DEL MONTE CORP (FDP) FY 2022 MD&A

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto. The following discussion includes forward-looking statements that involve certain risks and uncertainties, including, but not limited to, those described in Item 1A. Risk Factors. Our actual results may differ materially from those discussed below. See “Special Note Regarding Forward-Looking Statements” and Item 1A. Risk Factors.

Overview

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

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

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

•Banana

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

Fiscal Year

Our fiscal year end is the last Friday of the calendar year or the first Friday subsequent to the end of the calendar year, whichever is closest to the end of the calendar year. Fiscal year 2022 had 52 weeks and ended on December 30, 2022. Fiscal year 2021 had 52 weeks and ended on December 31, 2021. Fiscal year 2020 had 53 weeks and ended on January 1, 2021.

Current Macroeconomic Environment and Inflation Impact

During fiscal year 2021, we began experiencing inflationary and cost pressures due to volatility and disruption in the global economy. These conditions, which have increased our production and distribution costs, have been driven by a multitude of external factors including the ongoing COVID-19 pandemic. Specifically, costs of packaging materials, fertilizers, labor, fuel, and ocean and inland freight have been significantly increasing, and continued to adversely affect our profitability and operating cash flows during 2022. We are also experiencing pressure on our supply chain due to strained transportation capacity and lack of sufficient labor availability.

In addition, the invasion of Ukraine by Russia in early 2022 led to further economic disruption. While we do not operate in Ukraine and while our operations in Russia are de minimis, the conflict has exacerbated inflationary costs, supply chain and logistical pressures which have negatively impacted our business.

In response to these persisting inflationary and cost pressures, we began instituting price increases on the majority of our products during the latter part of 2021. Additionally, certain of our contracts for key products include contractually indexed fuel and freight surcharges that vary depending on commodity pricing. We expect that these inflation-justified price increases and surcharges will continue to help mitigate our increased costs.

Refer to the “Results of Operations" section below, as well as Part I. Item 1A, “Risk Factors” for further discussion.

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Optimization Program

During fiscal 2020, we performed a comprehensive review of our asset portfolio aimed at identifying non-strategic and underutilized assets to dispose of while reducing costs and driving further efficiencies in our operations (hereon referred to as the “2020 Optimization Program”). As a result of the review, we identified assets across all of our regions, primarily consisting of underutilized facilities and land, which we made a strategic decision to sell for total anticipated cash proceeds of approximately $100.0 million. As of the year ended December 30, 2022, we have received cash proceeds of $65.7 million in connection with asset sales under the 2020 Optimization Program (approximately $57.0 million of which was received during fiscal years 2020 and 2021). Subsequent to the year ended December 30, 2022, our 60% owned joint venture in Saudi Arabia entered into a sale and purchase agreement to sell two distribution centers and related assets for a total purchase price of $67.6 million. Contemporaneously with the execution of the sale and purchase agreement, we entered into an operating lease agreement in which we leased back a portion of the facilities for a term of five years. Upon the closing of the sale of the Saudi Arabian assets, which is expected to be completed in the first quarter of 2023, we will have completed the 2020 Optimization Program.

Net Sales

Our net sales are affected by numerous factors, including mainly the balance between the supply of and demand for our products and competition from other fresh produce companies. Our net sales are also dependent on our ability to supply a consistent volume and quality of fresh produce to the markets we serve. As a result of seasonal sales price fluctuations, we have historically realized a greater portion of our net sales and gross profit during the first two calendar quarters of the year. For example, seasonal variations in demand for bananas as a result of increased supply and competition from other fruit are reflected in the seasonal fluctuations of banana prices, with the first six months of each year generally exhibiting stronger demand and higher prices, except in those years where an excess supply exists. In our fresh and value-added products segment, there are seasonal variations in sales of our non-tropical fruit products which reach peak sales season from October to May. However, the impact of seasonality on our financial results was atypical during fiscal year 2022, particularly in our banana segment, where current market conditions led to a more significant portion of our gross profit being generated in the second half of the year when compared with historical results.

Our strategy for net sales growth is focused on protecting and growing our core business as well as driving innovation and expansion of our value-added categories, including through the development of new products and by targeting the convenience store and foodservice trade in our major global markets. In North America, we expect additional net sales growth by further expanding the market reach of our Mann Packing products, including fresh and fresh-cut vegetables and meals and snacks.

