trade receivables and financing receivables in accordance with Accounting Standards Codification (“ASC”) 326 - Financial Instruments - Credit Losses.

Trade Receivables

Trade receivables as of March 31, 2023 were $420.9 million, net of an allowance of $24.4 million. Our allowance for trade receivables consists of two components: a $9.6 million allowance for credit losses and a $14.8 million allowance for customer claims accounted for under the scope of ASC 606 - Revenue Recognition.

As a result of our robust credit monitoring practices, the industry in which we operate, and the nature of our customer base, the credit losses associated with our trade receivables have historically been insignificant in comparison to our annual net sales. We measure the allowance for credit losses on trade receivables on a collective (pool) basis when similar risk characteristics exist. We generally pool our trade receivables based on the geographic region or country to which the receivables relate. Receivables that do not share similar risk characteristics are evaluated for collectability on an individual basis.

Our historical credit loss experience provides the basis for our estimation of expected credit losses. We generally use a three-year average annual loss rate as a starting point for our estimation, and make adjustments to the historical loss rate to account for differences in current conditions impacting the collectability of our receivable pools. We generally monitor macroeconomic indicators to assess whether adjustments are necessary to reflect current conditions.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

5. Allowance for Credit Losses (continued)

The table below presents a rollforward of our trade receivable allowance for credit losses for the quarters ended March 31, 2023 and April 1, 2022 (U.S. dollars in millions):


	Quarter ended
Trade receivables		March 31, 2023		April 1, 2022
Allowance for credit losses:
Balance, beginning of period		$	9.3	$	10.2
Provision for uncollectible amounts		0.5		(0.3)
Deductions to allowance related to write-offs		(0.2)		(0.3)



Balance, end of period		$	9.6	$	9.6

Financing Receivables

Financing receivables are included in other accounts receivable, net on our Consolidated Balance Sheets and are recognized at amortized cost less an allowance for estimated credit losses. Financing receivables include seasonal advances to growers and suppliers, which are usually short-term in nature, and other financing receivables.

A significant portion of the fresh produce we sell is acquired through supply contracts with independent growers. In order to ensure the consistent high quality of our products and packaging, we make advances to independent growers and suppliers. These growers and suppliers typically sell all of their production to us and make payments on their advances as a deduction to the agreed upon selling price of the fruit or packaging material. The majority of the advances to growers and suppliers are for terms less than one year and typically span a growing season. In certain cases, there may be longer term advances with terms of up to five years.

We measure the allowance for credit losses on advances to suppliers and growers on a collective (pool) basis when similar risk characteristics exist. We generally pool our advances based on the country to which they relate, and further disaggregate them based on their current or past-due status. We generally consider an advance to a grower to be past due when the advance is not fully paid within the respective growing season. The allowance for advances to growers and suppliers that do not share similar risk characteristics are determined on a case-by-case basis, depending on the expected production for the season and other contributing factors. The advances are typically collateralized by property liens and pledges of the respective season’s produce. Occasionally, we agree to a payment plan with these growers or take steps to recover the advance via established collateral. We may write-off uncollectible financing receivables after our collection efforts are exhausted. Historically, our credit losses associated with our advances to suppliers and growers have not been significant.

Our historical credit loss experience provides the basis for our estimation of expected credit losses. We generally use a three-year average annual loss rate as a starting point for our estimation, and make adjustments to the historical loss rate to account for differences in current or expected future conditions. We generally monitor macroeconomic indicators as well as other factors, including unfavorable weather conditions and crop diseases, which may impact the collectability of the advances when assessing whether adjustments to the historical loss rate are necessary.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

5. Allowance for Credit Losses (continued)

The following table details the advances to growers and suppliers based on their credit risk profile (U.S. dollars in millions):


	March 31, 2023				December 30, 2022
	Current		Past-Due		Current		Past-Due
Gross advances to growers and suppliers	$	32.5	$	9.6	$	44.6	$	5.6

