10-Q 1 a50034249.htm FRESH DEL MONTE PRODUCE INC. 10-Q a50034249.htm
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended September 30, 2011
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from              to             
 
1-14706
(Commission file number)

FRESH DEL MONTE PRODUCE INC.
(Exact Name of Registrant as Specified in Its Charter)

 
The Cayman Islands
N/A
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S Employer
Identification No.)
   
c/o Walkers SPV Limited
Walker House, 87 Mary Street
George Town, Grand Cayman, KY1-9002
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)

 
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  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large accelerated filer  x
Accelerated filer  ¨
 
Non-accelerated filer  ¨
Smaller reporting company  ¨
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
 
As of October 21, 2011, there were 57,755,757 ordinary shares of Fresh Del Monte Produce Inc. issued and outstanding, respectively.
 
 
 
 
 

 
 
Forward-Looking Statements
 
This report, information included in future filings by us and information contained in written material, press releases and oral statements, issued by or on behalf of us contains, or may contain, statements that constitute forward-looking statements. In this report, these statements appear in a number of places and include statements regarding the intent, beliefs or current expectations of us or our officers (including statements preceded by, followed by or that include the words “believes”, “expects”, “anticipates” or similar expressions) with respect to various matters, including our plans and future performance.  These forward-looking statements involve risks and uncertainties.  Fresh Del Monte’s actual plans and performance may differ materially from those in the forward-looking statements as a result of various factors, including (i) the uncertain global economic environment and the timing and strength of a recovery in the markets we serve, and the extent to which adverse economic conditions continue to affect our sales volume and results, including our ability to command premium prices for certain of our principal products, or increase competitive pressures within the industry, (ii) the impact of governmental initiatives in the United States and abroad to spur economic activity, including the effects of significant government monetary or other market interventions on inflation, price controls and foreign exchange rates, (iii) the impact of governmental trade restrictions, including adverse governmental regulation that may impact our ability to access certain markets, (iv) our anticipated cash needs in light of our liquidity, (v) the continued ability of our distributors and suppliers to have access to sufficient liquidity to fund their operations, (vi) trends and other factors affecting our financial condition or results of operations from period to period, including changes in product mix or consumer demand for branded products such as ours, particularly as consumers remain price-conscious in the current economic environment; anticipated price and expense levels; the impact of crop disease, severe weather conditions, such as flooding, or natural disasters, such as earthquakes, on crop quality and yields and on our ability to grow, procure or export our products; the impact of prices for petroleum-based products and packaging materials; and the availability of sufficient labor during peak growing and harvesting seasons, (vii) the impact of pricing and other actions by our competitors, particularly during periods of low consumer confidence and spending levels, (viii) the impact of foreign currency fluctuations, (ix) our plans for expansion of our business (including through acquisitions) and cost savings, (x) our ability to successfully integrate acquisitions into our operations, (xi) the impact of impairment or other charges associated with exit activities, crop or facility damage or otherwise, (xii) the timing and cost of resolution of pending legal and environmental proceedings, (xiii) the impact of changes in tax accounting or tax laws (or interpretations thereof), and the impact of settlements of adjustments proposed by the Internal Revenue Service or other taxing authorities in connection with our tax audits, and (xiv) the cost and other implications of changes in regulations applicable to our business, including potential legislative or regulatory initiatives in the United States or elsewhere directed at mitigating the effects of climate change. All forward-looking statements in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our plans and performance may also be affected by the factors described in Item 1A-“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 along with other reports that we have on file with the Securities and Exchange Commission.
 
 
 
 
 

 
 
TABLE OF CONTENTS
 
   
Page
PART I: FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
 
1
     
 
2
     
 
3
     
 
4
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk
30
     
Item 4. Controls and Procedures
30
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings
31
     
Item 1A. Risk Factors
31
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
31
     
Item 6. Exhibits
32
     
Signatures
33
 
 
 

 
 
PART I: FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
CONSOLIDATED BALANCE SHEETS (Unaudited)
(U.S. dollars in millions, except share and per share data)
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Assets
           
Current assets:
           
     Cash and cash equivalents
  $ 26.8     $ 49.1  
     Trade accounts receivable, net of allowance of
               
       $6.5 and $7.8, respectively
    271.1       313.8  
     Other accounts receivable, net of allowance
               
       of $8.0 and $12.3, respectively
    55.6       63.4  
     Inventories
    401.7       410.4  
     Deferred income taxes
    14.8       17.5  
     Prepaid expenses and other current assets
    41.7       27.1  
          Total current assets
    811.7       881.3  
                 
     Investments in and advances to unconsolidated companies
    3.0       4.0  
     Property, plant and equipment, net
    1,033.1       1,033.1  
     Deferred income taxes
    58.7       57.2  
     Other noncurrent assets
    130.1       135.7  
     Goodwill
    402.6       406.4  
          Total assets
  $ 2,439.2     $ 2,517.7  
                 
Liabilities and shareholders' equity
               
Current liabilities:
               
     Accounts payable and accrued expenses
  $ 340.9     $ 331.9  
     Current portion of long-term debt and capital lease obligations
    5.1       5.3  
     Deferred income taxes
    25.3       27.5  
     Income taxes and other taxes payable
    19.6       2.8  
          Total current liabilities
    390.9       367.5  
                 
     Long-term debt and capital lease obligations
    108.3       290.3  
     Retirement benefits
    75.5       76.5  
     Other noncurrent liabilities
    58.9       69.6  
     Deferred income taxes
    80.6       82.3  
          Total liabilities
    714.2       886.2  
                 
     Commitments and contingencies
               
                 
Shareholders' equity:
               
     Preferred shares, $0.01 par value; 50,000,000 shares
               
       authorized; none issued or outstanding
    -       -  
     Ordinary shares, $0.01 par value; 200,000,000 shares
               
       authorized; 58,237,239 issued and 58,036,839 outstanding
               
       and 58,725,430 issued and outstanding, respectively
    0.6       0.6  
     Paid-in capital
    454.2       462.9  
     Retained earnings
    1,258.5       1,167.8  
     Less: 200,400 treasury shares at cost
    (4.7 )     -  
     Accumulated other comprehensive loss
    (10.2 )     (24.1 )
          Total Fresh Del Monte Produce Inc. shareholders' equity
    1,698.4       1,607.2  
     Noncontrolling interests
    26.6       24.3  
          Total shareholders' equity
    1,725.0       1,631.5  
          Total liabilities and shareholders' equity
  $ 2,439.2     $ 2,517.7  
                 
 
 
See accompanying notes.
 
 
1

 
 
 
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(U.S. dollars in millions, except share and per share data)

                         
   
Quarter ended
   
Nine months ended
 
    September 30,    
October 1,
   
September 30,
   
October 1,
 
   
2011
   
2010
   
2011
   
2010
 
                         
     Net sales
  $ 795.2     $ 793.1     $ 2,808.9     $ 2,736.2  
     Cost of products sold
    732.3       741.1       2,520.3       2,503.4  
          Gross profit
    62.9       52.0       288.6       232.8  
                                 
     Selling, general and administrative expenses
    47.1       40.9       141.6       125.9  
     Gain on sales of property, plant and equipment
    1.8       4.5       2.6       7.9  
     Asset impairment and other charges, net
    0.6       0.1       12.8       24.1  
          Operating income
    17.0       15.5       136.8       90.7  
                                 
     Interest expense
    2.1       2.2       5.8       8.6  
     Interest income
    0.4       0.3       0.8       0.7  
     Other expense (income), net
    0.4       (3.0 )     3.8       6.6  
                                 
          Income before income taxes
    14.9       16.6       128.0       76.2  
                                 
     Provision for income taxes
    2.0       3.2       22.3       4.7  
          Net income
  $ 12.9     $ 13.4     $ 105.7     $ 71.5  
                                 
     Less: net income (loss) attributable to noncontrolling interests
    0.7       (1.1 )     3.1       (0.3 )
          Net income attributable to Fresh Del Monte Produce Inc.
  $ 12.2     $ 14.5     $ 102.6     $ 71.8  
                                 
                                 
     Net income per ordinary share attributable to
          Fresh Del Monte Produce Inc. - Basic
  $ 0.21     $ 0.24     $ 1.73     $ 1.16  
                                 
     Net income per ordinary share attributable to
          Fresh Del Monte Produce Inc. - Diluted
  $ 0.21     $ 0.24     $ 1.72     $ 1.16  
                                 
     Dividends declared per ordinary share
  $ 0.10     $ -     $ 0.20     $ -  
                                 
     Weighted average number of ordinary shares:
                               
          Basic
    59,393,954       60,735,357       59,266,561       61,984,107  
          Diluted
    59,510,829       60,919,626       59,556,442       62,149,688  
                                 


See accompanying notes.
 
