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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 September 25, 2020
OR
    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 Intertrust Corporate Services (Cayman) Limited
190 Elgin Avenue
George Town, Grand Cayman, KY1-9005
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 October 16, 2020, there were 47,366,877 ordinary shares of Fresh Del Monte Produce Inc. issued and outstanding.







TABLE OF CONTENTS
    Page
PART I: FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
 
1
     
 
2
     
3
 
4
5
     
 
7
     
     
     
     
PART II. OTHER INFORMATION  
     
     
     


PART I: FINANCIAL INFORMATION

Item 1.        Financial Statements
1

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS (Unaudited)
(U.S. dollars in millions, except share and per share data)
September 25,
2020
December 27,
2019
Assets    
Current assets:    
Cash and cash equivalents $ 14.0  $ 33.3 
Trade accounts receivable, net of allowance of
$20.7 and $19.6, respectively
341.4  363.9 
Other accounts receivable, net of allowance of
$3.0 and $3.4, respectively
72.0  75.1 
Inventories, net 500.5  551.8 
Assets held for sale 35.4  7.6 
Prepaid expenses and other current assets 26.7  19.8 
Total current assets 990.0  1,051.5 
Investments in and advances to unconsolidated companies 1.9  1.9 
Property, plant and equipment, net 1,398.6  1,403.2 
Operating lease right-of-use assets 165.6  162.1 
Goodwill 423.6  423.7 
Intangible assets, net 152.3  158.2 
Deferred income taxes 101.2  100.3 
Other noncurrent assets 48.2  49.0 
Total assets $ 3,281.4  $ 3,349.9 
Liabilities and shareholders' equity    
Current liabilities:    
Accounts payable and accrued expenses $ 504.7  $ 522.2 
Current maturities of debt and finance leases 0.3  0.3 
Current maturities of operating leases 30.4  32.5 
Income taxes and other taxes payable 13.8  7.9 
Total current liabilities 549.2  562.9 
Long-term debt and finance leases 510.8  586.8 
Retirement benefits 100.7  98.1 
Deferred income taxes 123.9  129.5 
Operating leases, less current maturities 107.3  102.7 
Other noncurrent liabilities 97.6  70.9 
Total liabilities 1,489.5  1,550.9 
Commitments and contingencies (See note 9)
Redeemable noncontrolling interest 50.5  55.3 
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;
47,366,877
and 48,014,628 issued and outstanding, respectively
0.5  0.5 
Paid-in capital 531.8  531.4 
Retained earnings 1,275.2  1,252.7 
Accumulated other comprehensive loss (89.4) (65.4)
Total Fresh Del Monte Produce Inc. shareholders' equity 1,718.1  1,719.2 
Noncontrolling interests 23.3  24.5 
Total shareholders' equity 1,741.4  1,743.7 
Total liabilities, redeemable noncontrolling interest and shareholders' equity
$ 3,281.4  $ 3,349.9 
See accompanying notes.
1

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 Nine months ended
September 25,
2020
September 27,
2019
September 25,
2020
September 27,
2019
Net sales $ 989.7  $ 1,070.2  $ 3,200.0  $ 3,463.8 
Cost of products sold 922.4  994.0  2,985.5  3,194.9 
Gross profit 67.3  76.2  214.5  268.9 
Selling, general and administrative expenses 44.1  51.3  142.4  150.9 
Gain (loss) on disposal of property, plant and
equipment, net
(0.1) 6.9  1.5  16.1 
Asset impairment and other (credits) charges, net (3.5) 4.7  (3.8) 8.5 
Operating income 26.6  27.1  77.4  125.6 
Interest expense 5.1  6.0  16.1  19.8 
Interest income 0.4  0.5  0.6  0.7 
Other (expense) income, net (0.8) (0.5) (5.2) 7.9 
Income before income taxes 21.1  21.1  56.7  114.4 
Provision for income taxes 4.9  2.9  9.4  20.0 
Net income $ 16.2  $ 18.2  $ 47.3  $ 94.4 
Less: Net (loss) income attributable to redeemable and noncontrolling interests (1.2) 0.1  (1.0) 2.1 
     Net income attributable to Fresh Del Monte Produce Inc.
$ 17.4  $ 18.1  $ 48.3  $ 92.3 
     Net income per ordinary share attributable to Fresh Del Monte Produce Inc. - Basic
$ 0.37  $ 0.38  $ 1.01  $ 1.91 
     Net income per ordinary share attributable to Fresh Del Monte Produce Inc. - Diluted
$ 0.37  $ 0.38  $ 1.01  $ 1.90 
Dividends declared per ordinary share $ 0.05  $ 0.06  $ 0.20  $ 0.06 
Weighted average number of ordinary shares:    
Basic 47,355,918  48,069,733  47,641,712  48,383,625 
Diluted 47,427,723  48,116,989  47,731,747  48,483,762 

See accompanying notes.
2

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(U.S. dollars in millions)
Quarter ended Nine months ended
September 25,
2020
September 27,
2019
September 25,
2020
September 27,
2019
Net income $ 16.2  $ 18.2  $ 47.3  $ 94.4 
Other comprehensive (loss) income:
Net unrealized gain (loss) on derivatives, net of tax 0.3  (4.5) (26.9) (21.3)
Net unrealized foreign currency translation gain (loss) 6.1  (6.5) 2.5  (6.8)
Net change in retirement benefit adjustment, net of tax (0.1) 0.3  0.4  0.4 
Comprehensive income $ 22.5  $ 7.5  $ 23.3  $ 66.7 
Less: Comprehensive (loss) income attributable to redeemable and noncontrolling interests (1.2) 0.1  (1.0) 2.1 
Comprehensive income attributable to Fresh Del
Monte Produce Inc.
$ 23.7  $ 7.4  $ 24.3  $ 64.6 

See accompanying notes.

