DEL MONTE CORP (FDP) FY 2021 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 (which includes Kenya), 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 (including grapes, apples, citrus, blueberries, strawberries, pears, peaches, plums, nectarines, cherries and kiwis), other fruit and vegetables, avocados, and prepared foods (including prepared fruit and vegetables, juices, other beverages, and meals and snacks).

•Banana

•Other products and services - includes our ancillary businesses consisting of sales of poultry and meat products, a plastic product business, and third-party freight services.

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 2021 had 52 weeks and ended on December 31, 2021. Fiscal year 2020 had 53 weeks and ended on January 1, 2021. Fiscal year 2019 had 52 weeks and ended on December 27, 2019.

COVID-19 Pandemic Impact

In March 2020, the World Health Organization declared the outbreak of coronavirus (“COVID-19”) a global pandemic. In response to the COVID-19 pandemic, we have taken various preventative and protective measures to support our team members, customers, suppliers, and local communities. These measures included additional operating procedures and safety protocols at our production facilities, continuous monitoring of our supply chain contingency plans to mitigate service disruptions, and staying abreast of guidance from health officials and governmental authorities to determine any additional restrictions to put in place at each of our locations. These measures have allowed us to maintain our commitment to providing healthy, convenient and safe Del Monte® branded products around the world during this critical time.

The COVID-19 pandemic began having a material adverse impact on our results of operations during the first quarter of 2020 which continued, to a lesser extent, through fiscal 2021. Government imposed mandatory closures and restrictions across various of our key global markets have resulted in volatile supply and demand conditions for certain of our products as well as reduced demand in our foodservice distribution channel, factors which continue to persist through the date of this report. During fiscal 2020, we were also negatively impacted by service cancellations and containers that could not clear at certain ports in Asia as well as increased expenses, particularly in our farming operations in Central America where we incurred incremental costs to implement social distancing protocols and more frequent cleaning cycles. While service at the ports improved during

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fiscal 2021, to the extent that various regions of the world implement significant shut-downs we could experience similar delays in a future period.

Furthermore, during fiscal 2021, the recovery from the COVID-19 pandemic and the current economic climate resulted in inflationary and cost pressures that have significantly increased, and continue to adversely impact, our production and distribution costs, including costs of packaging materials, fertilizer, labor, fuel, and inland freight. We are also experiencing pressure in our supply chain due to strained transportation capacity and lack of sufficient labor availability. These factors led to increased costs in our banana and fresh and value-added products business segments, most notably in the second half of 2021. In response to these inflationary and cost pressures, we instituted price increases on bananas, pineapples and fresh-cut fruit which went into effect in the latter part of the fourth quarter. While we expect that these inflation-justified price increases will continue to mitigate our increased costs, we believe these unfavorable market conditions will continue to negatively impact our gross profit in future periods.

The COVID-19 pandemic continues to evolve and accordingly, the pace of the recovery from the pandemic as well as the potential impact of new variants or significant resurgences are not presently known. Although we believe that we will ultimately emerge from these events well positioned for long-term growth, the uncertainties with respect to the COVID-19 pandemic remain and, as such, we cannot reasonably estimate the duration or extent of its adverse impact on our business, operating results, and long-term liquidity position.

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

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 “Optimization Program”). As a result of the review, we identified assets across all of our regions which we made a strategic decision to sell for total anticipated cash proceeds of approximately $100.0 million. These assets primarily consist of underutilized facilities and land, and those still pending to be sold are currently reflected in assets held for sale on our Consolidated Balance Sheet. As of the year ended December 31, 2021, we have received cash proceeds of $57.0 million in connection with asset sales under the Optimization Program (approximately $40.0 million of which was received in our 2020 fiscal year). Due to challenging market conditions which have resulted in delays of some of the asset sales, in part driven by COVID-19 travel restrictions, we anticipate that the completion of the program will extend beyond the originally anticipated timeframe of the first quarter of 2022.