 
2

 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(U.S. dollars in millions)
 
             
   
Nine months ended
 
   
September 30,
   
October 1,
 
   
2011
   
2010
 
Operating activities:
           
     Net income
  $ 105.7     $ 71.5  
     Adjustments to reconcile net income to net cash
               
       provided by operating activities:
               
       Depreciation and amortization
    55.1       59.2  
       Amortization of debt issuance costs
    3.0       1.7  
       Stock-based compensation expense
    7.4       6.1  
       Asset impairment charges
    9.3       25.8  
       Change in uncertain tax positions
    4.2       (0.9 )
       Gain on sales of property, plant and equipment
    (2.5 )     (7.9 )
       Equity in loss of unconsolidated companies
    0.6       0.7  
       Deferred income taxes
    (1.8 )     (6.2 )
       Foreign currency translation adjustment
    (0.8 )     (3.6 )
       Changes in operating assets and liabilities:
               
         Receivables
    47.7       46.7  
         Inventories
    6.7       42.8  
         Prepaid expenses and other current assets
    (2.4 )     (5.5 )
         Accounts payable and accrued expenses
    16.6       18.9  
         Other noncurrent assets and liabilities
    -       (9.5 )
Net cash provided by operating activities
    248.8       239.8  
                 
Investing activities:
               
     Capital expenditures
    (62.7 )     (48.0 )
     Proceeds from sales of property, plant and equipment
    3.9       12.5  
     Return of investment by an unconsolidated company
    -       4.2  
Net cash used in investing activities
    (58.8 )     (31.3 )
                 
Financing activities:
               
     Proceeds from long-term debt
    362.2       389.3  
     Payments on long-term debt
    (545.6 )     (512.8 )
     Contributions from (distributions to) noncontrolling interests, net
    (3.1 )     3.4  
     Proceeds from stock options exercised
    21.8       0.8  
     Dividends paid
    (11.9 )     -  
     Repurchase of shares
    (37.9 )     (78.8 )
Net cash used in financing activities
    (214.5 )     (198.1 )
                 
Effect of exchange rate changes on cash
    2.2       5.9  
                 
     Net (decrease) increase in cash and cash equivalents
    (22.3 )     16.3  
     Cash and cash equivalents, beginning
    49.1       34.5  
     Cash and cash equivalents, ending
  $ 26.8     $ 50.8  
                 
Supplemental cash flow information:
               
     Cash paid for interest
  $ 2.9     $ 6.5  
     Cash paid for income taxes
  $ 2.9     $ 4.3  
                 
Non-cash financing and investing activities:
               
     Purchase of assets under capital lease obligations
  $ 0.3     $ 0.5  
     Retirement of treasury shares
  $ 37.9     $ 76.9  
     Purchase of unconsolidated subsidiary
  $ 0.5     $ -  
     Sale of unconsolidated subsidiary
  $ 0.8     $ -  
                 
 
 
See accompanying notes.
 
 
3

 
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
1.  General
 
Reference in this report to Fresh Del Monte, “we”, “our”, “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, transportation and marketing of fresh produce.  We source our products, which include bananas, pineapples, melons and non-tropical fruit (including grapes, apples, pears, peaches, plums, nectarines, avocados, citrus and kiwis) and tomatoes, primarily from Central America, South America, Africa and the Philippines. We also source products from North America and Europe and distribute our products in North America, Europe, Asia, South America, Africa and the Middle East. Products are sourced from our Company-owned farms, 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. 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 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 countries formerly part of the Soviet Union.
 
The accompanying unaudited Consolidated Financial Statements for the quarter and nine months ended September 30, 2011 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 30, 2011, are subject to significant seasonal variations and are not necessarily indicative of the results that may be expected for the year ending December 30, 2011. 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 31, 2010.
 
Certain amounts from 2010 have been reclassified to conform to the 2011 presentation.  As a result of our decision to exit grain operations during 2010 and the elimination of third-party ocean freight services from Northern Europe to the Caribbean during 2009, we have combined the other products and services segment with the other fresh produce segment in 2011 due to the relative size of the remaining operations.
 
We are required to evaluate events occurring after September 30, 2011 for recognition and disclosure in the Consolidated Financial Statements for the quarter and nine months ended September 30, 2011.  Events are evaluated based on whether they represent information existing as of September 30, 2011, which require recognition in the Consolidated Financial Statements, or new events occurring after September 30, 2011, which do not require recognition but require disclosure if the event is significant to the Consolidated Financial Statements.  We evaluated events occurring subsequent to September 30, 2011 through the date of issuance of these Consolidated Financial Statements.
 
 
4

 

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
2.  Recently Issued Accounting Pronouncements
 
In September 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to amend the guidance in the Accounting Standards Codification (“ASC”) related to Intangibles – Goodwill and Other.  This amendment will provide us the option of performing a qualitative assessment before calculating the fair value of the reporting unit.  If it is determined that the fair value of the reporting unit is more likely than not less than the carrying amount, on the basis of qualitative factors, the two-step impairment test would be required.  The amendments is effective for annual and interim goodwill impairment tests performed for our 2012 fiscal year, with earlier adoption permitted.  This ASU impacts the manner in which goodwill is assessed for impairment but does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment.  It also does not change the requirement to test goodwill for impairment between annual tests if there are indicators of impairment.  This ASU has no effect on our financial condition, results of operations or cash flows.
 
In June 2011, the FASB issued an ASU to amend guidance in the ASC related to the Presentation of Comprehensive Income. This amendment will require us to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The amended guidance, which must be applied retroactively, is effective for interim and annual periods beginning the first day of our 2012 fiscal year, with earlier adoption permitted. This ASU impacts presentation only, and it will have no effect on our financial condition, results of operations or cash flows.
 
In May 2011, the FASB issued an ASU to amend the guidance in the ASC on Fair Value Measurements and Disclosures. This amendment is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. This guidance clarifies the application of existing fair value measurements and disclosures, and changes certain principles or requirements for fair value measurements and disclosures. The amendment is effective for interim and annual periods beginning the first day of our 2012 fiscal year. We are currently evaluating the impact, if any, of adopting this ASU to our financial condition, results of operations or cash flows.
 
3.  Asset Impairment and Other Charges
 
The following represents a summary of asset impairment and other charges, net recorded during the quarter and nine months ended September 30, 2011 and October 1, 2010 (U.S. dollars in millions):
 
   
Quarter ended
   
Nine-months ended
 
   
September 30, 2011
   
September 30, 2011
 
    Long-lived
and other
asset
impairment
     
Exit activity
and other
charges
   
Total
    Long-lived
and other
asset
impairment
       
Exit activity
and other
charges
   
Total
 
Banana segment:
                                     
Philippine decision to abandon an isolated                                      
area of our banana operation
  $ -     $ -     $ -     $ -       $ 1.3     $ 1.3  
Costa Rica exit of low banana-producing areas
    -       -       -       0.8         -       0.8  
United Kingdom closure of distribution center
    0.6       0.7       1.3       0.6         0.7       1.3  
Other fresh produce segment:                                                  
Central America melon program rationalization
    -       -       -       7.7    (1)     0.5       8.2  
Hawaiian other charges and legal costs (reversal)
                                                 
related to pineapple operation exit activities
    -       (0.7 )     (0.7 )     -         1.0       1.0  
Prepared segment:
                                                 
Other impairment charges
    -       -       -       0.2         -       0.2  
Total asset impairment and other charges, net
  $ 0.6     $ -     $ 0.6     $ 9.3       $ 3.5     $ 12.8  
 
(1) Includes melon goodwill impairment of $3.3 million
 
 
5

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
3.  Asset Impairment and Other Charges (continued)
 
   
Quarter ended
   
Nine months ended
 
   
October 1, 2010
   
October 1, 2010
 
   
Long-lived
and other
asset
impairment
   
Exit activity
and other
charges
 
  Total    
Long-lived
and other
asset
impairment
   
Exit activity
and other
charges
   
Total
 
Banana segment:
                                   
Guatemala banana plantation flood damage
                 
and insurance reimbursements
  $ 0.2     $ (2.4 )   $ (2.2 )   $ 6.0     $ (2.4 )   $ 3.6  
Brazil insurance recoveries for 2008 flooding
                 
of banana plantations
    -       -       -       -       (0.4 )     (0.4 )
North America relocation of port facility
    0.7       -       0.7       0.7       -       0.7  
Other fresh produce segment:
                                         
Brazil melon operation exit activities
    -       -       -       -       1.1       1.1  
Chile earthquake
    -       -       -       1.0       -       1.0  
Prepared segment:
                                               
United Kingdom Del Monte® perpetual,
                         
royalty-free brand name license
    1.4       -       1.4       1.4       -       1.4  
South Africa exit activities
    -       0.2       0.2       16.7       -       16.7  
Total asset impairment and other charges, net
  $ 2.3     $ (2.2 )   $ 0.1     $ 25.8     $ (1.7 )   $ 24.1  
 
Exit Activity and Other Reserves
 
The following represents a rollforward of 2011 exit activity and other reserves (U.S. dollars in millions):
 
   
Exit activity and
other reserve
balance at
December 31,
2010
   
Impact to
Earnings
   
Cash Paid
   
Exit activity and
other reserve
balance at
September 30,
2011
 
                         
Termination benefits
  $ 1.3     $ 0.3     $ (0.6 )   $ 1.0  
Contract termination and other
                               
exit activity charges
    1.5       2.2       (1.6 )     2.1  
    $ 2.8     $ 2.5     $ (2.2 )   $ 3.1  
 
Included in the exit activity and other reserve balance at September 30, 2011 are $2.1 million in contract termination costs related to the closure of under-utilized distribution centers in the United Kingdom in the banana segment and $1.0 million in termination benefits primarily related to the previously announced decision to exit Hawaiian production operations in the other fresh produce segment. We do not expect additional charges related to the exit and other activities mentioned above that would significantly impact our results of operations and financial condition.
 