The allowance for advances to growers and suppliers for the quarters ended March 31, 2023 and April 1, 2022 were as follows (U.S. dollars in millions):


	Quarter ended
		March 31, 2023		April 1, 2022
Allowance for advances to growers and suppliers:
Balance, beginning of period		$	4.9	$	1.8
Provision for uncollectible amounts		2.8		—

Balance, end of period		$	7.7	$	1.8

6. Share-Based Compensation

We maintain various compensation plans for officers, other employees, and non-employee members of our Board of Directors. On June 2, 2022, our shareholders approved and ratified the 2022 Omnibus Share Incentive Plan (the “2022 Plan”). The 2022 Plan allows us to grant equity-based compensation awards including restricted stock units (“RSUs”), performance stock units (“PSUs”), stock options, and restricted stock awards. The 2022 Plan replaces and supersedes the 2014 Omnibus Share Incentive Plan (the “Prior Plan”). Under the 2022 Plan, the Board of Directors is authorized to award up to (i) 2,800,000 ordinary shares plus (ii) any ordinary shares remaining available for future awards under the Prior Plan at the time of adoption (of which there were approximately 220,000) plus (iii) any ordinary shares with respect to awards and Prior Plan awards that are forfeited, canceled, expire unexercised, or are settled in cash following adoption of the 2022 Plan.

Stock-based compensation expense related to RSUs and PSUs is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations and is comprised as follows (U.S. dollars in millions):


	Quarter ended
	March 31, 2023		April 1, 2022

RSUs/PSUs	$	2.3	$	1.7

Restricted Stock Units and Performance Stock Units

The following table lists the RSUs and PSUs awarded under the 2022 Plan during the quarter ended March 31, 2023. There were no RSUs or PSUs awarded during the quarter ended April 1, 2022.

Date of Award

Type of award

Units awarded

Price per share

For the quarter ended March 31, 2023

March 2, 2023

PSU

91,997

32.13

March 2, 2023

RSU

215,627

32.13

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

6. Share-Based Compensation (continued)

Under the 2022 Plan and Prior Plan, each RSU/PSU represents a contingent right to receive one of our ordinary shares. The PSUs are subject to meeting minimum performance criteria set by the Compensation Committee of our Board of Directors. The actual number of shares the recipient receives is determined based on the results achieved versus performance goals. Those performance goals are based on exceeding a measure of our earnings. Depending on the results achieved, the actual number of shares that an award recipient receives at the end of the period may range from 0% to 100% of the award units granted, or as it relates to 2023 PSU awards granted to our Chairman and Chief Executive Officer, 0% to 125% of the award units granted. Provided such criteria are met, the PSUs granted during 2023 and prior to 2022 vest in three equal annual installments on each of the next three anniversary dates. PSUs granted during 2022 vest in three equal installments in 1) June and July 2023, 2) March 2024 and 3) March 2025. All PSU vesting is contingent on the recipient's continued employment with us.

Expense for RSUs is recognized on a straight line basis over the requisite service period for the entire award. RSUs granted in 2023 and 2021 vest annually in three equal installments over a three-year service period while RSUs granted prior to 2021 vested 20% on the grant date, with 20% vesting on each of the next four anniversaries. RSUs granted in 2022 vest in three equal installments in June 2023, March 2024 and March 2025. RSUs granted to our Board of Directors generally vest after a one-year period.

The fair market value for RSUs and PSUs is based on the closing price of our stock on the grant date. We recognize expenses related to RSUs and PSUs based on the fair market value, as determined on the grant date, ratably over the vesting period, provided the performance condition, if any, is probable. Forfeitures are recognized as they occur.

RSUs and PSUs do not have the voting rights of ordinary shares, and the shares underlying the RSUs and PSUs are not considered issued and outstanding. However, shares underlying RSUs/PSUs are included in the calculation of diluted earnings per share to the extent the performance criteria are met, if any.