Since our financial reporting currency is the U.S. dollar, our net sales are significantly affected by fluctuations in the value of the currency in which we conduct our sales versus the dollar, with a weaker dollar versus such currencies resulting in increased net sales in dollar terms. Including the effect of our foreign currency hedges, net sales in 2022 were negatively impacted by $104.0 million primarily due to fluctuations in exchange rates versus the euro, Japanese yen, Korean won and British pound.

Cost of Products Sold

Cost of products sold is primarily composed of two elements:

Product costs - primarily composed of cultivation (the cost of growing crops), harvesting, packaging, labor, depreciation and farm administration. Product cost for produce obtained from independent growers is composed of procurement and packaging costs.

Logistics costs - includes land and sea transportation and expenses related to port facilities and distribution centers. Sea transportation cost is the most significant component of logistics costs and is comprised of:

•Ship operating expenses - includes operations, maintenance, depreciation, insurance, fuel (the cost of which is subject to commodity price fluctuations), and port charges.

•Chartered ship costs - includes the cost of chartering the ships, fuel and port charges.

•Container equipment-related costs - includes leasing expense and in the case of owned equipment, also depreciation expense.

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•Third-party containerized shipping costs - includes the cost of using third-party shipping in our logistics operations.

In general, changes in our volume of products sold can have a disproportionate effect on our gross profit. Within any particular year, a significant portion of our cost of products sold is fixed, both with respect to our operations and with respect to the cost of produce purchased from independent growers from whom we have agreed to purchase all the products they produce. Accordingly, higher volumes produced on company-controlled farms directly reduce the average per-box cost, while lower volumes directly increase the average per-box cost. In addition, because the volume that will actually be produced on our farms and by independent growers in any given year depends on a variety of factors, including weather, that are beyond our control or the control of our independent growers, it is difficult to predict volumes and per-box costs.

Variations in containerboard prices, which affect the cost of boxes and other packaging materials, and fuel prices can have a significant impact on our product costs and our gross profit. Containerboard, plastic, resin and fuel prices have historically been volatile. Our expenses relating to employee labor are also significant to our product costs and our gross profit, and our ability to control these costs is generally subject to numerous external factors. Also, variations in the production yields, fertilizers and other input costs and the cost to procure products from independent growers can have a significant impact on our costs. Refer to the “Current Macroeconomic Environment and Inflation Impact" section above for further discussion regarding the impact of inflationary cost pressures on our fiscal year 2022 financial results.

Since our financial reporting currency is the U.S. dollar, our costs are affected by fluctuations in the value of the currency in which we have significant operations versus the dollar, with lower cost resulting from a stronger U.S. dollar. During 2022, cost of products sold was positively impacted by approximately $59.5 million, primarily driven by fluctuations in exchange rates versus the euro, Costa Rican colon, British pound, Japanese yen, and Philippine peso.

Income Taxes

The provision for income taxes in 2022 was $20.1 million. Income taxes consist of the consolidation of the tax provisions, computed on a separate entity basis, in each country in which we have operations. Since we are a non-U.S. company with substantial operations outside the United States, a substantial portion of our results of operations is not subject to U.S. taxation. Several of the countries in which we operate have lower tax rates than the United States. We are subject to U.S. taxation on our operations in the United States. From time to time, tax authorities in various jurisdictions in which we operate audit our tax returns and review our tax positions. There are audits presently pending in various countries. There can be no assurance that any tax audits, or changes in existing tax laws or interpretations in countries in which we operate will not result in an increased effective tax rate for us.

In connection with the examination of the tax returns in two foreign jurisdictions, the taxing authorities have issued income tax deficiencies related to transfer pricing aggregating approximately $160.2 million (including interest and penalties) for tax years 2012 through 2016. We strongly disagree with the proposed adjustments and have filed a protest with each of the taxing authorities as we believe that the proposed adjustments are without technical merit.

In one of the foreign jurisdictions, we are currently contesting tax assessments related to the 2012-2015 audit years and the 2016 audit year in both the administrative court and the judicial court. During 2019 and 2020, we filed actions contesting the tax assessment in the administrative office. Our initial challenge to each of these tax assessments was rejected, and we subsequently lost our appeals at the administrative court. We have subsequently filed actions to contest each of these tax assessments in the country’s judicial courts. In addition, we have filed a request for an injunction to the judicial court to stay the tax authorities' collection efforts for these two tax assessments, pending final judicial decisions. The court granted our injunction with respect to the 2016 audit year, however denied our injunction with respect to the 2012-2015 audit years. We timely appealed the denial of the injunction, and on August 10, 2022 the appellate court overturned the denial and granted our injunction for the 2012-2015 audit years. Pursuant to local law, we registered real estate collateral with an approximate fair market value of $6.0 million in connection with the grant of the 2016 audit year injunction. This real estate collateral has a net book value of $3.8 million as of the year ended December 30, 2022. In addition, in connection with the grant of the 2012-2015 audit year injunction, we registered real estate collateral with an approximate fair market value of $24.0 million, and a net book value of $4.6 million as of the year ended December 30, 2022. The registration of this real estate collateral does not affect our operations in the country.