Included as part of this Optimization Program was the consolidation of our Mann Packing operations from four facilities into one facility in Gonzales, California. The consolidation of Mann Packing allowed us the advantage of processing fresh-cut fruit and fresh-cut vegetables in one facility in the Salinas Valley and will enable us to continue to optimize labor and distribution costs. While we have realized cost savings in connection with the consolidation of our Mann Packing operations during the year ended December 31, 2021, our financial results for this business continue to be negatively impacted by reduced demand in our foodservice distribution channel and increased production and distribution costs which have adversely affected gross profit in our fresh and value-added products business segment.

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.

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.

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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 2021 were positively impacted by $43.3 million primarily due to fluctuations in exchange rates versus the euro, British pound, and Korean won.

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 - include 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 - include operations, maintenance, depreciation, insurance, fuel (the cost of which is subject to commodity price fluctuations), and port charges.

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

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

•Third-party containerized shipping costs - include 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-owned 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.

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 2021, cost of products sold was negatively impacted by approximately $11.1 million, primarily driven by fluctuations in exchange rates versus the Mexican peso, British pound and euro, partially offset by the positive impact of a stronger dollar compared to the Costa Rican colon.

Income Taxes

The provision for income taxes in 2021 was $2.0 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.

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In connection with a current examination of the tax returns in two foreign jurisdictions, the taxing authorities have issued income tax deficiencies related to transfer pricing aggregating approximately $144.8 million (including interest and penalties) for tax years 2012 through 2016. We strongly disagree with the proposed adjustments and have filed a protest with each of the taxing authorities as we believe that the proposed adjustments are without technical merit.

In one of the foreign jurisdictions, we filed an appeal to the administrative decision in judicial court on April 30, 2020. On September 10, 2020, we were notified that we lost our final appeal at the administrative level for the audit years 2012-2015, and likewise on October 7, 2021 for the audit year 2016. For the audit years 2012-2015 and 2016, we have filed a request for an injunction in judicial court which would defer payment, if any, until the end of the judicial process. For the audit year 2016, our preliminary injunction was granted. For the audit year 2016, we filed a case in judicial court on January 3, 2022 to appeal the administrative decision. On January 14, 2022, we requested the consolidation of both injunction requests for audit years 2012-2015 and 2016.

In the other foreign jurisdiction, the administrative process has been completed and we filed a case in judicial court on March 4, 2020 to appeal the administrative decision.

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.

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 31, 2021 as compared with the fiscal year ended January 1, 2021. For a discussion of our 2020 Results of Operations, including a discussion of our financial results for the fiscal year ended January 1, 2021 compared to the fiscal year ended December 27, 2019, refer to Part II, Item 7 of our annual report on Form 10-K filed with the SEC on February 24, 2021.

Net Sales - Net sales for 2021 increased $49.7 million, or 1%, when compared with 2020. The increase in net sales for 2021 was attributable to higher net sales in our other products and services segment, which includes third-party freight services and our poultry and meats category, and our fresh and value-added products segment. The increase was partially offset by a decrease in net sales in our banana segment. Additionally, our fiscal year cycles impacted comparability between the periods, as the 2021 fiscal year consisted of 52 weeks compared to 53 weeks in 2020. The additional week in the prior-year period contributed an estimated $72.0 million in net sales. Therefore, on a comparable basis which adjusts for the additional week in the prior-year period, net sales for 2021 increased by approximately $122.0 million, or 3%.

Net sales for 2021 were also positively impacted by fluctuations in exchange rates versus the euro, British pound, and Korean won.

Gross Profit - Gross profit for 2021 increased $52.9 million, or 21%, when compared with 2020. In the first half of 2021, despite inflationary and other cost pressures, gross profit benefited from strong performance across all of our segments. The increase was primarily driven by improved demand on key product categories related to relaxed restrictions on social gatherings in some of our key markets while the banana segment realized higher per unit selling prices compared to the first half of 2020.