3

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(U.S. dollars in millions)
  Nine months ended
September 25,
2020
September 27,
2019
Operating activities:    
Net income $ 47.3  $ 94.4 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 70.5  72.7 
Amortization of debt issuance costs 0.4  0.8 
Share-based compensation expense 6.2  7.0 
Asset impairments 2.9  8.0 
Gain on disposal of property, plant and equipment (1.5) (16.1)
Deferred income taxes (2.9) 6.2 
Foreign currency translation adjustment 1.6  (3.8)
Changes in operating assets and liabilities
   
Receivables 21.9  27.9 
Inventories 46.0  25.6 
Prepaid expenses and other current assets (6.8) 3.0 
Accounts payable and accrued expenses (18.0) (88.5)
Other noncurrent assets and liabilities 6.3  (7.1)
Net cash provided by operating activities 173.9  130.1 
Investing activities:    
Capital expenditures (92.9) (93.5)
Proceeds from sales of property, plant and equipment 9.8  48.0 
Proceeds from sale of investment 0.5  0.7 
Other investing activities 0.1  — 
Net cash used in investing activities (82.5) (44.8)
Financing activities:    
Proceeds from debt 543.9  684.8 
Payments on debt (618.0) (757.3)
     Distributions to noncontrolling interests, net (6.3) (2.4)
Proceeds from stock options exercised —  1.1 
Share-based awards settled in cash for taxes (0.6) (1.7)
Dividends paid (9.6) (2.9)
Repurchase and retirement of ordinary shares (20.8) (17.9)
Net cash used in financing activities (111.4) (96.3)
Effect of exchange rate changes on cash 0.7  6.0 
Net decrease in cash and cash equivalents (19.3) (5.0)
Cash and cash equivalents, beginning 33.3  21.3 
Cash and cash equivalents, ending $ 14.0  $ 16.3 
Supplemental cash flow information:    
Cash paid for interest $ 15.6  $ 18.4 
Cash paid for income taxes $ 8.3  $ 8.6 
Non-cash financing and investing activities:    
Right-of-use assets obtained in exchange for new operating lease obligations $ 34.2  $ 28.6 
Retirement of ordinary shares $ 20.8  $ 17.9 
Dividends on restricted stock units $ 0.4  $ 0.3 
Sale of an investment $ —  $ 0.6 
See accompanying notes.
4

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 27, 2019 48,014,628  $ 0.5  $ 531.4  $ 1,252.7  $ (65.4) $ 1,719.2  $ 24.5  $ 1,743.7  $ 55.3 
Settlement of restricted stock awards 7,374  —  —  —  —  —  —  —  — 
Settlement of restricted stock units 150,301  —  —  —  —  —  —  —  — 
Share-based payment expense —  —  2.6  —  —  2.6  —  2.6  — 
Cumulative effect adjustment of ASC 326 adoption —  —  —  (1.2) —  (1.2) —  (1.2) — 
Repurchase and retirement of ordinary shares (291,399) —  (2.3) (5.5) —  (7.8) —  (7.8) — 
Dividend declared —  —  0.4  (5.2) —  (4.8) —  (4.8) — 
Comprehensive income:
Net income (loss) —  —  —  13.0  —  13.0  (0.2) 12.8  0.2 
Unrealized loss on derivatives, net of tax —  —  —  —  (30.5) (30.5) —  (30.5) — 
Net unrealized foreign currency translation loss —  —  —  —  (4.5) (4.5) —  (4.5) — 
Change in retirement benefit adjustment, net of tax —  —  —  —  0.5  0.5  —  0.5  — 
Comprehensive income (loss)         (21.5) (0.2) (21.7) 0.2 
Balance as of March 27, 2020 47,880,904  $ 0.5  $ 532.1  $ 1,253.8  $ (99.9) $ 1,686.5  $ 24.3  $ 1,710.8  $ 55.5 
Settlement of restricted stock awards 235  —  —  —  —  —  —  —  — 
Settlement of restricted stock units 9,389  —  —  —  —  —  —  —  — 
Share-based payment expense —  —  2.0  —  —  2.0  —  2.0  — 
Repurchase and retirement of ordinary shares (549,836) —  (3.9) (9.1) —  (13.0) —  (13.0) — 
Dividend declared —  —  —  (2.4) —  (2.4) —  (2.4) — 
Comprehensive income:
Net income (loss) —  —  —  17.9  —  17.9  0.6  18.5  (0.4)
Unrealized gain on derivatives, net of tax —  —  —  —  3.3  3.3  —  3.3  — 
Net unrealized foreign currency translation gain —  —  —  —  0.9  0.9  —  0.9  — 
Comprehensive income (loss)         22.1  0.6  22.7  (0.4)
Balance as of June 26, 2020 47,340,692  $ 0.5  $ 530.2  $ 1,260.2  $ (95.7) $ 1,695.2  $ 24.9  $ 1,720.1  $ 55.1 
Settlement of restricted stock units 26,185  —  —  —  —  —  —  —  — 
Share-based payment expense —  —  1.6  —  —  1.6  —  1.6  — 
Distribution to noncontrolling interests —  —  —  —  —  —  —  —  (5.0)
Dividend declared —  —  —  (2.4) —  (2.4) —  (2.4) — 
Comprehensive income:
Net income (loss) —  —  —  17.4  —  17.4  (1.6) 15.8  0.4 
Unrealized gain on derivatives, net of tax —  —  —  —  0.3  0.3  —  0.3  — 
Net unrealized foreign currency translation gain —  —  —  —  6.1  6.1  —  6.1  — 
Change in retirement benefit adjustment, net of tax —  —  —  —  (0.1) (0.1) —  (0.1) — 
Comprehensive income (loss) 23.7  (1.6) 22.1  0.4 
Balance as of September 25, 2020 47,366,877  $ 0.5  $ 531.8  $ 1,275.2  $ (89.4) $ 1,718.1  $ 23.3  $ 1,741.4  $ 50.5 
5