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

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

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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.

RESULTS OF OPERATIONS

Consolidated Financial Results

The following summarizes the more significant factors impacting our operating results for the fiscal year ended December 30, 2022 as compared with the fiscal year ended December 31, 2021. For a discussion of our 2021 Results of Operations, including a discussion of our financial results for the fiscal year ended December 31, 2021 compared to the fiscal year ended January1, 2021, refer to Part II, Item 7 of our annual report on Form 10-K filed with the SEC on February 23, 2022.

Net sales - Net sales for 2022 increased by $190.3 million, or 4%, when compared against 2021. Net sales during 2022 benefited from inflation-justified price increases. The increase in net sales was partially offset by lower sales volume, primarily in our banana and fresh and value-added products segments, and the negative impact of fluctuations in exchange rates primarily versus the euro, Japanese yen, Korean won and British pound compared with the prior-year period. The negative impact of fluctuations in exchange rates was partially mitigated by our foreign currency hedges.

Gross profit - Gross profit for 2022 increased to $340.2 million compared with $303.8 million in 2021. The increase in gross profit was mainly driven by higher gross profit in our other products and services segment as a result of higher net sales of third-party ocean freight services, and the favorable impact of higher per unit sales prices across all segments. Partially offsetting the higher gross profit was the negative impact of fluctuations in exchange rates and higher per unit production and distribution costs, including costs of packaging materials, fertilizers, ocean and inland freight, fuel and labor resulting from global supply chain, logistics and inflationary cost pressures.

Selling, general and administrative expenses - Selling, general and administrative expenses decreased by $6.1 million, or 3%, when compared against the prior-year period, mainly as a result of lower advertising, promotional, and administrative expenses in the current year.

(Loss) gain on disposal of property, plant and equipment, net - The loss on disposal of property, plant and equipment, net of $(1.9) million during 2022 primarily related to the disposal of low-yielding banana crops in Central America, partially offset by gains on the sale of vacant land in Mexico and sales of vehicles in the Middle East. The gain on disposal of property, plant and equipment, net of $4.6 million during 2021 primarily related to the sales of a refrigerated vessel, vacant land in the Middle East, and a packing facility in South America, partially offset by losses on asset disposals in Central America.

Asset impairment and other (credits) charges, net - Asset impairment and other (credits) charges, net of $(4.8) million in 2022 primarily consisted of (1) a $(9.9) million reduction to our environmental liability for the Kunia Well Site clean-up in Hawaii, partially offset by (2) a $2.7 million impairment of banana-related fixed assets in the Philippines due to flooding as a result of heavy rainfall and (3) severance expenses in connection with the departure of our former President and Chief Operating Officer. Asset impairment and other (credits) charges, net of $4.5 million in 2021 primarily related to fixed asset impairments and other expenses incurred in connection with our exit from two low-yield banana farms in the Philippines, partially offset by an insurance recovery associated with hurricane damages in Guatemala.

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Operating income - Operating income increased by $45.3 million in 2022 when compared against 2021, mainly due to higher gross profit, the Kunia Well Site liability adjustment, and lower selling, general, and administrative expenses, partially offset by a slight net loss on disposals of property, plant, and equipment in 2022 when compared to a net gain in 2021.

Interest expense - Interest expense increased by $4.1 million in 2022 when compared against 2021, due to higher interest rates and higher average debt balances.

Other expense, net - Other expense, net, was $14.8 million in 2022 compared with $9.4 million in 2021. The increase in expense of $5.4 million was mainly driven by higher foreign currency related losses and the prior-year period including a gain related to fuel derivatives that were no longer designated as hedging instruments.

Income tax provision - Income tax provision was $20.1 million in 2022 compared with $2.0 million in 2021. The increase in the income tax provision of $18.1 million is primarily due to increased earnings in certain higher tax jurisdictions combined with the effect of a change in judgment in 2021 about our ability to realize deferred tax assets in future years, due to our current and foreseeable operations.