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The higher banana pricing helped offset incremental production and procurement costs following the damages caused by two hurricanes in Central America in the fourth quarter of 2020. In the second half of 2021, inflationary and cost pressures intensified, coupled with the impact of strained transportation capacity and lack of sufficient labor availability which led to higher per unit production and distribution costs, specifically related to packaging materials, fertilizers, inland freight, labor and fuel when compared with the prior-year period. Gross profit in 2020 included $33.6 million of other product-related charges as compared with $3.5 million of other product-related charges in 2021. Other product-related charges in 2020 included $23.8 million in write-offs due to supply and demand disruptions caused by the COVID-19 pandemic and $12 million in inventory write-offs resulting from hurricane damage to our melon and banana operations in Guatemala which were partially offset by $3.3 million in insurance recoveries associated with the storms. As a result of these factors, gross margin increased 110 basis points to 7.1% in 2021 from 6.0% in 2020. As above-mentioned, our 2021 fiscal year consisted of 52 weeks compared to 53 weeks in 2020, and we estimate that the additional week in the prior-year period contributed an estimated $2.6 million in gross profit.

Gross profit in 2021 was also positively impacted by fluctuations in exchange rates versus the euro, Costa Rican colon, British pound, and Korean Won, partially offset by a stronger Mexican peso.

Selling, General and Administrative Expenses - Selling, general and administrative expenses decreased $3.3 million, or 2%, when compared to the prior-year period. The decrease was primarily due to lower selling, general and administrative expenses in the Middle East and North America, mainly as a result of a lower provision for credit losses and lower promotional expenses.

Gain on Disposal of Property, Plant and Equipment, Net - 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. The gain on disposal of property, plant and equipment, net of $22.2 million during 2020 primarily related to the sales of surplus lands in Chile, a facility in the Middle East, and two facilities in North America. The gains in both periods were partially offset by losses on asset disposals, mainly in Central America.

Asset Impairment and Other Charges, Net - Asset impairment and other charges, net, were $4.5 million in 2021 as compared with $0.4 million in 2020. Asset impairments and other charges, net, for 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 a $(0.8) million insurance recovery associated with damages to certain of our banana segment fixed assets in Guatemala caused by hurricanes Eta and Iota in the fourth quarter of 2020. Asset impairments and other charges, net, for 2020 primarily related to (1) an insurance recovery related to the 2019 voluntary product recall, (2) asset impairments, mainly related to certain of our North America, Middle East, and European production facilities and low-yielding banana plants in the Philippines, (3) asset impairments in Guatemala associated with damages caused by the hurricanes discussed above, (4) a legal settlement charge, and (5) severance expense related to the reorganization of our North America sales and marketing function.

Operating Income - Operating income increased $34.5 million in 2021 when compared with 2020, mainly due to higher gross profit, partially offset by lower net gains on disposal of property, plant and equipment.

Interest Expense - Interest expense decreased by $1.1 million in 2021 when compared with 2020, primarily due to lower interest rates and lower average debt balances.

Other Expense (Income), Net - Other expense (income), net, was expense of $9.4 million for 2021 compared with expense of $4.5 million in 2020. The increase in expense of $4.9 million was mainly due to higher foreign exchange losses during 2021 when compared to the prior-year period.

Provision for Income Taxes - Provision for income taxes was $2.0 million in 2021 compared with $5.0 million in 2020. The decrease in the provision for income taxes of $3 million is primarily due to reduced earnings in certain higher tax jurisdictions offset by the effect of a change in judgment about our ability to realize deferred tax assets in future years, due to our current and foreseeable operations. The tax provision for 2020 includes a $4.7 million benefit relating to the NOL carryback provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was enacted in March 2020, combined with the benefit resulting from the restructuring of our European operations.

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Financial Results by Segment

The following table presents net sales and gross profit by segment, and in each case, the percentage of the total represented thereby (U.S. dollars in millions):

Fresh and value-added products

Net sales in the fresh and value-added products segment increased by $20.7 million or 1%, when compared with 2020, primarily as a result of increased net sales of pineapples and fresh-cut fruit. The increase was partially offset by lower net sales of non-tropical fruit, vegetables, and fresh-cut vegetables. Furthermore, the additional week in the prior-year period contributed an estimated $42.0 million in net sales. On a comparable basis which adjusts for the additional week in the prior-year period, net sales for 2021 increased by approximately $63.0 million, or 3% compared to 2020.