 
6

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
4.  Noncontrolling Interests
 
The following table reconciles shareholders’ equity attributable to noncontrolling interests (U.S. dollars in millions):
 
   
Nine months ended
 
   
September 30,
   
October 1,
 
   
2011
   
2010
 
             
Noncontrolling interests, beginning
  $ 24.3     $ 22.1  
Net income (loss) attributable to the noncontrolling interests
    3.1       (0.3 )
Translation adjustments
    0.1       0.8  
Capital (distributions) contributions
    (0.9 )     2.7  
Noncontrolling interests, ending
  $ 26.6     $ 25.3  
 
 
5.  Variable Interest Entities
 
Effective January 2, 2010, we adopted the ASU issued by the FASB on December 23, 2009, which codifies Statement of Financial Accounting Standard No. 167, “Amendments to FASB Interpretation No. 46(R)” and amends the consolidation guidance that applies to Variable Interest Entities (“VIEs”).  The ASU amends many important provisions of the existing ASC guidance on “Consolidation”. This amended consolidation guidance for VIEs replaces the existing quantitative approach for identifying which enterprise should consolidate a VIE, which was based on which enterprise is exposed to a majority of the risks and rewards, with a qualitative approach, based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Determinations about whether an enterprise should consolidate a VIE are required to be evaluated continuously as changes to existing relationships or future transactions may result in a consolidation or deconsolidation of VIEs. The adoption of the ASU did not have an impact on our Consolidated Financial Statements other than to require additional disclosures.
 
One of our Del Monte Gold® Extra Sweet pineapple producers meets the definition of a VIE pursuant to the ASC guidance on “Consolidation” and is consolidated. Our variable interest in this entity includes an equity investment and certain debt guarantees.  All of this entity’s pineapple production is sold to us. Based on the criteria of this ASC, as amended by this ASU, we are the primary beneficiary of this entity’s expected residual returns or losses in excess of our ownership interest. Although we are the primary beneficiary, the VIE’s creditors do not have recourse against our general credit. At September 30, 2011, the VIE had total assets of $42.1 million and total liabilities of $9.9 million. The VIE had long-term debt of $4.8 million, which is collateralized by its property, plant and equipment and further guaranteed by a $1.0 million standby letter of credit issued by us.  As of September 30, 2011, the VIE is current on the guaranteed long-term debt. There are no other restrictions on the assets of the VIE.
 
We have provided funding for capital investments in the VIE in proportion to our voting interest. We may from time to time in the future provide additional funding for capital investments in the VIE.
 
6.  Financing Receivables
 
In July 2010, the FASB issued an ASU relating to improving disclosure on the credit quality of financing receivables and allowances for credit losses and requires expanded disclosures on the balance of financing receivables, aging of those receivables and related allowance for doubtful accounts information at a disaggregated level. The ASU also requires roll-forward of the allowance for doubtful accounts related to financing receivables. Financing receivables are defined as a contractual right to receive money, on demand or on fixed or determinable dates and is recognized as an asset in the creditor’s balance sheet. We adopted the guidance in this ASU on December 31, 2010 and additional guidance regarding disclosure of reporting period activity such as roll-forwards of the related allowance for doubtful accounts in our financial statements for the quarter ended September 30, 2011. This ASU did not have an impact to our Consolidated Financial Statements other than require us to provide increased disclosures.
 
Other accounts receivable less allowances are recognized on our accompanying Consolidated Balance Sheets at net realizable value, which approximates fair value.  Other accounts receivable includes value-added taxes receivables, seasonal advances to growers and suppliers, which are usually short-term in nature, and other financing receivables.
 
 
7

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
6.  Financing Receivables (continued)
 
We source our products from various independent growers primarily in Central and South America, Africa and the Philippines. We also source products from North America and Europe. 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 10 years. These advances are collateralized by property liens and pledges of the season’s produce; however certain factors such as the impact of weather (i.e. flooding) and crop disease may impact the ability for these growers to repay their advance.
 
Allowances against advances to growers and suppliers are established based on the company’s knowledge of the financial condition of the paying party and historical loss experience. Allowances are recorded and charged to expense when an account is deemed to be uncollectible. Occasionally, we agree to a payment plan or take steps to recover the advance via established collateral.  Reserves for uncollectible advances are determined on a case by case basis depending on the production for the season and other contributing factors.  Recoveries of advances to growers and suppliers previously reserved in the allowance are credited to operating income.

We also from time to time enter into notes receivable primarily related to asset sales.  The majority of our notes receivable have terms that are less than one year.
 
The following table details financing receivables including the related allowance for doubtful accounts (U.S. dollars in millions):

   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
Short-term
   
Long-term
   
Short-term
     
Long-term
 
Gross advances to growers
  $ 29.0     $ 2.3     $ 34.2       $ 0.5  
Allowance for advances to growers
    (3.4 )     -       (3.8 )       (0.2 )
Net advances to growers
  $ 25.6     $ 2.3     $ 30.4       $ 0.3  
                                   
Gross notes receivable
  $ 1.0     $ 0.3     $ 8.2       $ 1.0  
Allowance for notes receivable
    -       -       (0.6 )       -  
Net notes receivable
  $ 1.0     $ 0.3     $ 7.6  
(a)
  $ 1.0  
 
(a) Includes $6.9 million of notes receivable, net of allowance of $0.6 million, related to the sale of the assets of our South Africa canning operation, which was paid in January 2011.
 
 
The current and noncurrent portions of the financing receivables included above are classified in the Consolidated Balance Sheets in other accounts receivable and other noncurrent assets, respectively.
 
The following table details the credit risk profile of the above listed financing receivables (U.S. dollars in millions):
 
   
Current
Status
   
Past Due
Status
   
Total
 
Gross advances to growers:
                 
September 30, 2011
  $ 27.9     $ 3.4     $ 31.3  
December 31, 2010
    30.7       4.0       34.7  
Gross notes receivable:
                       
September 30, 2011
  $ 1.3     $ -     $ 1.3  
December 31, 2010
    9.2       -       9.2  
 
 
8

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
6.  Financing Receivables (continued)
 
The allowance for doubtful accounts and the related financing receivables for the quarter ended September 30, 2011 were as follows (U.S. dollars in millions):
 
   
Quarter ended
   
Nine months ended
 
   
September 30, 2011
   
September 30, 2011
 
Allowance for advances to growers:
           
Balance, beginning of period
  $ 3.7     $ 4.0  
Deductions to allowance including
               
recoveries
    (0.3 )     (0.6 )
Balance, end of period
  $ 3.4     $ 3.4  
                 
Allowance for notes receivable:
               
Balance, beginning of period
  $ -     $ 0.6  
Deductions to allowance including
               
recoveries
    -       (0.6 )
Balance, end of period
  $ -     $ -  
 
 
7.  Uncertain Tax Position
 
During the nine months ended September 30, 2011, there was a net increase of $3.6 million of uncertain tax positions including interest and penalties of $1.7 million, of which $3.7 million will affect the effective tax rate.  The increase  is primarily related to an accrual of $3.8 million, including $1.5 million of interest and penalties related to a position in a foreign jurisdiction, affecting the years 2005 and 2006, that is no longer at more likely than not of being sustained.  This position is expected to be settled within the next 12 months.
 
8.  Stock-Based Compensation
 
On May 5, 2011, our shareholders approved and ratified the 2011 Omnibus Share Incentive Plan (the “2011 Plan”).  Under the 2011 Plan, the Board of Directors is authorized to grant options to purchase up to 2,500,000 ordinary shares and grant up to 500,000 restricted stock units or other stock based awards that are not options.
 
