FRESH DEL MONTE PRODUCE INC
For the period ended Dec 29, 2023. Filed Feb 26, 2024.
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FY2023 · Filed Feb 26, 2024
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Fresh Del Monte Produce Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fresh Del Monte Produce Inc. and subsidiaries (the “Company”) as of December 29, 2023 and December 30, 2022, and the related consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity and redeemable noncontrolling interest for each of the three years in the period ended December 29, 2023, and the related notes and supplemental financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2023 and December 30, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
| Valuation of Goodwill and Indefinite-Lived Intangible Assets | |
| Description of the Matter | At December 29, 2023, the Company’s goodwill and indefinite-lived intangible assets were $433.5 million. As discussed in Note 2 to the consolidated financial statements, goodwill and indefinite-lived intangible assets are tested for impairment at least annually, at the reporting unit level. The carrying values of the prepared foods reporting unit’s goodwill, and the Del Monte® prepared foods reporting unit’s trade names and trademarks are $27.2 million and $30.8 million, respectively as of December 29, 2023. Note 6 to the consolidated financial statements discloses the sensitivity of fair value of these assets to changes in assumptions and underlying data used by the Company in their impairment accounting model including differences between estimated and actual cash flows and in discount rates used. The Company measured the fair value of the goodwill using an income approach and the fair value of trade names and trademarks using a royalty savings method, and determined the carrying value of the prepared foods reporting unit exceeded its fair value and, therefore, recorded a goodwill impairment charge of $21.6 million during the year ended December 29, 2023 Auditing the Company’s annual impairment test related to the prepared foods reporting unit’s goodwill, and the Del Monte® prepared foods reporting unit’s trade names and trademarks was complex and required the involvement of our specialists due to the judgmental nature of the assumptions used in the valuation models described above. Moreover, these assets are more sensitive to the differences between estimated and actual cash flows, and changes in discount and royalty rates used to estimate their fair value. Assumptions related to estimated cash flows (specifically sales and cost of products sold and long-term growth rates for sales and cost of products sold) are judgmental as they are affected by expectations about future market or economic conditions, which can vary significantly and depend on market forces and events outside of the Company’s control. |
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| How We Addressed the Matter in our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s impairment review process related to the prepared foods reporting unit’s goodwill, and the Del Monte® prepared foods reporting unit’s trade names and trademarks, including controls over management’s review of the significant assumptions described above. To test the estimated fair value of the Company’s prepared foods reporting unit’s goodwill, and the Del Monte® prepared foods reporting unit’s trade names and trademarks, our audit procedures included, among others, evaluating the methodologies used, the significant assumptions discussed above, and the underlying data used by the Company. Such data includes historical sales and cost data, go forward business plans and planned capital expenditures, as well as data from comparable companies. We involved our valuation specialists to assist in our procedures and to independently evaluate the reasonableness of the ranges for the discount and royalty rates. We compared the significant assumptions to current industry and economic trends, as well as market factor changes, to the Company’s business model, and other relevant factors. We assessed the historical accuracy of management’s estimates by comparing them to actual operating results and performed sensitivity analyses of the significant assumptions described above to evaluate the impact on the fair value of the prepared foods reporting unit’s goodwill and the Del Monte® prepared foods reporting unit’s trade names and trademarks. |
| Impairment of Long-Lived Assets | |
| Description of the Matter | As discussed in Note 2 to the consolidated financial statements, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As more fully described in Note 3 to the consolidated financial statements, during the fourth quarter of 2023, the Company determined that certain fresh and value-added assets in North America had indicators of impairment. Accordingly, the Company performed a recoverability test and concluded that an impairment loss should be measured. The Company measured the impairment of $109.6 million by recording the amount by which the carrying amount of the assets exceeded the fair value of the assets. The Company measured the fair value of certain fresh and value-added long-lived assets in North America based on discounted future cash flows and independent appraisals from third parties. Auditing the Company’s impairment testing of fresh and value-added long-lived assets in North America was complex and required the involvement of our specialists due to the judgmental nature of the assumptions used in the valuation models described above. Moreover, these assets are more sensitive to the differences between estimated and actual cash flows, and changes in discount rates used to estimate their fair value. Assumptions related to estimated cash flows (specifically sales and cost of products sold and long-term growth rates for sales and cost of products sold) are judgmental as they are affected by expectations about future market or economic conditions, which can vary significantly and depend on market forces and events outside of the Company’s control. |
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| How We Addressed the Matter in our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s impairment review process related to fresh and value-added long-lived assets in North America, including controls over management’s review of the significant assumptions described above. To test the estimated fair value of the Company’s fresh and value-added long-lived assets in North America, our audit procedures included, among others, evaluating the methodologies used, the significant assumptions discussed above, and the underlying data used by the Company. Such data includes historical sales and cost data, go forward business plans and planned capital expenditures, as well as data from comparable companies. We involved our valuation specialists to assist in our procedures and to independently evaluate the reasonableness of the ranges for the discount rates. We compared the significant assumptions to current industry and economic trends, as well as market factor changes, to the Company’s business model, and other relevant factors. We assessed the historical accuracy of management’s estimates by comparing them to actual operating results and performed sensitivity analyses of the significant assumptions described above to evaluate the impact on the fair value of fresh and value-added long-lived assets in North America. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1997.
Miami, Florida
February 26, 2024
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