Financial Results by Segment

The following table presents net sales and gross profit by segment (U.S. dollars in millions) and gross margin percentage:

Fresh and value-added products

Net sales for 2022 increased by $77.0 million, or 3%, when compared against 2021. The increase in net sales was driven by higher per unit sales prices across all product categories, mainly due to inflation-justified price increases. The increase in net sales was partially offset by the negative impact of fluctuations in exchange rates in Europe and Asia, and lower net sales of fresh-cut vegetables and avocados as a result of lower sales volume.

Gross profit for 2022 increased moderately to $183.0 million compared with $180.2 million in 2021. Despite higher net sales, gross profit was negatively impacted by higher per unit production and distribution costs, including costs of packaging materials, fertilizers, and ocean and inland freight, across most product categories as a result of ongoing cost pressures. In addition, lack of availability of third-party shipping capacity for certain shipping routes negatively impacted non-tropical fruit gross profit. Gross margin was 7.1% in 2022, remaining relatively in line with 2021 gross margin of 7.2%.

Gross profit in the fresh and value-added products segment included $4.7 million of other product-related charges in 2021 comprised of $3.4 million in non-tropical fruit inventory write-offs related to inclement weather in Chile and a $1.3 million inventory write-off incurred in the Middle East. There were no other product-related charges in 2022.

Banana

Net sales of bananas for 2022 increased by $38.7 million, or 2%, when compared against 2021. The increase in net sales relates to higher per unit sales prices due to a combination of (1) inflation-justified price increases, (2) contractually indexed fuel and freight surcharges within certain of our contracts, (3) strategic sourcing decisions in response to market conditions which reduced excess volume, and (4) atypical seasonally low industry supply in certain markets in the second half of 2022. The increase in net sales was partially offset by lower sales volume and the negative impact of fluctuations in exchange rates in Europe and Asia.

Gross profit for 2022 was $120.7 million compared to $110.9 million in 2021. The increase in gross profit was driven by higher per unit sales prices and the absence of excess volume, partially offset by higher per unit production and distribution costs, including costs of packaging materials, fertilizers, and ocean and inland freight impacted by inflationary pressures. As a result of these factors, gross margin increased to 7.5% compared with 7.0% in the prior-year period.

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Gross profit for the banana segment included a $1.2 million net insurance recovery in 2021 associated with hurricane damage in Central America in the fourth quarter of 2020. There were no other product-related charges in 2022.

Other products and services

Net sales of other products and services increased by $74.6 million, or 45%, when compared with 2021 mainly due to higher net sales of third-party ocean freight services. Our fleet of vessels has enabled the expansion of these services, which benefited from elevated shipping rates and demand due to market logistical conditions.

Gross profit increased by $23.8 million due to higher net sales of third-party ocean freight services as a result of higher volume and higher shipping rates. Due to these factors, gross margin increased to 15.2% from 7.6%.

Demand and shipping rates associated with our third-party ocean freight services may be impacted by increased shipping capacity availability in the market in future periods.

LIQUIDITY AND CAPITAL RESOURCES

Fresh Del Monte Produce Inc. is a holding company whose only significant asset is the outstanding capital stock of our subsidiaries that directly or indirectly own all of our assets. We conduct all of our business operations through our subsidiaries. Accordingly, our only source of cash to pay our obligations, other than financings, depends primarily on the net earnings and cash flow generated by these subsidiaries.

Our primary sources of cash flow are net cash provided by operating activities and borrowings under our credit facility. Our primary uses of net cash flow are capital expenditures to increase our productivity and expand our product offerings and geographic reach.

A summary of our cash flows is as follows (U.S. dollars in millions):

Operating activities

Net cash provided by operating activities was $61.8 million for 2022 compared with $128.5 million for 2021, a decrease of $66.7 million. The decrease in net cash provided by operating activities was principally attributable to working capital fluctuations, including lower levels of accounts payable and accrued expenses, mainly due to the timing of period end payments to suppliers, and higher levels of accounts receivable, mainly driven by higher net sales in the current year. Partially offsetting the decrease were higher net income in the current year and higher purchases of raw materials inventory in the prior-year period.

Working capital was $634.4 million at December 30, 2022 compared with $467.2 million at December 31, 2021, an increase of $167.2 million. The increase in working capital was mainly due to higher levels of (1) inventory, largely driven by inflationary cost increases and higher levels of key raw materials and packaging supplies in order to secure costs and availability, (2) assets held for sale, and (3) accounts receivable. In addition, lower levels of accounts payable and accrued expenses contributed to the increase in working capital.