Stock-based compensation expense included in selling, general and administrative expenses related to stock options on a straight-line, single-award basis and restricted stock awards included in the accompanying Consolidated Statements of Income was as follows (U.S. dollars in millions, except per share data):
 
   
Quarter ended
   
Nine months ended
 
   
September 30,
   
October 1,
   
September 30,
   
October 1,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Stock-based compensation expense
  $ 3.5     $ 1.6     $ 7.4     $ 6.1  
                                 
Stock-based compensation expense per diluted share
  $ 0.06     $ 0.03     $ 0.12     $ 0.10  
                                 
 
We are in a net operating loss carry-forward position in the relevant jurisdictions. Therefore, for the quarter and nine months ended September 30, 2011, excess share-based payment deductions resulting from stock options exercised in these periods have not been realized through a reduction in taxes currently payable or related effect on cash flows. Proceeds of $21.8 million and $0.8 million were received from the exercise of stock options for the nine months ended September 30, 2011 and October 1, 2010, respectively.
 
The following table lists the various stock option grants occurring for the nine months ended September 30, 2011 and October 1, 2010:
 
Stock Option Grant
 
Number of
Options Granted
   
Exercise
Price
   
Fair Value
 
August 3, 2011 - Employees
    920,000     $ 23.76     $ 9.57  
March 2, 2011 - Chairman and Chief Executive Officer
    161,000       26.67       9.57  
March 3, 2010 - Chairman and Chief Executive Officer
    161,000       20.13       7.46  
 
 
9

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
8.  Stock-Based Compensation (continued)
 
All stock options were granted from our 1999 Share Incentive Plan and 2011 Plan and may be exercised over a period not in excess of 10 years. These options vested 20% on the applicable grant date and will vest an additional 20% on each of the first four anniversaries of the applicable grant dates.
 
Under our 2010 Non-Employee Directors Equity Plan (the “Directors Equity Plan”), we may award restricted stock to non-employee members of our Board of Directors. Awards of restricted stock will be made on the first business day of each calendar year beginning in 2011, with exception of the initial award which was granted on May 5, 2010.  A share of restricted stock is one ordinary share of the Company that has restrictions on transferability until certain vesting conditions have been met. The number of ordinary shares that may be covered by awards granted under the Directors Equity Plan is limited to a total of 150,000 ordinary shares.
 
50% of each award of restricted stock granted under the Directors Equity Plan will vest on the date on which it was granted.  The remaining 50% of each award will vest upon the six-month anniversary of the date on which the recipient ceases to serve as a member of the Board of Directors.  The provision in the Director’s Equity Plan that allows directors to retain all of their awards once they cease to serve as a member of the Board of Directors is considered a nonsubstantive service condition in accordance with the guidance provided by the ASC on “Compensation – Stock Compensation”.  Accordingly, we recognize compensation cost immediately for restricted stock awards granted to non-management members of the Board of Directors.
 
On January 3, 2011, we awarded 27,853 shares from our Directors Equity Plan at a price of $25.14 per share. On May 5, 2010, we awarded 32,956 restricted shares from our Directors Equity Plan at a price of $21.24 per share.  Stock-based compensation expense of $0.7 million was recognized on the grant date for each grant of restricted shares.
 
9.  Inventories
 
Inventories consisted of the following (U.S. dollars in millions):
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Finished goods
  $ 124.3     $ 138.8  
Raw materials and packaging supplies
    144.6       134.1  
Growing crops
    132.8       137.5  
Total inventories
  $ 401.7     $ 410.4  
 
 
10

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
10.  Long-Term Debt and Capital Lease Obligations
 
The following is a summary of long-term debt and capital lease obligations (U.S. dollars in millions):
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Senior secured revolving credit facility (see Credit Facility below)
  $ 104.7     $ 285.0  
Various other notes payable
    6.9       7.2  
Capital lease obligations
    1.8       3.4  
Total long-term debt and capital lease obligations
    113.4       295.6  
Less:  Current portion
    (5.1 )     (5.3 )
Long-term debt and capital lease obligations
  $ 108.3     $ 290.3  

 
On July 17, 2009, we entered into a senior-secured revolving credit facility (the “Credit Facility”), with Rabobank Nederland, New York Branch, as administrative agent and lead arranger. The following is a summary of the material terms of the Credit Facility and other working capital facilities (U.S. dollars in millions):
 
 
Term
Maturity
Date
 
Interest Rate at
September 30, 2011
 
Borrowing
Limit
   
Available
Borrowings
 
                     
Credit Facility
3.5 years
January 17, 2013
  1.74%   $ 300.0     $ 179.9  
Other working capital facilities
Varies
Varies
 
Varies
    20.0       18.6  
              $ 320.0     $ 198.5  
 
 
The Credit Facility includes a swing line facility and a letter of credit facility with a $100 million sublimit.  Borrowings under the Credit Facility bear interest at a spread over the London Interbank Offer Rate (“LIBOR”) that varies with our leverage ratio. The Credit Facility is collateralized directly or indirectly by substantially all of our assets and is guaranteed by certain of our subsidiaries. On March 28, 2011, we amended the Credit Facility by lowering the applicable margins over LIBOR or Base rate borrowings that vary with our leverage ratio.  Effective August 8, 2011, we voluntarily lowered the borrowing limit on the Credit Facility from $500.0 to $300.0 million in order to reduce our unused commitment fees.  As a result of the voluntary reduction of our borrowing limit, we proportionately reduced debt issuance costs by $1.2 million.  This write-off is included in interest expense in the accompanying Consolidated Statements of Income.
 
The Credit Facility requires us to be in compliance 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 30, 2011, we were in compliance with all of the covenants contained in the Credit Facility. The 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.
 
At September 30, 2011, we applied $15.4 million to the letter of credit facility, comprised primarily of certain contingent obligations and other governmental agency guarantees combined with guarantees for purchases of raw materials and equipment. Included in the letter of credit facility, $1.0 million relates to a debt guarantee for a VIE. We also had $8.9 million in other letters of credit and bank guarantees not included in the letter of credit facility. Refer to Note 5, “Variable Interest Entities”, for further discussion of VIEs.
 
 
11

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
11.  Comprehensive Income
 
The following table sets forth comprehensive income for the quarter and nine months ended September 30, 2011 and October 1, 2010 (U.S. dollars in millions):
 
                         
   
Quarter ended
   
Nine months ended
 
   
September 30,
   
October 1,
   
September 30,
   
October 1,
 
   
2011
   
2010
   
2011
   
2010
 
Comprehensive income:
                       
  Net income
  $ 12.9     $ 13.4     $ 105.7     $ 71.5  
  Net unrealized gain (loss) on derivatives
    17.8       (38.7 )     14.2       (36.8 )
  Net unrealized foreign currency
                               
    translation (loss) gain
    (10.9 )     14.7       (0.8 )     9.6  
  Net change in retirement benefit
                               
    adjustment, net of tax
    0.3       (0.1 )     0.6       (0.1 )
    Comprehensive income (loss)
    20.1       (10.7 )     119.7       44.2  
                                 
    Less: comprehensive income (loss) attributable to
      noncontrolling interests
    0.4       (0.7 )     3.2       0.5  
    Comprehensive income (loss) attributable to Fresh
      Del Monte Produce Inc.
  $ 19.7     $ (10.0 )   $ 116.5     $ 43.7  
                                 
 
 
 
 
12

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
12.  Commitments and Contingencies

DBCP Litigation
 
Beginning in December 1993, certain of our U.S. subsidiaries were named among the defendants in a number of actions in courts in Texas, Louisiana, Hawaii, California and the Philippines involving claims by numerous non-U.S. plaintiffs alleging that they were injured as a result of exposure to a nematocide containing the chemical dibromochloropropane (“DBCP”) during the period 1965 to 1990. As a result of a settlement entered into in December 1998, the remaining unresolved DBCP claims against our U.S. subsidiaries are pending in Hawaii, Louisiana and California.
 
In 1997, plaintiffs from Costa Rica and Guatemala named certain of our U.S. subsidiaries in a purported class action in Hawaii. On June 28, 2007, plaintiffs voluntarily dismissed our U.S. subsidiaries named in the action without ties to Hawaii.  At a hearing held on June 9, 2009, the court granted summary judgment in favor of our remaining U.S. subsidiaries with ties to Hawaii, holding that the claims of the remaining plaintiffs are time-barred.  A final judgment dismissing all remaining claims and terminating the action was entered on July 28, 2010.  On August 24, 2010, plaintiffs filed a notice of appeal.  The appeal is fully briefed and remains pending.
 
On November 15, 1999, one of our subsidiaries was served in two actions entitled Godoy Rodriguez, et al. v. AMVAC Chemical Corp., et al. and Martinez Puerto, et al. v. AMVAC Chemical Corp., et al., in the 29th Judicial District Court for the Parish of St. Charles, Louisiana.  At this time, it is not known how many of the approximately 315 remaining Godoy Rodriguez and Martinez Puerto plaintiffs are making claims against our subsidiary. 
 