Each of our outstanding RSUs and PSUs are eligible to earn Dividend Equivalent Units (“DEUs”) equal to the cash dividend paid to ordinary shareholders. DEUs are subject to the same performance and/or service conditions as the underlying RSUs and PSUs and are forfeitable.

7. Inventories, net

Inventories consisted of the following (U.S. dollars in millions):


	March 31, 2023		December 30, 2022
Finished goods	$	251.7	$	205.8
Raw materials and packaging supplies	178.0		233.2
Growing crops	217.2		230.0
Total inventories, net	$	646.9	$	669.0

8. Debt and Finance Lease Obligations

The following is a summary of long-term debt and finance lease obligations (U.S. dollars in millions):


	March 31, 2023		December 30, 2022
Senior unsecured revolving credit facility (see Credit Facility below)	$	472.7	$	539.8

Finance lease obligations	8.3		8.6
Total debt and finance lease obligations	481.0		548.4
Less: Current maturities	(1.4)		(1.3)
Long-term debt and finance lease obligations	$	479.6	$	547.1

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

8. Debt and Finance Lease Obligations (continued)

Credit Facility

On October 1, 2019, we entered into a Second Amended and Restated Credit Agreement (as amended, the “Second A&R Credit Agreement”) with Bank of America, N.A. as administrative agent and BofA Securities, Inc. as sole lead arranger and sole bookrunner and certain other lenders. The Second A&R Credit Agreement provides for a five-year, $0.9 billion syndicated senior unsecured revolving credit facility (the “Revolving Credit Facility”) maturing on October 1, 2024. Certain of our direct and indirect subsidiaries have guaranteed the obligations under the Second A&R Credit Agreement. We intend to use funds borrowed under the Revolving Credit Facility from time to time for general corporate purposes, working capital, capital expenditures and other permitted investment opportunities.

On December 30, 2022, we and certain of our subsidiaries executed Amendment No. 1 to the Second A&R Credit Agreement (the “Amendment”) with the financial institutions and other lenders named therein, including Bank of America, N.A. as administrative agent and BofA Securities, Inc. as sole lead arranger and sole bookrunner. Pursuant to the Amendment, the reference interest rate on the Revolving Credit Facility was amended to replace the Eurocurrency Rate with the Term Secured Overnight Financing Rate (“Term SOFR”) effective January 3, 2023. As amended, Term Loans made under the Revolving Credit Facility can be Base Rate Loans, Term SOFR Loans or Alternative Currency Term Rate Loans. All other material terms of the Second A&R Credit Agreement, as amended, remain unchanged.

Effective January 3, 2023, amounts borrowed under the Revolving Credit Facility accrue interest, at our election, at either (i) the Term SOFR Rate (as defined in the Second A&R Credit Agreement) plus a margin that ranges from 1.0% to 1.5% or (ii) the Base Rate (as defined in the Second A&R Credit Agreement) plus a margin that ranges from 0% to 0.5%, in each case based on our Consolidated Leverage Ratio (as defined in the Second A&R Credit Agreement). The Second A&R Credit Agreement interest rate grid provides for five pricing levels for interest rate margins.

The Second A&R Credit Agreement provides for an accordion feature that permits us, without the consent of the other lenders, to request that one or more lenders provide us with increases in revolving credit facility or term loans up to an aggregate of $300 million (“Incremental Increases”). The aggregate amount of Incremental Increases can be further increased to the extent that after giving effect to the proposed increase in revolving credit facility commitments or term loans our Consolidated Leverage Ratio, on a pro forma basis, would not exceed 2.50 to 1.00. Our ability to request such increases in the Revolving Credit Facility or term loans is subject to our compliance with customary conditions set forth in the Second A&R Credit Agreement including compliance, on a pro forma basis, with the financial covenants and ratios set forth therein. Upon our request, each lender may decide, in its sole discretion, whether to increase all or a portion of its revolving credit facility commitment or provide term loans.