◦Pineapple net sales increased across all regions, particularly in North America and Europe, driven by higher sales volume and higher per unit sales prices.

◦Fresh-cut fruit net sales increased across most regions, particularly Europe and North America, driven by higher sales volume and higher per unit sales prices.

◦Non-tropical fruit net sales decreased primarily in the Middle East. Overall, this year’s production volume was negatively impacted by the damage caused by severe rainstorms in Chile in the first quarter of 2021.

◦Vegetable and fresh-cut vegetable net sales decreased primarily in North America, including in our Mann Packing operations, driven by lower sales volume related to lower demand from the foodservice channel and lack of sufficient labor availability.

Gross profit in the fresh and value-added products segment increased $21.1 million or 13% compared to the prior-year period. Fiscal year 2020 included $25.4 million of other product-related charges comprised of inventory write-offs related to supply and demand disruptions caused by the COVID-19 pandemic and write-offs resulting from damages to our melon crops caused by hurricanes in Guatemala. In comparison, fiscal year 2021 included $4.7 million of other product-related charges, primarily associated with inventory write-offs caused by severe rainstorms in Chile. Additionally, higher per unit selling prices also benefited gross profit compared to the prior-year period. The increase was partially offset by inflationary and cost pressures, which resulted in higher per unit production and distribution costs. Gross margin increased 80 basis points to 7.2% in 2021 from 6.4% in 2020. As it relates to comparability, our 2021 fiscal year consisted of 52 weeks compared to 53 weeks in 2020 and we estimate that the additional week in the prior-year period contributed an additional $1.8 million in gross profit.

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From a product view, the increase in gross profit was primarily due to higher gross profit on pineapples, melons, and fresh-cut fruits. The increase was partially offset by lower gross profit on fresh-cut vegetables and avocados.

◦Pineapple gross profit increased across all regions driven by higher net sales partially offset by higher production and distribution costs.

◦Melon gross profit increased primarily in North America due to higher per unit sales prices of cantaloupes partially offset by higher production and distribution costs. Overall, our production volume in fiscal 2021 was negatively impacted by the damages caused by the hurricanes in Guatemala in the fourth quarter of 2020.

◦Fresh-cut fruit gross profit increased across all regions driven by higher net sales, partially offset by higher per unit distribution costs.

◦Fresh-cut vegetable gross profit decreased in North America, primarily in our Mann Packing operations, mainly driven by lower net sales coupled with higher per unit production and distribution costs.

◦Avocado gross profit decreased primarily in North America driven by lower sales volume coupled with higher per unit production and distribution costs.

Banana

Net sales of bananas decreased $21.5 million or 1%, primarily due to lower sales volume in North America. The decrease was partially offset by higher per unit sales prices in North America and Europe. The higher per unit sales prices helped offset incremental production and procurement costs following the hurricanes in Central America in the fourth quarter of 2020. As it relates to comparability, we estimate that the additional week in the prior-year fiscal period contributed an estimated $28.0 million in net sales. On a comparable basis which adjusts for the additional week in the prior-year period, net sales for 2021 increased by approximately $7.0 million, which is relatively in line with 2020.

Gross profit in the banana segment increased by $25.3 million or 30%, primarily due to our performance in North America and Europe. In both regions the increase was driven by higher per unit sales prices, partially offset by higher per unit production and distribution costs impacted by inflationary and cost pressures. Additionally, gross profit in 2020 included $8.0 million of inventory write-offs, net of insurance recoveries, driven by the Guatemala hurricanes described above as well as inventory write-offs related to supply and demand disruptions caused by the COVID-19 pandemic. As a result of these factors, gross margin increased 170 basis points to 7.0% in 2021 from 5.3% in 2020. We estimate that the additional week in the prior-year fiscal period contributed an estimated $0.8 million in gross profit.

Other products and services

Net sales of other products and services increased $50.5 million, or 44%, due to higher net sales of third-party freight services and poultry and meats in the Middle East.