 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 28, 2018 48,442,296  $ 0.5  $ 527.1  $ 1,206.0  $ (41.6) $ 1,692.0  $ 25.8  $ 1,717.8  $ 51.8 
Exercises of stock options 13,250  —  0.2  —  —  0.2  —  0.2  — 
Settlement of restricted stock awards 30,891  —  —  —  —  —  —  —  — 
Settlement of restricted stock units 165,318  —  —  —  —  —  —  —  — 
Share-based payment expense —  —  4.2  —  —  4.2  —  4.2  — 
Cumulative effect adjustment of ASC 842 related to leases —  —  —  (3.0) —  (3.0) —  (3.0) — 
Capital contribution from, distribution to noncontrolling interests —  —  —  —  —  —  (0.3) (0.3) (0.2)
Comprehensive income:
Net income (loss) —  —  —  36.1  —  36.1  (0.1) 36.0  1.2 
Unrealized loss on derivatives, net of tax —  —  —  —  (4.1) (4.1) —  (4.1) — 
Net unrealized foreign currency translation loss —  —  —  —  (0.8) —  (0.8) —  (0.8) — 
Change in retirement benefit adjustment, net of tax —  —  —  —  (0.1) (0.1) —  (0.1) — 
Comprehensive income (loss)         31.1  (0.1) 31.0  1.2 
Balance as of March 29, 2019 48,651,755  $ 0.5  $ 531.5  $ 1,239.1  $ (46.6) $ 1,724.5  $ 25.4  $ 1,749.9  $ 52.8 
Exercises of stock options 5,000  —  0.1  —  —  0.1  —  0.1  — 
Settlement of restricted stock awards 2,830  —  —  —  —  —  —  —  — 
Settlement of restricted stock units 7,077  —  —  —  —  —  —  —  — 
Share-based payment expense —  —  1.9  —  —  1.9  —  1.9  — 
Capital contribution from, distribution to noncontrolling interests —  —  —  —  —  —  (0.1) (0.1) 0.1 
Repurchase and retirement of ordinary shares (365,569) —  (2.8) (6.4) —  (9.2) —  (9.2) — 
Comprehensive income:
Net income (loss) —  —  —  38.1  —  38.1  (0.1) 38.0  0.9 
Unrealized loss on derivatives, net of tax —  —  —  —  (12.7) (12.7) —  (12.7) — 
Net unrealized foreign currency translation loss —  —  —  —  0.5  0.5  —  0.5  — 
Change in retirement benefit adjustment, net of tax —  —  —  —  0.2  0.2  —  0.2  — 
Comprehensive income (loss)         26.1  (0.1) 26.0  0.9 
Balance as of June 28, 2019 48,301,093  $ 0.5  $ 530.7  $ 1,270.8  $ (58.6) $ 1,743.4  $ 25.2  $ 1,768.6  $ 53.8 
Exercises of stock options 32,000  —  0.8  —  —  0.8  —  0.8  — 
Settlement of restricted stock units 38,869  —  —  —  —  —  —  —  — 
Share-based payment expense —  —  0.9  —  —  0.9  —  0.9  — 
Capital contribution from, distribution to noncontrolling interests —  —  —  —  —  —  (0.1) (0.1) — 
Repurchase and retirement of ordinary shares (357,493) —  (2.6) (6.1) —  (8.7) —  (8.7) — 
Dividend declared —  —  0.3  (3.1) —  (2.8) —  (2.8) — 
Comprehensive income:
Net income (loss) —  —  —  18.1  —  18.1  (1.3) 16.8  1.4 
Unrealized loss on derivatives, net of tax —  —  —  —  (4.5) (4.5) —  (4.5) — 
Net unrealized foreign currency translation loss —  —  —  —  (6.5) (6.5) —  (6.5) — 
Change in retirement benefit adjustment, net of tax —  —  —  —  0.3  0.3  —  0.3  — 
Comprehensive income (loss) 7.4  (1.3) 6.1  1.4 
Balance at September, 27, 2019 48,014,469  $ 0.5  $ 530.1  $ 1,279.7  $ (69.3) $ 1,741.0  $ 23.8  $ 1,764.8  $ 55.2 
See accompanying notes.

6

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.
 
We were incorporated under the laws of the Cayman Islands in 1996 and are engaged primarily in the worldwide production, marketing, and distribution of high-quality fresh and fresh-cut fruit and vegetables, as well as a leading producer and distributor of prepared fruit and vegetables, juices, beverages and snacks in Europe, Africa and the Middle East. Our major sales markets are organized as follows: North America, Europe (which includes Kenya), the Middle East (which includes North Africa) and Asia.

We source our fresh produce products primarily from Central and South America, Africa, and the Philippines. We can also produce, market and distribute certain prepared food products in North America based on our agreement with Del Monte Pacific Limited and its subsidiary Del Monte Foods, Inc. We source our prepared food products from Africa, Europe, the Middle East, and North America.  Our products are sourced from company-owned operations, through joint venture arrangements and through supply contracts with independent growers. We have the exclusive right to use the Del Monte® brand for fresh fruit, fresh vegetables and other fresh and fresh-cut produce and certain other specified products on a royalty-free basis under a worldwide, perpetual license from Del Monte Corporation, an unaffiliated company that owns the Del Monte® trademark. We are also a producer, marketer and distributor of prepared fruit and vegetables, juices and snacks and, we hold a perpetual, royalty-free license to use the Del Monte® brand for prepared foods throughout Europe, Africa, the Middle East and certain Central Asian countries. Del Monte Corporation and several other unaffiliated companies manufacture, distribute and sell under the Del Monte® brand canned or processed fruit, vegetables and other produce, as well as dried fruit, snacks and other products in certain geographic regions. We can also produce, market and distribute certain prepared food products in North America utilizing the Del Monte® brand. We have entered into an agreement with Del Monte Foods, Inc. to jointly produce, market and sell prepared, chilled and refrigerated (i) juices, (ii) cut-fruit and (iii) avocado/guacamole products produced using high pressure technology.

The accompanying unaudited Consolidated Financial Statements for the quarter and nine months ended September 25, 2020 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 and nine months ended September 25, 2020 are subject to significant seasonal variations and are not necessarily indicative of the results that may be expected for the year ending January 1, 2021. 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 27, 2019.