The Second A&R Credit Agreement requires us to comply with certain financial and other covenants. Specifically, it requires us to maintain a 1) Consolidated Leverage Ratio of not more than 3.50 to 1.00 at any time during any period of four consecutive fiscal quarters, subject to certain exceptions and 2) a minimum Consolidated Interest Coverage Ratio of not less than 2.25 to 1.00 as of the end of any fiscal quarter. Additionally, it requires us to comply with certain other covenants, including limitations on capital expenditures, stock repurchases, the amount of dividends that can be paid in the future, the amount and types of liens and indebtedness, material asset sales, and mergers. Under the Second A&R Credit Agreement, we are permitted to declare or pay cash dividends in any fiscal year up to an amount that does not exceed the greater of (i) an amount equal to the greater of (A) 50% of the Consolidated Net Income (as defined in the Second A&R Credit Agreement) for the immediately preceding fiscal year or (B) $25 million or (ii) the greatest amount which would not cause the Consolidated Leverage Ratio (determined on a pro forma basis) to exceed 3.25 to 1.00. It also provides an allowance for stock repurchases to be an amount not exceeding the greater of (i) $150 million in the aggregate or (ii) the amount that, after giving pro forma effect thereto and any related borrowings, will not cause the Consolidated Leverage Ratio to exceed 3.25 to 1.00. As of March 31, 2023, we were in compliance with all of the covenants contained in the Second A&R Credit Agreement.

Debt issuance costs of $0.5 million and $0.6 million are included in other noncurrent assets on our Consolidated Balance Sheets as of March 31, 2023 and December 30, 2022, respectively.

We also have a renewable 364-day, $25.0 million letter of credit facility with Rabobank Nederland.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

8. Debt and Finance Lease Obligations (continued)

The following is a summary of the material terms of the Revolving Credit Facility and other working capital facilities at March 31, 2023 (U.S. dollars in millions):


	Term	Maturity date	Interest rate	Borrowing limit		Available borrowings
Bank of America credit facility	5 years	October 1, 2024	6.03%	$	900.0	$	427.3
Rabobank letter of credit facility	364 days	June 14, 2023	Varies	25.0		16.2
Other working capital facilities	Varies	Varies	Varies	27.7		18.0
				$	952.7	$	461.5

The margin for SOFR advances as of March 31, 2023 was 1.25%.

The Revolving Credit Facility permits borrowings under the revolving commitment with an interest rate determined based on our leverage ratio and spread over SOFR. In addition, we pay a fee on unused commitments.

As of March 31, 2023, we applied $28.0 million to letters of credit and bank guarantees issued from Rabobank Nederland, Bank of America, and other banks.

During 2018, we entered into interest rate swaps in order to hedge the risk of the fluctuation on future interest payments related to our variable rate borrowings from our Revolving Credit Facility. Refer to Note 13, “Derivative Financial Instruments.”

9. Commitments and Contingencies

Kunia Well Site

In 1980, elevated levels of certain chemicals were detected in the soil and ground-water at a plantation leased by one of our U.S. subsidiaries in Honolulu, Hawaii (the “Kunia Well Site”). In 2005, our subsidiary signed a Consent Decree (“Consent Decree”) with the Environmental Protection Agency (“EPA”) for the performance of the clean-up work for the Kunia Well Site. Based on findings from remedial investigations, our subsidiary coordinated with the EPA to evaluate the clean-up work required in accordance with the Consent Decree. On July 25, 2022, an Explanation of Significant Differences (ESD) for the Kunia Well Site was filed by the EPA, which formally transitioned the remedy for the Kunia Well Site to a Monitored Natural Attenuation (MNA), thereby reducing our potential liability. In connection with the above decision, we recorded a $9.9 million reduction in our liability during the year ended December 30, 2022 to reflect the decrease in estimated costs associated with the clean-up.