Gross profit increased $6.5 million as a result of higher net sales. Gross margin increased to 7.6% from 5.4%.

LIQUIDITY AND CAPITAL RESOURCES

Fresh Del Monte Produce Inc. is a holding company with limited business operations of its own. Fresh Del Monte Produce Inc.'s 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 and expand our product offerings and geographic reach, investments to increase our productivity and investments in businesses such as Mann Packing.

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

Operating activities

Net cash provided by operating activities was $128.5 million for 2021 compared with $180.6 million for 2020, a decrease of $52.1 million. The decrease in net cash provided by operating activities in 2021 compared to 2020 was principally attributable to higher levels of inventory, as we proactively increased inventory of key raw materials to secure costs and availability. Inventory was also impacted by the increase in cost of goods largely related to current cost pressures. Partially offsetting the decrease were higher net income and higher balances of accounts payable and accrued expenses, primarily due to the increase in inventory purchases combined with the timing of period end payments to suppliers.

Working capital was $467.2 million at December 31, 2021 compared with $457.5 million at January 1, 2021, an increase of $9.7 million. The increase in working capital was mainly due to higher levels of current assets, primarily higher levels of inventory as discussed above. Partially offsetting this decrease were lower levels of prepaid expenses and other current assets and higher levels of accounts payable and accrued expenses.

Investing activities

Net cash used in investing activities was $82.5 million for 2021 and $108.8 million for 2020. Net cash used in investing activities for 2021 primarily consisted of $98.5 million in capital expenditures, 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 no longer designated in hedging relationships. Net cash used in investing activities for 2021 also reflects $7.0 million in investments in unconsolidated companies. During fiscal 2022, we expect to make further equity investments in companies in the food and nutrition sector that align with our long-term strategy and vision.

Net cash used in investing activities for 2020 primarily consisted of $150.0 million in capital expenditures, partially offset by $39.5 million in proceeds from the sales of property, plant and equipment.

Capital expenditures related to the fresh and value-added products segment accounted for $29.5 million, or 30%, of our 2021 capital expenditures and $46.5 million, or 31%, of our 2020 capital expenditures. During 2021 and 2020, capital expenditures primarily related to (1) expansion and improvements to production facilities in Japan, North America, and Europe; (2) improvements to our pineapple operations in Central America; and (3) information technology initiatives in North America. During 2020, capital expenditures also related to the finalization of our new manufacturing facility in Gonzales, California and improvements to our non-tropical operations in Chile.

Capital expenditures related to the banana segment accounted for $20.0 million, or 20%, of total 2021 capital expenditures and $12.0 million, or 8% of total 2020 capital expenditures. During both years, these capital expenditures consisted primarily of (1) expansion and improvements to our production operations in Central America, including expansion of our Panama operations and (2) improvements to our distribution centers and for information technology initiatives.

Capital expenditures related to the other products and services segment accounted for $3.8 million, or 4%, of our 2021 capital expenditures and $0.7 million, or less than 1%, of our 2020 capital expenditures. During 2021 and 2020, these capital expenditures primarily related to improvements to our Jordanian poultry operations.

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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 new 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 primarily benefit our banana and fresh and value-added products segments.

Our planned capital expenditures for 2022 primarily consist of (1) improvements to our operations and production facilities in North America, including investments in automation and technology initiatives, (2) improvements to our European fresh-cut facility and distribution centers, (3) expansion and improvements to our pineapple, banana, and melon operations in Central America, and (4) expenditures to ensure compliance with quality and food safety standards. These planned capital expenditures will benefit both our banana and fresh and value-added products segments. We expect to fund these capital expenditures through operating cash flows and bank borrowings.

Financing Activities

Net cash used in financing activities was $53.2 million for 2021 and $85.8 million for 2020. Net cash used in financing activities for 2021 consisted primarily of net payments on long-term debt of $22.6 million and dividends paid of $23.7 million. Net cash used in financing activities for 2020 consisted primarily of net payments on long-term debt of $45.0 million, repurchase and retirement of ordinary shares of $20.8 million and $14.3 million in dividends paid.