On October 14, 2004, two of our subsidiaries were served with a complaint in an action styled Angel Abarca, et al. v. Dole Food Co., et al. filed in the Superior Court of the State of California for the County of Los Angeles on behalf of more than 2,600 Costa Rican banana workers who claim injury from exposure to DBCP. An initial review of the plaintiffs in the Abarca action found that a substantial number of the plaintiffs were claimants in prior DBCP actions in Texas and may have participated in the settlement of those actions. On June 27, 2008, the court dismissed the claims of 1,329 plaintiffs who were parties to prior DBCP actions. On June 30, 2008, our subsidiaries moved to dismiss the claims of the remaining Abarca plaintiffs on grounds of forum non conveniens in favor of the courts of Costa Rica. Hearings on the motion to dismiss were held on February 24, 2009, May 19, 2009 and September 17, 2009. On September 22, 2009, the court granted the motion conditionally dismissing the claims of those remaining plaintiffs who allege employment on farms in Costa Rica affiliated with our subsidiaries.
 
On April 25, 2005, two of our subsidiaries were served with a complaint styled Juan Jose Abrego, et al. v. Dole Food Company, et al. filed in the Superior Court of the State of California for the County of Los Angeles on behalf of 955 Guatemalan residents who claim injury from exposure to DBCP. An initial review of the plaintiffs in the Abrego action found that a substantial number of the plaintiffs were claimants in prior DBCP actions and may have participated in the settlement of those actions. On June 27, 2008, the court dismissed the claims of 206 plaintiffs who were parties to prior DBCP actions. On October 1, 2009, our subsidiaries joined a motion to dismiss the claims of the remaining Abrego plaintiffs on grounds of forum non conveniens in favor of the courts of Michigan. On December 15, 2009, the court granted the joint motion.  On February 16, 2010, plaintiffs appealed the court's dismissal of the action.  On December 29, 2010, the appellate court affirmed the Superior Court’s dismissal of the remaining plaintiffs, who have sought review of the dismissal by the California Supreme Court, which was denied.  To date plaintiffs have not filed their claims with the courts of Michigan.
 
On January 2, 2009, three of our subsidiaries were served with multiple complaints in related actions styled Jorge Acosta Cortes, et al. v. Dole Food Company, et al. filed in the Superior Court of the State of California for the County of Los Angeles on behalf of 461 Costa Rican residents, 389 Guatemalan residents, 962 Panamanian residents and 673 Honduran residents who claim injury from exposure to DBCP. We and our subsidiaries have never owned, managed or otherwise been involved with any banana growing operations in Panama or Honduras. Accordingly, the Panamanian and Honduran plaintiffs filed requests to dismiss our subsidiaries without prejudice on March 26, 2009. The claims of the new Costa Rican plaintiffs were consolidated with those of the Costa Rican plaintiffs in Abarca and conditionally dismissed as in the Abarca case.  Similarly, the claims of the new Guatemalan plaintiffs were consolidated with those of the Guatemalan plaintiffs in Abrego and dismissed in favor of the courts of Michigan as in the Abrego case.
 
On July 13, 2011, one of our subsidiaries was served with multiple complaints filed in the United States District Court for the Eastern District of Louisiana on behalf of 121 Panamanian residents, 72 Costa Rican residents and 68 Ecuadorian residents who claim injury from exposure to DBCP.  On October 17, 2011, our subsidiary filed its answer to the complaint.
 
In February 2011, a group of former banana cooperative workers from the Philippines filed a complaint in the Philippines against two of our subsidiaries claiming injury from exposure to DBCP.  The trial court dismissed the complaint against our subsidiaries on October 3, 2011.  In August 2011, the same group of former banana workers from the Philippines filed a complaint in the Superior Court of the State of California for the County of Los Angeles against one of our subsidiaries again claiming injury from exposure to DBCP.
 
 
13

 

FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
12.  Commitments and Contingencies (continued)

Pineapple Class Action Litigation
 
On August 2, 2004, a consolidated complaint was filed against two of our subsidiaries in the U.S. District Court for the Southern District of New York. This consolidated action was brought as a putative class action on behalf of all direct and indirect purchasers of Del Monte Gold® Extra Sweet pineapples from March 1, 1996 through the present and merges four actions brought by fruit wholesalers and two actions brought by individual consumers. The consolidated complaint alleges claims for: (i) monopolization and attempted monopolization; (ii) restraint of trade; (iii) unfair and deceptive trade practices; and (iv) unjust enrichment. On May 27, 2005, our subsidiaries filed a motion to dismiss the indirect and direct purchasers’ claims for unjust enrichment. On June 29, 2005, plaintiffs filed a joint motion for class certification. On February 20, 2008, the court denied plaintiffs’ motion for class certification of the indirect purchasers and only granted class certification of the direct purchasers’ claims for monopolization and attempted monopolization, which was uncontested by our subsidiaries. Also on February 20, 2008, the court granted the motion of our subsidiaries to dismiss the direct purchasers’ claims for unjust enrichment and denied as moot the motion to dismiss the indirect purchasers’ state law claims on the basis of the court’s denial of plaintiffs’ motion for class certification of the indirect purchasers. On August 13, 2008, our subsidiaries filed a motion for summary judgment on plaintiffs’ remaining claims. Plaintiffs filed an opposition to the motion on October 6, 2008, which our subsidiaries replied to on December 8, 2008. On September 30, 2009, the court granted the motion for summary judgment in favor of our subsidiaries.  On October 29, 2009, plaintiffs filed a notice of appeal.  On November 3, 2010, the appellate court affirmed the District Court’s decision granting summary judgment in favor of our subsidiaries.
 
On March 5, 2004, an alleged individual consumer filed a putative class action complaint against our subsidiaries in the state court of Tennessee on behalf of consumers who purchased (other than for resale) Del Monte Gold® Extra Sweet pineapples in Tennessee from March 1, 1996 to May 6, 2003. The complaint alleges violations of the Tennessee Trade Practices Act and the Tennessee Consumer Protection Act. On February 18, 2005, our subsidiaries filed a motion to dismiss the complaint. On May 15, 2006, the court granted the motion in part, dismissing plaintiffs’ claim under the Tennessee Consumer Protection Act.
 
Between March 17, 2004 and March 18, 2004, three alleged individual consumers separately filed putative class action complaints against us and our subsidiaries in the state court of California on behalf of residents of California who purchased (other than for re-sale) Del Monte Gold® Extra Sweet pineapples between March 1, 1996 and May 6, 2003. On November 9, 2005, the three actions were consolidated under one amended complaint with a single claim for unfair competition in violation of the California Business and Professional Code. On September 26, 2008, plaintiffs filed a motion to certify a class action. On August 20, 2009, the court denied class certification.  On October 19, 2009, plaintiffs filed a notice of appeal of the court’s order denying class certification, which appeal remains pending.
 
On April 19, 2004, an alleged individual consumer filed a putative class action complaint against our subsidiaries in the state court of Florida on behalf of Florida residents who purchased (other than for re-sale) Del Monte Gold® Extra Sweet pineapples between March 1, 1996 and May 6, 2003. The only surviving claim under the amended complaint alleges violations of the Florida Deceptive and Unfair Trade Practices Act relating only to pineapples purchased since April 19, 2000. Our subsidiaries filed an answer to the surviving claim on October 12, 2006. On August 5, 2008, plaintiffs filed a motion to certify a class action. Our subsidiaries filed an opposition on January 22, 2009 to which plaintiffs filed a reply on May 11, 2009.

European Union Antitrust Investigation
 
On June 2, 2005, one of our German subsidiaries was visited by the antitrust authority of the European Union (“EU”) as part of its investigation of certain of our overseas subsidiaries as well as other produce companies for possible violations of the EU’s competition laws. Our subsidiaries cooperated fully with the investigation. On October 17, 2008, the European Commission concluded its investigation without finding any infringement of EU competition rules by, or imposing any fines on, our subsidiaries.

 
14

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
12.  Commitments and Contingencies (continued)

The European Commission did, however, find that Internationale Fruchtimport Gesellschaft Weichert & Co KG (“Weichert”), an entity in which one of our subsidiaries formerly held an indirect 80% noncontrolling interest, infringed EU competition rules and imposed upon it a €14.7 million ($19.7 million using exchange rates as of September 30, 2011) fine. The European Commission has asserted that we controlled Weichert during the period by virtue of our subsidiary’s former, indirect noncontrolling interest and has therefore held that we are jointly and severally liable for Weichert’s payment of the fine. On December 31, 2008, we filed an appeal of this determination on grounds, among others, that Weichert did not violate EU competition rules and that, in any event, we cannot be held jointly and severally liable for Weichert’s acts under applicable German law.  On April 14, 2010, Weichert filed a statement of intervention in support of our appeal and seeking annulment of the European Commission’s determination.