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Investing activities

Net cash used in investing activities was $49.1 million for 2022 compared with $82.5 million for 2021. Net cash used in investing activities for 2022 primarily consisted of capital expenditures of $48.1 million and $9.7 million in investments in unconsolidated companies in the food and nutrition sector that align with our long-term strategy and vision. Partially offsetting the net cash used in investing activities in 2022 were proceeds from the sale of property, plant and equipment of $8.7 million, primarily relating to the sale of vacant land in Mexico and other assets in connection with our Optimization Program.

Net cash used in investing activities for 2021 primarily consisted of $98.5 million in capital expenditures and $7.0 million in investments in unconsolidated companies, partially offset by $17.5 million in proceeds from the sales of property, plant and equipment and $4.6 million in proceeds from the settlement of derivative instruments which were no longer designated in hedging relationships.

Capital expenditures related to the fresh and value-added products segment accounted for $29.1 million, or 61%, of our 2022 capital expenditures and $29.5 million, or 30%, of our 2021 capital expenditures. During 2022 and 2021, capital expenditures primarily related to (1) improvements and enhancements to our production facilities in North America, Europe, Asia, and the Middle East; (2) improvements to our pineapple operations in Central America and Kenya; and (3) operational investments in automation and data-driven technology, mainly in North America.

Capital expenditures related to the banana segment accounted for $15.1 million, or 31%, of total 2022 capital expenditures and $20.0 million, or 20%, of total 2021 capital expenditures. During both years, these capital expenditures primarily related to (1) improvements to our production operations in Central America; (2) improvements to our distribution centers; and (3) information technology initiatives. During 2021, capital expenditures related to the banana segment also included expansion of our operations in Panama.

Capital expenditures related to the other products and services segment accounted for $3.9 million, or 8%, of our 2022 capital expenditures and $3.8 million, or 4%, of our 2021 capital expenditures. During 2022 and 2021, these capital expenditures primarily related to improvements to our Jordanian poultry operations.

During fiscal 2020, regulations designed by the International Maritime Organization (IMO) to improve air quality, preserve the environment and protect human health went into effect. The regulations imposed a global 0.5% sulfur cap for marine fuel which is now only permitted to be used by ships equipped with sulfur cleaning devices. In anticipation of this legislation, and in an effort to maximize the capacity and efficiency of our logistics network, we entered into definitive agreements for the building of six refrigerated container ships during 2017 and 2018. These refrigerated container ships, four of which were received during fiscal 2020 and two of which were received during fiscal 2021, enable us the advantage of using lower cost fuel while remaining in compliance with the IMO’s regulations. We made payments of $45.3 million in 2021 and $89.0 million in 2020 in connection with these ships. These capital expenditures benefit our banana, fresh and value-added products, and other products and services segments.

Capital expenditures for 2023 are expected to be approximately $90.0 million, primarily consisting of (1) investments in our operations and production facilities in North America, including expenditures related to automation and technology initiatives and the relocation of one of our port facilities, (2) upgrades to our pineapple and banana production operations in Central America, and (3) investments to improve and expand our fresh-cut and prepared food operations in Europe. We expect to fund these capital expenditures which primarily relate to our fresh and value-added and banana segments through operating cash flows and borrowings under our credit facility.

Financing Activities

Net cash used in financing activities was $12.0 million for 2022 and $53.2 million for 2021. Net cash used in financing activities for 2022 primarily consisted of dividends paid of $28.7 million, partially offset by net borrowings on long-term debt of $20.7 million. Net cash used in financing activities for 2021 primarily consisted of net payments on long-term debt of $22.6 million and dividends paid of $23.7 million.

Debt Instruments and Debt Service Requirements

On October 1, 2019, we and certain of our subsidiaries entered into a Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with the financial institutions and other lenders named therein, including Bank of America, N.A. as administrative agent and BofA Securities, Inc. as sole lead arranger and sole bookrunner. The Second A&R Credit

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Agreement provides for a five-year, $0.9 billion syndicated senior unsecured revolving credit facility (the “Revolving Credit Facility”) maturing on October 1, 2024. Effective September 13, 2022, we exercised our option as included in the Second A&R Credit Agreement to reduce the borrowing limit on the Revolving Credit Facility from the original limit of $1.1 billion to $0.9 billion. Certain of our direct and indirect subsidiaries have guaranteed the obligations under the Second A&R Credit Agreement. We intend to use funds borrowed under the Second A&R Credit Agreement from time to time for general corporate purposes, working capital, capital expenditures and other permitted investment opportunities