Certain reclassification of prior period balances have been made to conform to current presentation. Specifically, our segment data disclosures for the quarter and nine months ended September 27, 2019 have been adjusted to reflect a reclassification of cost of products sold between our banana and fresh and value-added products segments as the result of a refinement in our overhead costs allocation methodology. Refer to Note 12.  "Business Segment Data" for further information on our segment disclosures.
Our Consolidated Statement of Operations for the quarter ended September 27, 2019 reflects a $1.5 million adjustment to correct the presentation of payroll and payroll-related costs associated with sales personnel from cost of products sold to selling, general, and administrative expenses. For the nine months ended September 27, 2019, the adjustment from cost of products sold to selling, general, and administrative expenses is $4.6 million. This reclassification adjustment was identified in connection with an internal reorganization of our sales force and is not material to our Consolidated Financial Statements. The total adjustment from cost of products sold to selling, general, and administrative expenses for the year ended December 27, 2019 is $5.8 million, and our Consolidated Statement of Operations for the respective year will be reflected accordingly in our future filings with the Securities and Exchange Commission ("SEC"). Refer to Note 12.  "Business Segment Data" for further information.
 



7

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)


1.  General (continued)

We are required to evaluate events occurring after September 25, 2020 for recognition and disclosure in the unaudited Consolidated Financial Statements for the quarter and nine months ended September 25, 2020. Events are evaluated based on whether they represent information existing as of September 25, 2020, which require recognition in the unaudited Consolidated Financial Statements, or new events occurring after September 25, 2020, 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 September 25, 2020 through the date of issuance of these unaudited Consolidated Financial Statements.

8

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
2. Recently Issued Accounting Pronouncements

New Accounting Pronouncements Adopted

In April 2019, the FASB issued ASU 2019-04, Codification Improvements, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU provides amendments which affect the recognition and measurement of financial instruments, including derivatives and fair value hedges. We adopted this ASU on the first day of our 2020 fiscal year. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This ASU resolves the diversity in practice concerning the manner in which entities account for transactions based on their assessment of the economics of a collaborative arrangement. This ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer and precludes recognizing as revenue consideration received from a collaborative arrangement if the participant is not a customer. We adopted this ASU on the first day of our 2020 fiscal year. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. This ASU provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. We adopted this ASU on the first day of our 2020 fiscal year. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In September 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software and deferred over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. We adopted this ASU prospectively on the first day of our 2020 fiscal year. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU includes additional disclosure requirements for recurring Level 3 fair value measurements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive (loss) income, disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and a narrative description of measurement uncertainty related to Level 3 measurements. We adopted this ASU on the first day of our 2020 fiscal year. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments,
and subsequent amendments to the guidance, ASU 2018-19 in November 2018 and ASU 2019-05 in May 2019 including codification improvements to Topic 326 in ASU 2019-04. The standard significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaces the previous “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost, generally resulting in the earlier recognition of credit losses in the financial statements. The amendment affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. We adopted this standard on the first day of our 2020 fiscal year using a modified-retrospective approach, and recorded a $1.2 million cumulative-effect adjustment to the opening balance of retained earnings in connection with the adoption. As a result, the consolidated financial statements for 2020 are presented under the new standard, while the comparative prior year period is not adjusted and continues to be reported in accordance with our historical accounting policy. The adoption of this standard did not have a material impact on our consolidated financial statements. See Note 5.  "Allowance for Credit Losses" for additional information.




9

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
2. Recently Issued Accounting Pronouncements (continued)

New Accounting Pronouncements Not Yet Adopted

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional guidance to companies to ease the potential burden associated with transitioning away from reference rates that are expected to be discontinued. The new 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. Companies can adopt the ASU immediately, however the guidance will only be available through December 31, 2022. We are currently evaluating this ASU and its impact on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)- Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this update clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. This ASU will be effective for us beginning the first day of our 2021 fiscal year. We are evaluating the impact of the adoption of this ASU on our financial condition, results of operations and cash flows, and, as such, we are not able to estimate the effect the adoption of the new standard will have on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU introduces new guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction, and also provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax. The ASU also makes changes to the current guidance for making intraperiod allocations and determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting, among other changes. This ASU will be effective for us beginning the first day of our 2021 fiscal year. We are evaluating the impact of the adoption of this ASU on our financial condition, results of operations and cash flows, and, as such, we are not able to estimate the effect the adoption of the new standard will have on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). This ASU amends Accounting Standards Codification (ASC) 715 to add additional disclosures, remove certain disclosures that are not considered cost beneficial and to clarify certain required disclosures. Early adoption is permitted. This ASU is effective for fiscal years ending after December 15, 2020. We are evaluating the impact of the adoption of this ASU on our financial statement disclosures.

10

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
3.  Asset Impairment and Other (Credits) Charges, Net

The following represents a summary of asset impairment and other (credits) charges, net recorded during the quarters and nine months ended September 25, 2020 and September 27, 2019 (U.S. dollars in millions):
Quarter ended Nine months ended
September 25, 2020 September 25, 2020
  Long-lived
and other
asset
impairment
 Exit activity and other
(credits) charges
Total Long-lived
and other
asset
impairment
Exit activity and other
(credits) charges
Total
Banana segment:            
California Air Resource Board settlement(1)
$ —  $ —  $ —  $ —  $ 1.3  $ 1.3 
Philippine asset impairment of low-yield areas 0.1  —  0.1  0.8  —  0.8 
Fresh and value-added products segment:      
California Air Resource Board settlement(1)
—  —  —  —  0.7  0.7 
Impairment of production facilities(2)
—  —  —  2.1  —  2.1 
Insurance recovery related to product recall(3)
—  (4.4) (4.4) —  (10.4) (10.4)
North America reorganization charges(4)
—  0.8  0.8  —  1.5  1.5 
Other fresh and value-added products segment charges —  —  —  —  0.2  0.2 
Total asset impairment and
other (credits) charges, net
$ 0.1  $ (3.6) $ (3.5) $ 2.9  $ (6.7) $ (3.8)
Quarter ended Nine months ended
September 27, 2019 September 27, 2019
  Long-lived
and other
asset
impairment
Exit activity and other
(credits) charges
Total Long-lived
and other
asset
impairment
Exit activity and other
(credits) charges
Total
Banana segment:            
Philippine asset impairment of low-yield areas $ 4.7  $ —  $ 4.7  $ 4.7  $ —  $ 4.7 
Philippine exit activities of certain low-yield areas —  —  —  —  0.5  0.5 
Fresh and value-added products
segment:
     