Breach of Contract Litigation
 
On July 31, 2003, Net Results, Inc., a consulting company, filed a complaint alleging breach of contract against one of our subsidiaries in an action styled Net Results, Inc. v. Del Monte Fresh Produce Company in the Eleventh Judicial Circuit of Florida (Miami-Dade County, Florida).  On April 15, 2008, the plaintiff amended its complaint to include an additional claim of anticipatory repudiation and sought a significant amount of damages.  Our subsidiary denied liability and brought a counterclaim against the plaintiff.  In November 2009, the jury returned a verdict in favor of the plaintiff in the amount of $10 million.  Our subsidiary’s post-trial motions requested, among other things, that the jury’s verdict be set aside and that judgment be entered in favor of our subsidiary.  On March 25, 2010, the trial court denied the motions and entered a final judgment in the amount of $15.7 million (plus attorneys’ fees).  On April 15, 2010, our subsidiary appealed the judgment.  The oral argument hearing on the appeal of our subsidiary was held on July 13, 2011.  On October 19, 2011, the Third District Court of Appeal for the State of Florida ruled in favor of the appeal of our subsidiary and reversed and remanded the case for a new trial on damages.

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”). Shortly thereafter, our subsidiary discontinued the use of the Kunia Well Site and provided an alternate water source to area well users and the subsidiary commenced its own voluntary cleanup operation. In 1993, the Environmental Protection Agency (“EPA”) identified the Kunia Well Site for potential listing on the National Priorities List (“NPL”) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. On December 16, 1994, the EPA issued a final rule adding the Kunia Well Site to the NPL.
 
On September 28, 1995, our subsidiary entered into an order (the “Order”) with the EPA to conduct the remedial investigation and the feasibility study of the Kunia Well Site. Under the terms of the Order, our subsidiary submitted a remedial investigation report in November 1998 and a final draft feasibility study in December 1999 (which was updated from time to time) for review by the EPA. The EPA approved the remedial investigation report in February 1999 and the feasibility study on April 22, 2003.
 
As a result of communications with the EPA in 2001, we recorded a charge of $15.0 million in the third quarter of 2001 to increase the recorded liability to the estimated expected future cleanup cost for the Kunia Well Site to $19.1 million. Based on conversations with the EPA in the third quarter of 2002 and consultation with our legal counsel and other experts, we recorded a charge of $7.0 million during the third quarter of 2002 to increase the accrual for the expected future clean-up costs for the Kunia Well Site to $26.1 million.
 
On September 25, 2003, the EPA issued the Record of Decision (“ROD”). The EPA estimates in the ROD that the remediation costs associated with the cleanup of the Kunia Well Site will range from $12.9 million to $25.4 million and will last approximately 10 years. The undiscounted estimates are between $14.8 million and $28.7 million. The undiscounted estimate on which our accrual is based totals $22.7 million and is discounted using a 5.0% rate. As of September 30, 2011, there is $16.7 million included in other noncurrent liabilities and $1.0 million included in accounts payable and accrued expenses in the Consolidated Balance Sheets for the Kunia Well Site clean-up. We expect to expend approximately $1.0 million in cash in the next 12 months and $0.5 million in cash per year for the following five years. Certain portions of the EPA’s estimates have been discounted using a 5.0% interest rate.
 
 
15

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
12.  Commitments and Contingencies (continued)
 
On January 13, 2004, the EPA deleted a portion of the Kunia Well Site (Northeast section) from the NPL. On May 2, 2005, our subsidiary signed a Consent Decree with the EPA for the performance of the clean-up work for the Kunia Well Site. On September 27, 2005, the U.S. District Court for Hawaii approved and entered the Consent Decree. Based on findings from remedial investigations at the Kunia Well Site, our subsidiary continues to evaluate with the EPA the clean-up work currently in progress in accordance with the Consent Decree.
 
Additional Information
 
At this time, management is not able to evaluate the likelihood of a favorable or unfavorable outcome in any of the above-described matters. Accordingly, management is not able to estimate the range or amount of loss, if any, from any of the above-described matters and no accruals or expenses have been recorded for these matters as of September 30, 2011, except as related to the Kunia Well Site.

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.
 
13.  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 30,
   
October 1,
   
September 30,
   
October 1,
 
   
2011
   
2010
   
2011
   
2010
 
Numerator:
                       
     Net income attributable to Fresh Del Monte Produce Inc.
  $ 12.2     $ 14.5     $ 102.6     $ 71.8  
                                 
Denominator:
                               
     Weighted average number of ordinary shares - Basic
    59,393,954       60,735,357       59,266,561       61,984,107  
     Effect of dilutive securities - employee stock options
    116,875       184,269       289,881       165,581  
     Weighted average number of ordinary shares - Diluted
    59,510,829       60,919,626       59,556,442       62,149,688  
                                 
Net income per ordinary share attributable to
                               
 Fresh Del Monte Produce Inc.:
                               
     Basic
  $ 0.21     $ 0.24     $ 1.73     $ 1.16  
     Diluted
  $ 0.21     $ 0.24     $ 1.72     $ 1.16  
                                 

Ordinary share activity for the quarter and nine month period is summarized as follows:
 
   
Quarter ended
   
Nine months ended
 
   
September 30,
   
October 1,
   
September 30,
   
October 1,
 
   
2011
   
2010
   
2011
   
2010
 
Ordinary shares issued/ (retired) as a result of:
                       
    Stock option exercises
    39,000       45,000       1,148,105       59,472  
    Restricted stock grants
    -       -       27,853       32,956  
    Treasury share retirement
    (1,636,296 )     (1,264,921 )     (1,636,296 )     (3,631,600 )
                                 
 
Refer to Note 18, “Shareholders’ Equity”, for disclosures related to the stock repurchase program and retired shares.
 
 
16

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
14.  Retirement and Other Employee Benefits
 
The following table sets forth the net periodic benefit costs of our pension plans and post-retirement plans (U.S. dollars in millions):
 
   
Quarter ended
   
Nine months ended
 
   
September 30,
   
October 1,
   
September 30,
   
October 1,
 
   
2011
   
2010
   
2011
   
2010
 
Service cost
  $ 0.9     $ 0.8     $ 2.7     $ 2.4  
Interest cost
    1.7       1.8       5.2       5.6  
Expected return on assets
    (1.0 )     (0.8 )     (2.9 )     (2.6 )
Amortization of net actuarial loss
    0.4       0.3       1.1       0.8  
Net periodic benefit costs
  $ 2.0     $ 2.1     $ 6.1     $ 6.2  
 
 
We funded our U.S. based non-contributory defined benefit pension plan by $1.2 million during the nine months ended September 30, 2011. The funding was actuarially determined based on U.S. funding regulations.
 
15.  Business Segment Data
 
We are principally engaged in one major line of business, the production, distribution and marketing of bananas, other fresh produce and prepared food. 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 aggregated into business segments on the basis of our products: bananas, other fresh produce and prepared food. Other fresh produce includes pineapples, melons, non-tropical fruit (including grapes, apples, pears, peaches, plums, nectarines, avocados, citrus and kiwis), fresh-cut products, other fruit and vegetables, a third-party ocean freight business, a plastic product and box manufacturing business and a grain business. During the fourth quarter of 2010, we sold the grain silos and exited the grain business.  Prepared food includes prepared fruit and vegetables, juices, beverages, snacks, poultry and meat products.
 
As a result of our decision to exit grain operations during 2010 and the elimination of third-party ocean freight services from Northern Europe to the Caribbean during 2009 and due to the relative size of the remaining operations, we have combined the other products and services segment with the other fresh produce segment in 2011.  Prior year amounts have been reclassified to conform to the 2011 presentation.  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 30, 2011
 
October 1, 2010
 
   
Net Sales
   
Gross Profit
(Loss)
 
Net Sales
   
Gross Profit (Loss)
 
Banana
  $ 375.1     $ (1.0 )   $ 370.1     $ (6.7 )
Other fresh produce
    337.0       52.1       329.4       45.2  
Prepared food
    83.1       11.8       93.6       13.5  
     Totals
  $ 795.2     $ 62.9     $ 793.1     $ 52.0  
 
 
    Nine months ended
   
September 30, 2011
 
October 1, 2010
 
   
Net Sales
   
Gross Profit
   
Net Sales
   
Gross Profit
 
Banana
  $ 1,268.7     $ 91.3     $ 1,225.0     $ 42.2  
Other fresh produce
    1,266.1       151.7       1,244.9       153.5  
Prepared food
    274.1       45.6       266.3       37.1  
     Totals
  $ 2,808.9     $ 288.6     $ 2,736.2     $ 232.8  
 
 
 
17

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
16.  Derivative Financial Instruments
 
We account for derivative financial instruments in accordance with the ASC guidance on “Derivatives and Hedging”.  This ASC requires us to recognize the value of derivative instruments as either assets or liabilities in the statement of financial position at fair value.  The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated as a hedge and qualifies as part of a hedging relationship.  The accounting also depends on the type of hedging relationship, whether a cash flow hedge, a fair value hedge, or hedge of a net investment in a foreign operation.  On entry into a derivative instrument, we formally designate and document it as a hedge of a specific underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transaction.
 