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

Pursuant to the terms of the Second A&R Credit Agreement, amounts borrowed under the Revolving Credit Facility accrue interest, at our election, at either (i) the Eurocurrency Rate (as defined in the Second A&R Credit Agreement) plus a margin that ranges from 1.0% to 1.5% or (ii) the Base Rate (as defined in the Second A&R Credit Agreement) plus a margin that ranges from 0% to 0.5%, in each case based on our Consolidated Leverage Ratio (as defined in the Second A&R Credit Agreement). The Second A&R Credit Agreement interest rate grid provides for five pricing levels for interest rate margins. At December 31, 2021, we had borrowings of $519.1 million outstanding under the Revolving Credit Facility bearing interest at a per annum rate of 1.44%. In addition, we pay an unused commitment fee.

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

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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 annual 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 31, 2021, we were in compliance with all of the financial and other covenants contained in the Second A&R Credit Agreement.

We have a renewable 364-day, $25 million letter of credit facility with Rabobank Nederland.

As of December 31, 2021, we had $606.5 million of borrowing availability under committed working capital facilities, primarily under the Revolving Credit Facility.

As of December 31, 2021, we applied $28.4 million to letters of credit and bank guarantees issued from Rabobank Nederland, Bank of America, and other banks.

While 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, we cannot predict whether future developments associated with the COVID-19 pandemic or 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 II. 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 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 and options, which generally expire within one year. The fair value of our derivatives related to our foreign currency cash flow hedges was a net liability position of $13.7 million as of December 31, 2021 compared to $6.9 million as of January 1, 2021 due to the relative strengthening or weakening of exchange rates when compared to 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 in a net liability position of $29.4 million as of December 31, 2021 compared to $50.6 million as of January 1, 2021. The decrease in our liability position is due to the relative increase in variable interest rates when compared to the rates as of January 1, 2021.

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 $15.7 million of the net fair value of designated hedges recognized as a net loss in accumulated other comprehensive loss will be transferred to earnings during the next 12 months, and the remaining net loss of $26.1 million over a period of approximately 7 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 15, “Commitments and Contingencies” to the Consolidated Financial Statements included in Item 8.  Financial Statements and Supplementary Data.

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Commitments and Contractual Obligations

The following details information with respect to our contractual obligations as of December 31, 2021.

(1) We utilize a variable interest rate on our long-term debt, and for presentation purposes we have used an assumed average rate of 3.7%.

We have agreements to purchase the entire or partial production of certain products of our independent growers primarily in Guatemala, Costa Rica, Philippines, Ecuador, United Kingdom, and Colombia that meet our quality standards. Total purchases under these agreements amounted to $683.2 million for 2021, $744.9 million for 2020, and $691.8 million for 2019.

In 2017, we executed a contract with the Republic of Panama which committed us to invest a minimum of $100.0 million over a period of seven years upon the delivery of a minimum of approximately 9,000 net acres of land for leasing within specified timeframes. The investment commitment contemplated development of the leased land for banana production, refurbishment of packing plants, buildings and other banana facilities and preparation of banana infrastructure including land, roads and water systems. At the end of 2021, approximately 50% of the total committed lands had been received, and we have invested approximately $48.2 million in this project, inclusive of a $13.3 million lease prepayment. The Panamanian government has not delivered the remaining portion of the land to us within the specified timeframes. Based on current conditions, we do not anticipate that the Panamanian government will be able to meet their commitment in the future and therefore we do not anticipate any further capital expenditures related to the undelivered land.

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

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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 20, “Business Segment Data” for additional description of our reportable business segments and disaggregated revenue disclosures.

Growing Crops

Expenditures on pineapple, melon, tomatoes and non-tropical fruit, including grapes, 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 change 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, 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.

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The following table highlights the sensitivities of the indefinite-lived intangibles at risk as of December 31, 2021 (U.S. dollars in millions):

As of December 31, 2021, 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 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.

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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, variable interest rates and bunker fuel prices. 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 income (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 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.

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.

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