As of December 30, 2022, amounts borrowed under the Revolving Credit Facility accrued interest, at our election, at either (i) the Eurocurrency Rate (as defined in the Second A&R Credit Agreement) plus a margin that ranged from 1.0% to 1.5% or (ii) the Base Rate (as defined in the Second A&R Credit Agreement) plus a margin that ranged from 0% to 0.5%, in each case based on our Consolidated Leverage Ratio (as defined in the Second A&R Credit Agreement). The Second A&R Credit Agreement interest rate grid provides for five pricing levels for interest rate margins. In addition, we pay an unused commitment fee. At December 30, 2022, we had borrowings of $539.8 million outstanding under the Revolving Credit Facility bearing interest at a per annum rate of 5.55%. On December 30, 2022, we and certain of our subsidiaries executed Amendment No. 1 to the Second A&R Credit Agreement (the “Amendment”) with the financial institutions and other lenders named therein, including Bank of America, N.A. as administrative agent and BofA Securities, Inc. as sole lead arranger and sole bookrunner. Pursuant to the Amendment, the reference interest rate on the Revolving Credit Facility was amended to replace the Eurocurrency Rate with the Term Secured Overnight Financing Rate (“Term SOFR”) effective January 3, 2023. As amended, Term Loans made under the Revolving Credit Facility can be Base Rate Loans, Term SOFR Loans or Alternative Currency Term Rate Loans. All other material terms of the Second A&R Credit Agreement, as amended, remain unchanged.

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

The Second A&R Credit Agreement requires us to comply with certain financial and other covenants. Specifically, it requires us to maintain a 1) Consolidated Leverage Ratio of not more than 3.50 to 1.00 at any time during any period of four consecutive fiscal quarters, subject to certain exceptions and 2) a minimum Consolidated Interest Coverage Ratio of not less than 2.25 to 1.00 as of the end of any fiscal quarter. Additionally, it requires us to comply with certain other covenants, including limitations on capital expenditures, stock repurchases, the amount of dividends that can be paid in the future, the amount and types of liens and indebtedness, material asset sales, and mergers. Under the Second A&R Credit Agreement, we are permitted to declare or pay cash dividends in any fiscal year up to an amount that does not exceed the greater of (i) an amount equal to the greater of (A) 50% of the Consolidated Net Income (as defined in the Second A&R Credit Agreement) for the immediately preceding fiscal year or (B) $25 million or (ii) the greatest amount which would not cause the Consolidated Leverage Ratio (determined on a pro forma basis) to exceed 3.25 to 1.00. It also provides an allowance for stock repurchases to be an amount not exceeding the greater of (i) $150 million in the aggregate or (ii) the amount that, after giving pro forma effect thereto and any related borrowings, will not cause the Consolidated Leverage Ratio to exceed 3.25 to 1.00. As of December 30, 2022, we were in compliance with all of the financial and other covenants contained in the Second A&R Credit Agreement.

As of December 30, 2022, we had $388.6 million of borrowing availability under committed working capital facilities, primarily under the Revolving Credit Facility.

We believe that our cash on hand, borrowing capacity available under our Revolving Credit Facility, and cash flows from operations for the next twelve months will be sufficient to service our outstanding debt during the next twelve months. However, we cannot predict whether future developments associated with the current economic environment will materially adversely affect our long-term liquidity position. Our liquidity assumptions, the adequacy of our available funding sources, and our ability to meet our Revolving Credit Facility covenants are dependent on many additional factors, including those set forth in Part I. Item 1A, “Risk Factors” of this annual report Form 10-K.

Derivatives

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

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periodically enter into foreign currency forward contracts in order to hedge portions of forecasted sales or cost of sales denominated in foreign currencies, which generally mature within one year. The fair value of our derivatives related to our foreign currency cash flow hedges was a liability position of $6.7 million as of December 30, 2022 compared to a net liability position of $13.7 million as of December 31, 2021 due to the relative strengthening or weakening of exchange rates when compared to the contracted rates.

We are exposed to fluctuations in variable interest rates on our results of operations and financial condition, and we mitigate that exposure by entering into interest rate swaps from time to time. During 2018, we entered into interest rate swaps in order to hedge the risk of the fluctuation on future interest payments related to a portion of our variable rate LIBOR-based borrowings through 2028. The fair value of the derivatives related to our interest rate swap cash flow hedges was an asset position of $15.8 million as of December 30, 2022 compared to liability of $29.4 million as of December 31, 2021. The change to a net asset position is due to the relative increase in variable interest rates when compared to the rates as of December 31, 2021. In connection with the Amendment of our Revolving Credit Facility, we amended our interest rate swaps to transition from LIBOR to Term SOFR effective January 3, 2023.