Derivatives are recorded in the Consolidated Balance Sheets at fair value in prepaid expenses and other current assets, other noncurrent assets, accounts payable and accrued expenses or other noncurrent liabilities, depending on whether the amount is an asset or liability and whether it is short-term or long-term in nature.  The fair values of derivatives used to hedge or modify our risks fluctuate over time.  These fair value amounts should not be viewed in isolation, but rather in relation to the cash flows or fair value of the underlying hedged transactions or assets and other exposures, as well as the overall reduction in our risk.  In addition, the earnings impact resulting from our derivative instruments is recorded in the same line item within the Consolidated Statements of Income as the underlying exposure being hedged.
 
We predominantly designate our hedges as cash flow hedges.  A cash flow hedge requires that the effective portion of the change in the fair value of a derivative instrument be recognized in other comprehensive income, a component of shareholders’ equity, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  The ineffective portion of the change in fair value of a derivative instrument is to be recognized in earnings in the same line in which the hedge transaction affects earnings.
 
Counterparties expose us to credit loss in the event of non-performance on hedges.  We monitor our exposure to counterparty non-performance risk both at inception of the hedge and at least quarterly thereafter.  However, because the contracts are entered into with highly rated financial institutions, we do not anticipate non-performance by any of these counterparties.  The exposure is usually the amount of the unrealized gains, if any, in such contracts.
 
Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the cash flows or fair value of the underlying exposures being hedged.  In addition, we perform an assessment of hedge effectiveness, both at inception and at least quarterly thereafter, in order to determine whether the financial instruments that are used in hedging transactions are effective at offsetting changes in the cash flows or fair value of the related underlying exposures. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized in earnings.
 
Foreign Currency Hedges
 
We are exposed to fluctuations in currency exchange rates against the U.S. dollar on our results of operations and financial condition and we mitigate that exposure by entering into foreign currency forward contracts.  Certain of our subsidiaries periodically enter into foreign currency forward contracts in order to hedge portions of forecasted sales or cost of sales denominated in foreign currencies with forward contracts, which generally expire within one year. Certain of our foreign currency hedges were entered into to hedge our 2011 and 2012 foreign currency exposure.
 
The foreign currency forward contracts qualifying as cash flow hedges were designated as single-purpose cash flow hedges of forecasted cash flows.  Based on our formal assessment of hedge effectiveness of our qualifying foreign currency forward contracts, we determined that the impact of hedge ineffectiveness was de minimis for the quarters and nine month periods ended September 30, 2011 and October 1, 2010, respectively.
 
Bunker Fuel Hedges
 
We are exposed to fluctuations in bunker fuel prices on our results of operations and financial condition and mitigate that exposure by entering into bunker fuel swap agreements, which permit us to lock in bunker fuel purchase prices.  One of our subsidiaries entered into bunker fuel swap agreements in order to hedge fuel costs incurred by our owned and chartered vessels through 2010. We designated our bunker fuel swap agreements as cash flow hedges.  We have not entered into any bunker fuel hedges during 2011 to hedge our fuel costs for 2011 or beyond.
 
 
18

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
16.  Derivative Financial Instruments (continued)
 
Certain of our derivative instruments contain provisions that require the current credit relationship between the Company and its counterparty to be maintained throughout the term of the derivative instruments.  If that credit relationship changes, certain provisions could be triggered, and the counterparty could request immediate collateralization of derivative instruments in net liability position above a certain threshold.  The aggregate fair value of all derivative instruments with a credit-risk-related contingent feature that are in a liability position on September 30, 2011 is $19.4 million.  As of September 30, 2011, no triggering event has occurred and thus we are not required to post collateral.  If the credit-risk-related contingent features underlying these agreements were triggered on September 30, 2011, the entity would not be required to post $19.4 million of collateral to its counterparty because the collateralization threshold has not been met.
 
We had the following outstanding foreign currency forward contracts as of September 30, 2011:
 
  Notional Amount
Foreign Currency Contracts Qualifying as Cash Flow Hedges:    
Euro 236.2 million
British pound £ 12.7 million
Japanese yen JPY 13,261.1 million
Polish zloty PLN 2.2 million
Costa Rican colon CRC 31,500.0 million
Chilean peso CLP 7,283.7 million
Brazilian real BRL 22.2 million
Kenya shilling KES 1,704.7 million
 

The following table reflects the fair values of derivative instruments as of September 30, 2011 and December 31, 2010 (U.S. dollars in millions):
 
Derivatives Designated as Hedging Instruments (1)(2)
 
   
Foreign exchange contracts
 
Balance Sheet Location:
 
September 30, 2011
   
December 31, 2010
 
Asset derivatives:
           
Prepaid expenses and other current assets
  $ 15.1     $ 4.1  
Other noncurrent assets
    2.6       -  
Total asset derivatives
  $ 17.7     $ 4.1  
                 
Liability derivatives:
               
Accounts payable and accrued expenses
  $ 18.4     $ 13.6  
Other noncurrent liabilities
    3.6       9.1  
Total liability derivatives
  $ 22.0     $ 22.7  
 
(1) We expect that $3.3 million of the net fair value of hedges recognized as a net loss in accumulated other comprehensive income ("AOCI") will be transferred to earnings during the next 12 months and $1.0 million will be transferred to earnings during 2012 along with the effect of the related forecasted transaction.
(2) See Note 17, "Fair Value Measurements", for fair value disclosures.
 
 
19

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
16.  Derivative Financial Instruments (continued)
 
The following table reflects the effect of derivative instruments on the Consolidated Statements of Income for the quarters ended September 30, 2011 and October 1, 2010, respectively (U.S. dollars in millions):
 
 
Derivatives in Cash Flow
Hedging Relationships
 
Amount of Gain (Loss) Recognized in Other
Comprehensive Income on Derivatives
(Effective Portion)
    Location of Gain
(Loss) Reclassified
from AOCI into
Income (Effective
Portion)
 
Amount of Gain (Loss) Reclassified from
AOCI into Income (Effective Portion)
 
   
Quarter ended
       
Quarter ended
 
   
September 30, 2011
   
October 1, 2010
       
September 30, 2011
   
October 1, 2010
 
Foreign exchange contracts
  $ 20.7     $ (39.9 )  
Net sales
  $ (6.4 )   $ 3.7  
Foreign exchange contracts
    (2.8 )     -    
Cost of products sold
    0.3       -  
Bunker fuel swap agreements (1)
    -       1.2    
Cost of products sold
    -       0.8  
                                     
Total
  $ 17.9     $ (38.7 )       $ (6.1 )   $ 4.5  
 
 
   
Nine months ended
       
Nine months ended
 
   
September 30, 2011
   
October 1, 2010
       
September 30, 2011
   
October 1, 2010
 
Foreign exchange contracts
  $ 16.2     $ (32.6 )  
Net sales
  $ (18.6 )   $ 19.7  
Foreign exchange contracts
    (2.0 )     (0.9 )  
Cost of products sold
    0.7       0.9  
Bunker fuel swap agreements (1)
    -       (3.3 )  
Cost of products sold
    -       2.4  
                                     
Total
  $ 14.2     $ (36.8 )       $ (17.9 )   $ 23.0  
 
(1) The bunker fuel swap agreements had an inneffective portion of less than $0.1 million for the quarter ended October 1, 2010.
 
  
During the nine months ended September 30, 2011, one of our subsidiaries entered into a foreign currency forward contract denominated in Korean won that did not qualify for cash flow hedge accounting.  We recognized a gain of $0.4 million in other expense, net for the quarter and zero impact for the nine months ended September 30, 2011, respectively, on our Consolidated Statements of Income related to this contract.  This contract has settled as of September 30, 2011.
 
17.  Fair Value Measurements
 
We measure fair value for financial instruments, such as derivatives, on an ongoing basis.  We measure fair value for non-financial assets when a valuation is necessary, such as for impairment of long-lived and indefinite-lived assets when indicators of impairment exist.  Fair value is measured in accordance with the ASC on “Fair Value Measurements and Disclosures”.  The ASC on “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value.
 