Impairment of equity investment(5)
—  —  —  2.9  —  2.9 
Other fresh and value-added products segment charges —  —  —  0.4  —  0.4 
Total asset impairment and
other (credits) charges, net
$ 4.7  $ —  $ 4.7  $ 8.0  $ 0.5  $ 8.5 

(1) $2.0 million charge for the nine months ended September 25, 2020 relating to a settlement with the California Air Resource Board. This charge relates to both our banana and fresh and value-added products segments. Refer to Note 9.  "Commitments and Contingencies" for further information regarding this matter.
(2) $2.1 million asset impairment charges for the nine months ended September 25, 2020 related to impairment of production facilities in North America and Europe.
11

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

3.  Asset Impairment and Other (Credits) Charges, Net (continued)

(3) $(10.4) million insurance recovery for the nine months ended September 25, 2020 related to a voluntary recall of vegetable products in North America which was announced in the fourth quarter of 2019.
(4) $1.5 million charge for the nine months ended September 25, 2020 related to severance expenses incurred in connection with the reorganization of our sales and marketing function in North America.
(5) $2.9 million impairment of equity investment for the nine months ended September 27, 2019 related to our 10% equity ownership interest in Three Limes, Inc., d/b/a The Purple Carrot.

4. Income Taxes

In connection with a current examination of the tax returns in two foreign jurisdictions, the taxing authorities have issued income tax deficiencies related to transfer pricing aggregating approximately $145.8 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.

On September 10, 2020, we were notified that we lost our final appeal at the Administrative level in one of the foreign jurisdictions under audit for the years 2012-2015. We have filed a request for an injunction in the judicial courts which would defer payment, if any, until the end of the judicial process. Additionally, we also intend to file an administrative injunction with the Tax Administration.

In parallel with the administrative procedure, we had filed an appeal in judicial court on April 30, 2020. We strongly believe we will prevail at the judicial level. If not, we will appeal to the Supreme Court. We will continue to vigorously contest the adjustments and expect to exhaust all administrative and judicial remedies necessary in both jurisdictions to resolve the matters, which could be a lengthy process.

We regularly assess the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of our tax reserves. Accordingly, we have not accrued any additional amounts based upon the proposed adjustments. There can be no assurance that these matters will be resolved in our favor, and an adverse outcome of either matter, or any future tax examinations involving similar assertions, could have a material effect on our financial condition, results of operations and cash flows.

Provision for income taxes was $9.4 million for the first nine months of 2020 compared to $20.0 million for the first nine months of 2019. The decrease in the provision for income taxes of $10.6 million is primarily due to lower earnings in certain taxable jurisdictions. The tax provision for the first nine months of 2020 also includes a $1.7 million benefit relating to the NOL carryback provision of the Coronavirus Aid, Relief and Economic Security Act (CARES) Act, which was enacted on March 27, 2020.

Member States of the European Union in which our European distributors operate have enacted, or are in the process of drafting, anti-hybrid legislation which may impact our ability to deduct the cost of certain purchases in those jurisdictions. We are actively analyzing the enacted and proposed draft legislation to assess whether, and to what extent, these provisions impact the Company.


12

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
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. We adopted this accounting standard on the first day of our 2020 fiscal year using a modified-retrospective approach. As a result, the consolidated financial statements for 2020 are presented under the new standard, while the comparative prior year period is not adjusted and continues to be reported in accordance with our historical accounting policy.

Trade Receivables

Trade receivables as of September 25, 2020 were $341.4 million, net of an allowance of $20.7 million. Our allowance for trade receivables consists of two components: a $10.1 million allowance for credit losses and a $10.6 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 collectibility 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 collectibility of our receivable pools. We generally monitor macroeconomic indicators to assess whether adjustments are necessary to reflect current conditions.

The table below presents a rollforward of our trade receivable allowance for credit losses for the nine months ended September 25, 2020.
Nine months ended
Trade Receivables September 25,
2020
Allowance for credit losses:
Balance, beginning of period(1)
$ 8.9 
Provision for uncollectible amounts(2)
1.2 
Deductions to allowance related to write-offs — 
Recoveries of amounts previously written off — 
Balance, end of period
$ 10.1 

(1) Beginning balance includes $1.0 million increase reflecting the impact of our adoption of ASC 326 on the first day of fiscal 2020. See Note 2. "Recently Issued Accounting Pronouncements" for additional information.

(2) Provision for the nine months ended September 25, 2020 includes $0.5 million of estimated trade receivable credit losses primarily relating to our foodservice customer base as a direct result of the COVID-19 pandemic. Given the developments surrounding the pandemic, including the government imposed mandatory closures and social distancing initiatives, we revised our receivable pools to separately identify our foodservice customers and judgmentally adjusted our historical loss rates to account for the current circumstances which are negatively impacting their financial condition. While the provision included in our operating results reflects our best estimate as of September 25, 2020, there are significant uncertainties about what the effects of the COVID-19 pandemic will ultimately be.
13

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
5.  Allowance for Credit Losses (continued)

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 4 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 which may impact the collectibility of the advances, including unfavorable weather conditions and crop diseases, when assessing whether adjustments to the historical loss rate are necessary.