We enter into derivative instruments with counterparties that are highly rated and do not expect a deterioration of our counterparty’s credit ratings; however, the deterioration of our counterparty’s credit ratings would affect the Consolidated Financial Statements in the recognition of the fair value of the hedges that would be transferred to earnings as the contracts settle. We expect that $1.0 million of the net fair value of designated hedges recognized as a net gain in accumulated other comprehensive loss will be transferred to earnings during the next 12 months, and the remaining net gain of $7.2 million over the following 5 years, along with the earnings effect of the related forecasted transactions.

Other

We are involved in several legal and environmental matters that, if not resolved in our favor, could require significant cash outlays and could have a material adverse effect on our results of operations, financial condition and liquidity. See Item 1. Business Overview under “Environmental Proceedings” and Item 3. Legal Proceedings and Note 16, “Commitments and Contingencies” to the Consolidated Financial Statements included in Item 8.  Financial Statements and Supplementary Data.

Commitments and Contractual Obligations

The following details information with respect to our contractual obligations as of December 30, 2022.

(1) We utilize a variable interest rate on our long-term debt, and for presentation purposes we have used an assumed average rate of 4.7%.

We have agreements to purchase the entire or partial production of certain products of our independent growers primarily in Guatemala, Ecuador, Philippines, Costa Rica, Colombia, and United Kingdom that meet our quality standards. Total purchases under these agreements amounted to $625.9 million for 2022, $683.2 million for 2021, and $744.9 million for 2020.

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Critical Accounting Policies and Estimates

We believe the following accounting polices used in the preparation of our Consolidated Financial Statements may involve a high degree of judgment and complexity and could have a material effect on our Consolidated Financial Statements.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We record revenue based on a five-step model in accordance with the accounting guidance. For our customer contracts, we identify the performance obligations (products or services), determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when the performance obligation is fulfilled, which is when the product is shipped to or received by the customer, depending on the specific terms of the arrangement. Our revenues are recorded at a point in time.

Product sales are recorded net of variable consideration, such as provisions for returns, discounts and allowances. Such provisions are calculated using historical averages adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is a distinct good or service, in which case the expense is classified as selling, general, and administrative expense. Provisions for customer volume rebates are based on achieving a certain level of purchases and other performance criteria that are established on a program by program basis. These rebates are estimated based on the expected amount to be provided to the customers and are recognized as a reduction of revenue.

We expense incremental costs of obtaining a contract, if the contract period is for one year or less. These costs are included in selling, general and administrative expenses. Otherwise, incremental contract costs are recognized as an asset on our Consolidated Balance Sheets and amortized over time as promised goods and services are transferred to a customer. We account for shipping and handling costs as costs to fulfill a contract and not as performance obligations to our customers. We also exclude taxes collected from our customers, assessed by government authorities that are both imposed on and concurrent with a specific revenue-producing transaction, from our determination of the transaction price. We do not adjust the promised amount of consideration for the effects of a significant financing component if the period between the transfer of the promised good or service to a customer and the customer payment is one year or less.

Refer to Note 21, “Business Segment Data” for additional description of our reportable business segments and disaggregated revenue disclosures.

Growing Crops

Expenditures on pineapple, melon, vegetable and non-tropical fruit growing crops are valued at the lower of cost or market and are deferred and charged to cost of products sold when the related crop is harvested and sold. The deferred growing costs consist primarily of land preparation, cultivation, irrigation and fertilization costs. The deferred growing crop calculation is dependent on an estimate of harvest yields and future crop expenditures. If there is an unexpected decrease in estimated harvest yields, a write-down of deferred growing costs may be required.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in a business combination. We assess goodwill at the reporting unit level on an annual basis as of the first day of our fourth quarter, or more frequently if events or changes in circumstances suggest that goodwill may not be recoverable. A significant amount of judgment is involved in determining if an indicator of impairment has occurred.

For those reporting units where events or changes in circumstances indicate that potential impairment indicators exist, we perform a quantitative assessment to determine whether the carrying amount of goodwill can be recovered. When performing the annual goodwill impairment test, we may start with an optional qualitative assessment as allowed for under the accounting guidance. As part of the qualitative assessment, we evaluate all events and circumstances, including both positive and negative events, in their totality, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we bypass the qualitative assessment, or if the qualitative assessment indicates that a quantitative analysis should be performed, we evaluate goodwill for impairment by comparing the fair value of a reporting unit to its carrying value, including the associated goodwill. We generally estimate a reporting unit’s fair value using a discounted cash flow approach which is dependent on several significant estimates and assumptions related to forecasts of future revenues, cost of sales,

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expenses and the weighted-average cost of capital for each reporting unit. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. The impairment of goodwill is limited to the total amount of goodwill allocated to the reporting unit. Any adverse changes in the significant estimates and assumptions used in our goodwill impairment test could have a significant impact on the recoverability of goodwill and could have a material impact on our Consolidated Financial Statements.