Fair Value of Derivative Instruments
 
We may choose to mitigate the risk of fluctuations in currency exchange rates and bunker fuel prices on our results of operations and financial condition by entering into foreign currency cash flow hedges and bunker fuel hedges, respectively.  We account for the fair value of the related forward contracts as either an asset in other current assets or a liability in accrued expenses.  We use an income approach to value our outstanding foreign currency and bunker fuel cash flow hedges.  An income approach consists of a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contracts using current market information as of the measurement date such as foreign currency and bunker fuel spot and forward rates.  Additionally, an element of default risk based on observable inputs was built into the fair value calculation.
 
 
20

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
17.  Fair Value Measurements (continued)
 
The following table provides a summary of the fair values of assets and liabilities measured on a recurring basis under the ASC on “Fair Value Measurements and Disclosures” (U.S. dollars in millions):
 
   
Fair Value Measurements
 
   
Foreign currency forward contracts,
net liability
 
             
   
September 30, 2011
   
December 31, 2010
 
             
Quoted Prices in Active Markets for Identical Assets (Level 1)
  $ -     $ -  
                 
Significant Observable Inputs (Level 2)
    4.3       18.6  
                 
Significant Unobservable Inputs (Level 3)
    -       -  
 
 
In estimating our fair value disclosures for financial instruments, we use the following methods and assumptions:
 
Cash and cash equivalents: The carrying amount of these items approximates fair value due to their liquid nature.
 
Trade accounts receivable and other accounts receivable, net: The carrying value reported in the Consolidated Balance Sheets for these items is net of allowances for doubtful accounts, which includes a degree of counterparty non-performance risk.
 
Accounts payable and other current liabilities: The carrying value reported in the Consolidated Balance Sheets for these items approximates their fair value, which is the likely amount for which the liability with short settlement periods would be transferred to a market participant with a similar credit standing as the Company.
 
Capital lease obligations: The carrying value of our capital lease obligations reported in the Consolidated Balance Sheets approximates their fair value based on current interest rates, which contain an element of default risk.  Refer to Note 10, “Long-Term Debt and Capital Lease Obligations”.
 
Long-term debt: The carrying value of our long-term debt reported in the Consolidated Balance Sheets approximates their fair value since they bear interest at variable rates or fixed rates which contain an element of default risk.  Refer to Note 10, “Long-Term Debt and Capital Lease Obligations”.
 
Fair Value of Non-Financial Assets
 
During the third quarter of 2011, we recognized $0.7 million in contract termination costs as a result of the closure of a distribution facility in the United Kingdom in the banana segment.  We estimate the fair value of this obligation using an income based approach, whereby our cash flows are adjusted for a market premium risk.  The income based approach utilized unobservable inputs and such is classified as Level 3 of the fair value hierarchy.
 
During the second quarter of 2011, we recognized $7.7 million in impairment charges related to the melon program rationalization. The carrying value of these assets was $10.5 million including $7.2 million in property, plant and equipment consisting primarily of buildings and machinery and equipment and $3.3 million of melon goodwill.  Property, plant and equipment were written down to a fair value of $2.8 million.  We estimated the fair value of these assets using the income based approach considering the cash flows that would be obtained as a result of the production and distribution of melons in areas of continued production.  The income based approach utilizes unobservable inputs.  Due to the use of unobservable inputs, we classify the fair value of these growing areas within Level 3 of the fair value hierarchy.
 
As a result of the decision to discontinue planting certain melon varieties in Central America, which significantly reduced melon volumes in the future, we estimated an implied fair value of the melon reporting unit’s goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). This exercise yielded a write-off of the melon goodwill of $3.3 million.
 
The fair value of the prepared food unit’s goodwill and trademarks is highly sensitive to differences between the estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of these assets.  We disclosed the sensitivities related to the prepared food unit’s goodwill in our annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
During the quarter ended October 1, 2010, we recognized an impairment charge of $1.4 million related to the DEL MONTE® indefinite-lived intangible of a perpetual, royalty-free brand name license due to lower than expected sales volumes and pricing in the United Kingdom in the prepared food segment specifically related to beverage products.  An income-based approach was used to value the trademark intangible, which measures the fair value of an intangible asset by capitalizing the royalties saved due to ownership of the intangible asset rather than paying a rent or royalty for the use of the asset.  This income-based approach referred to as the royalty savings method utilizes internal unobservable inputs such as a discounted net sales cash flow model with the application of a royalty savings rate assumption corroborated by a mix of internal and market inputs.
 
 
21

 
 
FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
17.  Fair Value Measurements (continued)
 
During the second quarter of 2010, we entered into an agreement to sell substantially all the assets of our South Africa canning operations.  As a result, we recognized a $16.6 million asset impairment of our investment in South Africa in the prepared food reporting segment.  The carrying value of our investment in South Africa was $24.4 million, including cumulative translation adjustments, and was written down to a fair value of $7.8 million.  We estimated the fair value of the underlying assets by using the market approach.
 
The market approach uses prices and other relevant information generated by market transactions involving comparable assets.  We used observable inputs based on market participant information related to the sale of South African assets and, as such, we classifed the fair value of the investment in South Africa within Level 2 of the fair value hierarchy. We received the regulatory approval for the sale of our South Africa canning operations effective October 11, 2010.  On October 12, 2010, the sale of our South Africa canning operations was executed for $8.4 million and was collected by January 27, 2011.
 
The following is a tabular presentation of the non-recurring fair value measurement along with the level within the fair value hierarchy in which the fair value measurement in its entirety falls (U.S. dollars in millions):
 
   
2011 Fair Value Measurements
 
   
Total
   
Quoted Prices in
Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
 
Central American melon assets
  $ 2.8     $ -     $ -     $ 2.8  
United Kingdom contract termination
    0.7                       0.7  
    $ 3.5     $ -     $ -     $ 3.5  
 
   
2010 Fair Value Measurements
 
   
Total
   
Quoted Prices in
Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
 
Investment in South Africa subsidiary
  $ 7.8     $ -     $ 7.8     $ -  
DEL MONTE® U.K. Beverage Trademark
    5.1       -       -       5.1  
    $ 12.9     $ -     $ 7.8     $ 5.1  
 
 
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FRESH DEL MONTE PRODUCE INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)
 
18.  Shareholders’ Equity
 
Our shareholders have authorized 50,000,000 preferred shares at $0.01 par value of which none has been issued or is outstanding. Our shareholders have authorized 200,000,000 ordinary shares of common stock of which 58,237,239 and 58,036,839 ordinary shares are issued and outstanding at September 30, 2011, respectively.
 
On July 31, 2009, our Board of Directors approved a three-year stock repurchase program of up to $150 million of our Ordinary Shares. On May 5, 2010, our Board of Directors approved an additional three-year stock repurchase program of up to $150 million of our ordinary shares.
 
The following represents a summary of repurchase activity during the quarter and nine months ended (U.S. dollars in millions, except share and per share data):
 
   
Summary of Repurchases
 
   
September 30, 2011
   
October 1, 2010
 
   
Shares
   
USD
   
Average
price per
share
 
Shares
   
USD
   
Average
price per
share
 
                                     
Quarter ended:
    1,836,696     $ 42.6     $ 23.18       1,353,621     $ 29.1     $ 21.53  
                                                 
Nine months ended:
    1,836,696       42.6       23.18       3,720,300       78.8       21.19  
 
 
We repurchased 6,895,355 ordinary shares, for an aggregate purchase price of $150.7 million under the aforementioned $300 million repurchase program. We have retired 6,694,955 of the 6,895,355 ordinary shares. We have a maximum dollar value of $149.3 million of shares that may yet be purchased under the stock repurchase program.  As of September 30, 2011, we had $4.7 million in accounts payable and accrued expenses related to 200,400 shares repurchased that were not paid, total cash proceeds on repurchases for the nine months ended were $37.9 million.  Refer to Consolidated Statements of Cash Flows for stock repurchases in the period.
 
Subsequent to September 30, 2011, we continued to purchase ordinary shares as part of the three-year stock repurchase program.  During the period from October 1, 2011 through the filing date, we repurchased 281,082 ordinary shares in open market transactions at an average price of $22.96.  All of the ordinary shares that have been repurchased to date have been retired as October 21, 2011.
 
On March 3, 2011, our Board of Directors declared an interim cash dividend of $0.05 per ordinary share to shareholders of record on March 16, 2011. At the Annual General Meeting of Shareholders held on May 4, 2011, the shareholders approved a cash dividend previously declared by the Board of Directors for the year ended December 31, 2010, of $0.05 per ordinary share, payable on June 10, 2011, to shareholders of record on May 18, 2011.  On August 3, 2011, our Board of directors increased the interim cash dividend from $0.05 to $0.10 per ordinary share.  We paid $6.0 million and $11.9 million in dividends during the quarter and nine months ended September 30, 2011, respectively.

 
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