The following table details the advances to growers and suppliers based on their credit risk profile (U.S. dollars in millions):
September 25, 2020 December 27, 2019
  Current
Status
Past-Due Current
Status
Past-Due
Gross advances to growers and suppliers $ 34.0  $ 4.8  $ 33.8  $ 8.3 
 
The allowance for advances to growers and suppliers and the related financing receivables for the nine months ended September 25, 2020 and September 27, 2019 were as follows (U.S. dollars in millions):
Nine months ended
September 25,
2020
September 27,
2019
Allowance for advances to growers and suppliers:
Balance, beginning of period(1)
$ 2.3  $ 2.8 
Provision for uncollectible amounts (0.1) — 
Deductions to allowance related to write-offs (0.1) — 
Balance, end of period $ 2.1  $ 2.8 

(1) Beginning balance includes $0.2 million increase reflecting the impact of our adoption of ASC 326 on the first day of fiscal 2020. See Note 2. "Recently Issued Accounting Pronouncements" for additional information.

14

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
6.  Share-Based Compensation

Our shareholders approved and ratified the 2014 Omnibus Share Incentive Plan (the “2014 Plan”), which allows us to grant equity-based compensation awards, including stock options, restricted stock awards and restricted stock units including performance stock units. We disclosed the significant terms of the 2014 Plan and prior plans in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2019.

Stock-based compensation expense related to stock options, restricted stock awards ("RSAs"), restricted stock units ("RSUs") and performance stock units ("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 Nine months ended
September 25,
2020
September 27,
2019
September 25,
2020
September 27,
2019
RSUs/PSUs $ 1.6  $ 0.9  $ 5.9  $ 6.0 
RSAs —  —  0.3  1.0 
Total $ 1.6  $ 0.9  $ 6.2  $ 7.0 
 
We received no proceeds from the exercise of stock-based options for the nine months ended September 25, 2020 and $1.1 million for the nine months ended September 27, 2019.

Restricted Stock Awards

A share of restricted stock is one of our ordinary shares that has restrictions on transferability until certain vesting conditions are met.

For RSAs awarded under the 2014 Plan, 50% of each award of our restricted stock vested on the date it was granted. The remaining 50% of each award vests upon the six-month anniversary of the date on which the recipient ceases to serve as a member of our Board of Directors. Restricted stock awards allow directors to retain all of their awards once they cease to serve as a member of our Board of Directors and is considered a nonsubstantive service condition in accordance with the guidance provided by ASC 718 on “Compensation – Stock Compensation.”  Accordingly, we recognize compensation cost immediately for restricted stock awards granted to non-management members of the Board of Directors. Subsequent to the first quarter of 2020, members of our Board of Directors will no longer receive RSAs and will instead receive RSUs.

The following table lists RSAs awarded under the 2014 plan for the nine months ended September 25, 2020 and September 27, 2019:
Date of award Shares of
restricted stock
awarded
Price per share
For the nine months ended September 25, 2020
April 10, 2020 235 $ 32.00 
January 2, 2020 7,374 34.42 
For the nine months ended September 27, 2019
May 1, 2019 2,830 29.44 
January 2, 2019 30,891 28.32 
15

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
6.  Share-Based Compensation (continued)

Restricted Stock Units/Performance Stock Units

Under the 2014 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. Provided such criteria are met, the PSUs will vest in three equal annual installments on each of the next three anniversary dates provided that the recipient remains employed with us. The RSUs will vest 20% on the award date and 20% on each of the next four anniversaries.

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.

The fair market value for RSUs and PSUs is based on the closing price of our stock on the award date. Forfeitures are recognized as they occur.

The following table lists the various RSUs and PSUs awarded under the 2014 Plan for the nine months ended September 25, 2020 and September 27, 2019:
Date of Award Type of award Units awarded Price per share
For the nine months ended September 25, 2020
April 28, 2020 RSU 21,348 $ 35.13 
March 30, 2020 RSU 2,500 29.61 
March 23, 2020 RSU 2,500 33.53 
March 2, 2020 PSU 86,954 28.74 
March 2, 2020 RSU 161,093 28.74 
For the nine months ended September 27, 2019
July 31, 2019 PSU 4,250 30.33 
March 25, 2019 RSU 5,000 26.55 
February 20, 2019 PSU 85,000 27.71 
February 20, 2019 RSU 133,750 27.71 
    
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.

We recognize expense related to RSUs and PSUs based on the fair market value, as determined on the date of award, ratably over the vesting period, provided the performance condition, if any, is probable.

7.  Inventories, net
 
Inventories consisted of the following (U.S. dollars in millions):
 
September 25,
2020
December 27, 2019
Finished goods $ 180.3  $ 203.5 
Raw materials and packaging supplies 152.8  155.8 
Growing crops 167.4  192.5 
Total inventories, net $ 500.5  $ 551.8 
16

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
8.  Debt and Finance Lease Obligations
 
The following is a summary of long-term debt and finance lease obligations (U.S. dollars in millions):
 
September 25,
2020
December 27,
2019
Senior unsecured revolving credit facility (see Credit Facility below) $ 510.7  $ 586.6 
Finance lease obligations 0.4  0.5 
Total debt and finance lease obligations 511.1  587.1 
Less:  Current maturities (0.3) (0.3)
Long-term debt and finance lease obligations $ 510.8  $ 586.8 

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, $1.1 billion syndicated senior unsecured revolving credit facility maturing on October 1, 2024 (the “Revolving Credit Facility”), which replaced our Prior Credit Facility entered into on April 16, 2015, which was scheduled to expire on April 15, 2020. As a result, we reclassified our current maturing debt to long-term. Certain of our direct and indirect subsidiaries have guaranteed the obligations under the Second A&R Credit Agreement.

Amounts borrowed under the Revolving Credit Facility accrue interest, at our election, at either (i) the Eurocurrency 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 revised the interest rate grid to provide for five pricing levels for interest rate margins, as compared to three pricing levels in the prior credit facility.

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 2.5 to 1. 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 provides covenants substantially the same as those contained in the prior credit agreement, except that (1) the restricted payments covenant has been revised to permit us 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 and (2) the restricted payments covenant has been revised to provide 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. All other material terms of the prior credit agreement remain unchanged.