As part of the 2004 Del Monte Foods acquisition, we also acquired perpetual, royalty-free licenses to use the Del Monte® brand for processed and/or canned food in more than 100 countries throughout Europe, Africa, the Middle East and certain Central Asian countries. We can also produce, market and distribute certain prepared food products in North America based on our agreement with Del Monte Pacific utilizing the Del Monte® brand. This indefinite-lived intangible asset is not amortized but is reviewed for impairment as of the first day of the fourth quarter of each fiscal year, or sooner if impairment indicators arise. We generally estimate the fair value of our indefinite-lived intangible assets using a discounted cash flow approach.

The fair value of the banana reporting unit's goodwill, prepared reporting unit's goodwill and the Del Monte® prepared food reporting unit’s trade names and trademarks are sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of these assets. If the banana and the prepared food reporting unit do not perform to expected levels, the related goodwill and the Del Monte® trade names and trademarks associated with the prepared food reporting unit may be at risk for impairment in the future.

The following table highlights the sensitivities of the indefinite-lived intangibles at risk as of December 30, 2022 (U.S. dollars in millions):

As of December 30, 2022, we are not aware of any items or events that would cause an adjustment to the carrying value of our goodwill and indefinite-lived intangible assets.

Impairment of Long-Lived Assets

We review long-lived assets (or asset groups) with identifiable cash flows for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that an asset is not recoverable, and the carrying amount of an asset exceeds the asset’s fair value, we measure and record an impairment loss for the excess. The fair value of an asset is measured by either determining the expected future discounted cash flows of the asset or by independent appraisal.

Certain definite-lived intangible assets related to our fresh and value-added products segment are sensitive to changes in estimated cash flows. To the extent that future developments result in estimated cash flows that are less than currently estimated levels, it could lead to impairment of these assets.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates applicable to

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the year in which the differences are expected to affect taxable income. Valuation allowances are established when it is deemed more likely than not that some portion or all of the deferred tax assets will not be realized.

We account for income tax uncertainties consistent with the ASC guidance included in “Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Contingencies

Estimated losses from contingencies are recognized if it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Gain contingencies are not reflected in the financial statements until realized. We use judgment in assessing whether a loss contingency is probable and estimable. Actual results may differ from these estimates.

Derivative Financial Instruments

We 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.

We use derivative financial instruments primarily to reduce our exposure to adverse fluctuations in foreign exchange rates and variable interest rates. Upon entry into a derivative instrument, we formally designate and document the financial instrument 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 non-current assets, accounts payable and accrued expenses or other non-current liabilities, depending on whether the amount is an asset or liability and is of a short-term or long-term nature.

We designate our derivative financial instruments as cash flow hedges. A cash flow hedge requires that 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 and is presented in the same income statement line item as the earnings effect of the hedged item. We also classify the cash flows from our cash flow hedges in the same category as the items being hedged on our Consolidated Statements of Cash Flows based on the fact that our cash flow hedges do not contain an other-than-insignificant financing element at inception.

In the event that hedge accounting is discontinued, any changes in fair value of the associated derivatives since the date of dedesignation are recognized in other expense, net. Cash flows subsequent to the date of dedesignation are classified within investing activities in our Consolidated Statements of Cash Flows.

Fair Value Measurements

Fair value is measured as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In developing its fair value estimates, we use the following hierarchy:

•Level 1 - Quoted prices in active markets for identical assets or liabilities.

•Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data.

•Level 3 - Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows using our own estimates and assumptions or those expected to be used by market participants.

We measure fair value for our 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.

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Our asset impairments for certain long-lived assets including property, plant, and equipment are generally estimated using a market approach. The fair value of these assets are classified as Level 3 in the fair value hierarchy due to the mix of unobservable inputs utilized.

Our impairments of goodwill and indefinite-lived intangible assets are generally estimated using an income or market approach, or a combination thereof. Due to the mix of unobservable inputs utilized, these measurements are usually classified as Level 3 in the fair value hierarchy.

New Accounting Pronouncements

For a description of new applicable accounting pronouncements, refer to Note 2, “Summary of Significant Accounting Policies” to the Consolidated Financial Statements included in Item 8.  Financial Statements and Supplementary Data.

Off-Balance Sheet Arrangements

We are not involved in any off-balance sheet arrangements.