The revised estimate associated with the clean-up costs, and on which our accrual is based, is $2.8 million. As of March 31, 2023, $2.5 million was included in other noncurrent liabilities, and $0.3 million was included in accounts payable and accrued expenses in the Consolidated Balance Sheets for the Kunia Well Site clean-up. We expect to expend approximately $0.3 million in 2023, $0.6 million in 2024, $0.5 million in 2025, $0.4 million in 2026, and $0.1 million in 2027.

Additional Information

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 the results of operations, financial position or our cash flows.

We intend to vigorously defend ourselves in all of the above matters.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

10. Earnings Per Share

Basic and diluted net income per ordinary share is calculated as follows (U.S. dollars in millions, except share and per share data):


	Quarter ended
	March 31, 2023		April 1, 2022
Numerator:
Net income attributable to Fresh Del Monte Produce Inc.	$	39.0	$	25.8

Denominator:
Weighted average number of ordinary shares - Basic	47,892,934		47,665,122
Effect of dilutive securities - share-based awards	260,606		191,164
Weighted average number of ordinary shares - Diluted	48,153,540		47,856,286

Antidilutive awards (1)	69,790		69,900

Net income per ordinary share attributable to Fresh Del Monte Produce Inc.:
Basic	$	0.81	$	0.54
Diluted	$	0.81	$	0.54

(1)Certain unvested RSUs and PSUs are not included in the calculation of net income per ordinary share because the effect would have been antidilutive.

11. Retirement and Other Employee Benefits

The following table sets forth the net periodic benefit costs of our defined benefit pension plans and post-retirement benefit plans (U.S. dollars in millions):


	Quarter ended
	March 31, 2023		April 1, 2022
Service cost	$	1.4	$	1.5
Interest cost	1.8		1.3
Expected return on assets	(0.8)		(0.7)
Amortization of net actuarial loss	0.2		0.2
Net periodic benefit costs	$	2.6	$	2.3

We provide certain other retirement benefits to certain employees who are not U.S.-based and are not included above. Generally, benefits under these programs are based on an employee’s length of service and level of compensation. These programs are immaterial to our consolidated financial statements. The net periodic benefit costs related to other non-U.S. based plans is $0.5 million for the quarter ended March 31, 2023 and $0.8 million for the quarter ended April 1, 2022.

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

11. Retirement and Other Employee Benefits (continued)

Service costs are presented in the same line item in the Consolidated Statements of Operations as other compensation costs arising from services rendered by the employees during the period. With the exception of service cost, the other components of net periodic benefit costs (which include interest costs, expected return on assets, curtailment and settlement expenses, and amortization of net actuarial losses) are recorded in the Consolidated Statements of Operations in other expense, net.

12. Business Segment Data

•Banana

•Other products and services - includes our third-party freight and logistic services business and our Jordanian poultry and meats business.

We evaluate performance based on several factors, of which net sales and gross profit are the primary financial measures (U.S. dollars in millions):


	Quarter ended
	March 31, 2023				April 1, 2022
Segments:	Net Sales		Gross Profit		Net Sales		Gross Profit
Fresh and value-added products	$	643.4	$	47.1	$	672.7	$	44.4
Banana	425.1		43.2		406.0		37.7
Other products and services	60.0		6.7		58.2		7.7
Totals	$	1,128.5	$	97.0	$	1,136.9	$	89.8

The following table indicates our net sales by geographic region (U.S. dollars in millions):


	Quarter ended
Net sales by geographic region:	March 31, 2023		April 1, 2022
North America	$	667.2	$	690.0
Europe	216.6		199.4
Asia	112.0		114.3
Middle East	101.8		103.1
Other	30.9		30.1
Totals	$	1,128.5	$	1,136.9

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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

12. Business Segment Data (continued)

The following table indicates our net sales by product (U.S. dollars in millions) and, in each case, the percentage of the total represented thereby:


	Quarter ended
	March 31, 2023				April 1, 2022
Fresh and value-added products:
Fresh-cut fruit	$	124.7	11	%	$	122.0	11	%
Fresh-cut vegetables	81.9		7	%	83.7		7	%
Pineapples	149.8		14	%	131.5		11