Debt issuance costs of $2.0 million and $2.3 million are included in other noncurrent assets on our Consolidated Balance Sheets as of September 25, 2020 and December 27, 2019, respectively.

We have a renewable 364-day, $25.0 million commercial stand-by letter of credit facility with Rabobank Nederland.
17

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 Credit Facility and other working capital facilities at September 25, 2020 (U.S. dollars in millions):
  Term Maturity
date
Interest rate Borrowing
limit
Available
borrowings
Bank of America credit facility 5 years October 1, 2024 1.56% $ 1,100.0  $ 589.3 
Rabobank letter of credit facility 364 days June 16, 2021 Varies 25.0  13.4 
Other working capital facilities Varies Varies Varies 20.2  9.7 


$ 1,145.2  $ 612.4 

The current margin for LIBOR advances is 1.375%. 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 investment opportunities.

The Second A&R Credit Agreement requires us to comply with financial and other covenants, including limitations on capital expenditures, the amount of dividends that can be paid in the future, the amount and types of liens and indebtedness, material asset sales and mergers. As of September 25, 2020, we were in compliance with all of the covenants contained in the Second A&R Credit Agreement. The Revolving Credit Facility is unsecured and is guaranteed by certain of our subsidiaries. The Revolving Credit Facility permits borrowings under the revolving commitment with an interest rate determined based on our leverage ratio and spread over LIBOR. In addition, we pay a fee on unused commitments.

As of September 25, 2020, we applied $11.6 million to letters of credit under the Rabobank Nederland and Bank of America revolving credit facilities, in respect of certain contingent obligations and other governmental agency guarantees, combined with guarantees for purchases of raw materials and equipment and other trade related letters of credit. We also had $18.2 million in other letters of credit and bank guarantees not included in the Rabobank letter of credit or Bank of America revolving credit facilities.

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 LIBOR-based borrowings from our Revolving Credit Facility. Refer to Note 13, “Derivative Financial Instruments”.

18

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
9.  Commitments and Contingencies

During the fourth quarter of 2019, our Mann Packing business voluntarily recalled a series of vegetable products sold to select customers in the United States and Canada primarily in our fresh and value-added products segment. The voluntary recall had a negative effect on net sales, primarily of fresh-cut vegetables, and also resulted in approximately $6.0 million of customer claims and customer-related charges and $4.4 million in inventory write-offs during the fourth quarter of 2019. During the nine months ended September 25, 2020, we recognized a $10.4 million insurance recovery associated with the voluntary product recall, presented in asset impairments and other (credits) charges, net in our Consolidated Statement of Operations. Subsequent to the quarter ended September 25, 2020, contingencies associated with the final portion of the insurance claim were resolved and as a result, an additional gain on insurance recovery of $4.6 million will be recognized in our Consolidated Statement of Operations during the fourth quarter of 2020.

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 continues to evaluate with the EPA the clean-up work currently in progress in accordance with the Consent Decree.

The estimates associated with the clean-up costs are between $13.2 million and $28.7 million. The estimate on which our accrual is based totals $13.2 million. As of September 25, 2020, $12.9 million was included in other noncurrent liabilities and $0.3 million included in accounts payable and accrued expenses in our Consolidated Balance Sheets for the Kunia Well Site clean-up. We expect to expend approximately $0.4 million in 2020, $1.1 million in 2021 and $0.9 million in each of the years 2022, 2023 and 2024.

California Air Resource Board

On June 8, 2018, the California Air Resource Board (“CARB”) issued a Notice of Violation (“NOV”) to the Company regarding violations of certain California anti-air pollution regulations by ships that were subject to a time charter by the Company from Star Reefers Pool, Inc. (“Star”), an unrelated non-U.S. third party.  In accordance with the terms of the time charter, Star was contractually required to maintain compliance with the CARB requirements, Star’s personnel managed the relevant vessels, Star supplied the crew and Star maintained at all times possession and control of their ships. Pursuant to the terms of the charter agreement, the Company had the temporary right to have its goods loaded and conveyed and made available at the relevant California berth equipment necessary for Star’s compliance with the CARB regulations.  Since receiving the NOV, the Company sought to enforce its contractual rights to have Star engage with CARB regarding potential liability and resolve any open violations.  The Company ultimately terminated its commercial relationship with Star.  While a formal complaint by CARB had not been filed, several tolling agreements had been executed and the Company discussed a settlement of the allegations with CARB directly as liability under the regulations is considered joint and several.  The Company fully cooperated with and assisted CARB in its audits for alleged violations over 2015-2019. On August 2, 2020, after having gone back and forth with respect to the merits raised in its settlement discussions, the Company, without any admission of liability, accepted CARB’s counter-proposal and agreed to pay a civil penalty of $1.0 million and to fund a Supplemental Environmental Project (SEP) entitled Marine Vessel Speed Reduction Incentive Program Phase 2 in the amount of $1.0 million, for a total settlement of $2.0 million. This settlement charge is reflected in asset impairment and other (credits) charges, net in our Consolidated Statement of Operations for the nine months ended September 25, 2020.

Business Litigation

On March 14, 2019, we settled a business transaction litigation matter for $17.0 million in our favor. The settlement resulted in a gain of approximately $16.0 million, net of $1.0 million related to other miscellaneous expenses which is reflected in other (expense) income, net on our Consolidated Statements of Operations for the nine months ended September 27, 2019.

19

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
9.  Commitments and Contingencies (continued)

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.

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 Nine months ended
September 25,
2020
September 27,
2019
September 25,
2020
September 27,
2019
Numerator:    
Net income attributable to Fresh Del Monte
Produce Inc.
$ 17.4  $ 18.1  $ 48.3  $ 92.3 
Denominator:    
Weighted average number of ordinary shares -
Basic
47,355,918  48,069,733  47,641,712  48,383,625 
Effect of dilutive securities - share-based
awards
71,805  47,256  90,035  100,137 
Weighted average number of ordinary shares -
Diluted
47,427,723  48,116,989  47,731,747  48,483,762 
Antidilutive awards (1)
209,405  218,241  209,405  218,241 
Net income per ordinary share attributable to Fresh Del Monte Produce Inc.:
     
Basic $ 0.37  $ 0.38  $ 1.01  $ 1.91 
Diluted $ 0.37  $ 0.38  $ 1.01  $ 1.90 

(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.

Refer to Note 16, “Shareholders’ Equity”, for disclosures related to the stock repurchase program and retired shares.


20

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
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 Nine months ended
September 25,
2020
September 27,
2019
September 25,
2020
September 27,
2019
Service cost $ 1.6  $ 1.4  $ 4.8  $ 4.1 
Interest cost 1.5  1.7  4.4  5.1 
Expected return on assets (0.6) (0.8) (1.8) (2.4)
Amortization of net actuarial loss 0.3  0.1  0.9  0.4 
Net periodic benefit costs $ 2.8  $ 2.4  $ 8.3  $ 7.2 
 


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 $0.8 million for the quarter ended September 25, 2020 and $0.7 million for the quarter ended September 27, 2019. The net periodic benefit costs related to other non-U.S.-based plans is $2.4 million for the nine months ended September 25, 2020 and $2.2 million for the nine months ended September 27, 2019.

21

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)

12.  Business Segment Data
 
We are principally engaged in the production, distribution and marketing of fresh and value-added products and bananas. Our products are sold in markets throughout the world with our major producing operations located in North, Central and South America, Europe, Asia and Africa.

Our operations are organized into two reportable segments that represent our primary businesses and one reportable segment that represents our ancillary businesses.

Fresh and value-added products - includes pineapples, fresh-cut fruit, fresh-cut vegetables, 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 ancillary businesses consisting of sales of poultry and meat products, a plastic product business, and third-party freight services

We evaluate performance based on several factors, of which net sales and gross profit by product are the primary financial measures (U.S. dollars in millions): 
  Quarter ended
  September 25, 2020 September 27, 2019
Segments: Net Sales Gross Profit Net Sales Gross Profit
Fresh and value-added products $ 600.6  $ 54.2  $ 652.9  $ 53.3 
Banana 361.8  10.8  385.8  18.6 
Other products and services 27.3  2.3  31.5  4.3 
Totals $ 989.7  $ 67.3  $ 1,070.2  $ 76.2 
  Nine months ended
  September 25, 2020 September 27, 2019
Segments: Net Sales Gross Profit Net Sales Gross Profit
Fresh and value-added products $ 1,897.8  $ 133.8  $ 2,107.2  $ 172.3 
Banana 1,218.4  74.3  1,257.3  90.2 
Other products and services 83.8  6.4  99.3  6.4 
Totals $ 3,200.0  $ 214.5  $ 3,463.8  $ 268.9 

Quarter ended Nine months ended
Net Sales by geographic region: September 25,
2020
September 27,
2019
September 25,
2020
September 27,
2019
North America $ 619.4  $ 720.8  $ 1,992.0  $ 2,286.4 
Europe 150.0  140.4  485.2  482.9 
Asia 107.9  99.6  355.3  351.4 
Middle East 102.7  103.4  329.3  310.5 
Other 9.7  6.0  38.2  32.6 
Totals $ 989.7  $ 1,070.2  $ 3,200.0  $ 3,463.8 



22

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
12.  Business Segment Data (continued)

Our segment data disclosures for the quarter and nine months ended September 27, 2019 have been adjusted to reflect a reclassification of cost of products sold between our banana and fresh and value-added products segments as the result of a refinement in our overhead cost allocation methodology. This reclassification resulted in an increase to our banana segment gross profit of $1.7 million for the quarter ended September 27, 2019 and $4.4 million for the nine months ended September 27, 2019, and a corresponding decrease in our fresh and value-added products segment gross profit. On a full year basis for the year ended December 27, 2019, the reclassification results in an increase to our banana segment gross profit and corresponding decrease to our fresh and value-added products segment gross profit of $5.6 million and will be reflected accordingly in our future filings with the SEC.

Our segment data disclosures for the quarter ended September 27, 2019 also reflect the impact of a reclassification adjustment to correct the presentation of payroll and payroll-related costs associated with our sales personnel from cost of products sold to selling, general, and administrative expenses. The reclassification adjustment resulted in an increase of $0.4 million to gross profit in our banana segment and an increase of $1.1 million to gross profit in our fresh and value-added products segment for the quarter ended September 27, 2019. For the nine months ended September 27, 2019, the reclassification adjustment resulted in an increase of $1.3 million to gross profit in our banana segment and an increase of $3.3 million to gross profit in our fresh and value-added products segment. For the full year ended December 27, 2019, the adjustment results in an increase to our banana segment gross profit of $1.6 million, and an increase of $4.2 million to our fresh and value-added products segment gross profit. Refer to Note 1. "General" for further information regarding this adjustment.

The following table indicates our net sales by product and the percentage of the total (U.S. dollars in millions):
  Quarter ended Nine months ended
September 25,
2020
September 27,
2019
September 25,
2020
September 27,
2019
Fresh and value-added products:
Fresh-cut fruit $ 130.4  13  % $ 144.5  13  % $ 358.6  11  % $ 408.2  12  %
Fresh-cut vegetables 95.6  10  % 122.0  12  % 284.8  % 360.0  10  %
  Gold pineapples 115.9  12  % 102.0  10  % 331.9  10  % 339.4  10  %
  Avocados 76.5  % 98.0  % 263.5  % 311.6  %
  Non-tropical fruit 38.1  % 32.2  % 175.8  % 163.1  %
Prepared foods 67.5  % 70.4  % 198.7  % 210.6  %
  Melons 2.9  —  % 5.1  —  % 66.8  % 74.8  %
  Tomatoes 8.6  % 12.2  % 32.4  % 41.1  %
  Vegetables 41.7  % 45.6  % 116.1  % 130.0  %
  Other fruit and vegetables
23.4  % 20.9  % 69.2  % 68.4  %
Total fresh and value-added products 600.6  61  % 652.9  61  % 1,897.8  59