FRESH DEL MONTE PRODUCE INC. 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 inEurope ,Africa and theMiddle 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 includesKenya ), theMiddle East (which includesNorth Africa ) andAsia . 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 andSouth America ,Asia andAfrica .
Our operations are organized into two reportable segments that represent our primary businesses and one reportable segment that represents our ancillary businesses:
•Fresh and value-added products - includes pineapples, fresh-cut fruit, fresh-cut vegetables, melons, vegetables, non-tropical fruit (including grapes, apples, citrus, blueberries, strawberries, pears, peaches, plums, nectarines, cherries and kiwis), other fruit and vegetables, avocados, and prepared foods (including prepared fruit and vegetables, juices, other beverages, and meals and snacks). •Banana •Other products and services - includes our ancillary businesses consisting of sales of poultry and meat products, a plastic product business, and third-party freight services.
Our vision is to inspire healthy lifestyles through wholesome and convenient products. Our strategy is founded on six goals:
[[Image Removed: fdp-20200925_g1.jpg]]COVID-19 Pandemic Impact
InDecember 2019 , a novel strain of coronavirus, COVID-19, was identified inWuhan, China . This virus has spread globally and inMarch 2020 , theWorld Health Organization declared COVID-19 a pandemic. We have taken various preventative and protective measures in response to the COVID-19 pandemic to support our team members, customers, suppliers, and local communities. At our production facilities where food safety has always been a top priority, we introduced additional operating procedures and safety protocols to include social distancing, thermal screenings and increased cleaning cycles to protect our production teams. We activated our supply chain contingency plans to mitigate any disruptions in our ability to service our customers. Additionally, we implemented remote working arrangements across various of our administrative locations, having 33 -------------------------------------------------------------------------------- Table of Contents as many global employees as possible working remotely. 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 has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The COVID-19 pandemic has had a material adverse impact on our results of operations during the quarter and nine months endedSeptember 25, 2020 . Government imposed mandatory closures and restrictions across various of our key global markets have resulted in volatile supply and demand conditions, particularly of our higher price point products such as pineapples, avocados, and fresh-cut fruit and vegetables, as well as reduced demand in our foodservice distribution channel and shifting demand in retail. Additionally, during the first quarter of 2020, our results were negatively impacted by service cancellations and containers that were unable to clear at certain of our Chinese ports. As a result, we had to redirect our products to markets such asJapan ,Korea , andHong Kong which had a negative impact on our financial performance due to oversupply in these markets. In addition to negatively impacting our net sales, the COVID-19 pandemic and related government restrictions have resulted in increased costs for our business, particularly in our farming operations inCentral America where we have incurred incremental costs to implement social distancing protocols and more frequent cleaning cycles. We have continued to work collaboratively with our network of third-party growers and suppliers to mitigate the impact of COVID-19 on our supply chain and costs. Furthermore, during the nine months endedSeptember 25, 2020 , some of our workers contracted the COVID-19 virus which resulted in a temporary facility closure in one location, reduced production hours, increased cleaning and logistical costs, as well as an adverse impact on our net sales due to the perishability of our products. While we expect the COVID-19 pandemic to continue to negatively impact our operating results, the extent of the impact will depend on future developments, including the duration and spread of the pandemic and related government restrictions, all of which are uncertain and cannot be predicted. In addition, we cannot predict whether future developments associated with the COVID-19 pandemic will materially adversely affect our long-term liquidity position. We have taken several steps to conserve our liquidity position in response to the pandemic including reducing our quarterly cash dividend fromten cents ($0.10 ) per share in the first quarter of 2020 tofive cents ($0.05 ) per share in the second and third quarters of 2020 and delaying certain of our planned capital expenditures to 2021. As a result of our improved cash flow, our Board of Directors was able to declare an increased quarterly cash dividend often cents ($0.10 ) per share in the fourth quarter of 2020.
Refer to the "Results of Operations" and "Liquidity and Capital Resources" sections below, as well as Part II. Item 1A, "Risk Factors" for further discussion.
Optimization Program
During the nine months endedSeptember 25, 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 plan to sell over the next 12 to 18 months for total anticipated cash proceeds of approximately$100 million . These assets primarily consist of underutilized facilities and land, some of which are currently reflected in assets held for sale on our Consolidated Balance Sheet as of the quarter endedSeptember 25, 2020 . Included as part of this Optimization Program is the consolidation of our Mann Packing operations from four facilities into one facility inGonzales, California . The consolidation of Mann Packing will allow us the unique advantage of processing fresh-cut fruit and fresh-cut vegetables in one facility in theSalinas Valley and will optimize labor and distribution costs. During the quarter endedSeptember 25, 2020 , we completed our move toGonzales which we anticipate will enable us to improve gross profit in our fresh and value-added products segment by approximately$10 million on an annual basis, a benefit which we expect to achieve over the next 12 months.
Income Taxes
In connection with a current examination of the tax returns in two foreign jurisdictions, the taxing authorities have issued income tax deficiencies related to transfer pricing aggregating approximately$145.8 million (including interest and penalties) for tax years 2012 through 2016. We strongly disagree with the proposed adjustments and have filed a protest with each of the taxing authorities as we believe that the proposed adjustments are without technical merit. OnSeptember 10, 2020 , we were notified that we lost our final appeal at the Administrative level in one of the foreign jurisdictions under audit for the years 2012-2015. We have filed a request for an injunction in the judicial courts which would defer payment, if any, until the end of the judicial process. Additionally, we also intend to file an administrative injunction with the Tax Administration. 34
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In parallel with the administrative procedure, we had filed an appeal in judicial court onApril 30, 2020 . We strongly believe we will prevail at the judicial level. If not, we will appeal to the Supreme Court. We will continue to vigorously contest the adjustments and expect to exhaust all administrative and judicial remedies necessary in both jurisdictions to resolve the matters, which could be a lengthy process. We regularly assess the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of our tax reserves. Accordingly, we have not accrued any additional amounts based upon the proposed adjustments. There can be no assurance that these matters will be resolved in our favor, and an adverse outcome of either matter, or any future tax examinations involving similar assertions, could have a material effect on our financial condition, results of operations and cash flows. Member States of theEuropean Union in which our European distributors operate have enacted, or are in the process of drafting, anti-hybrid legislation which may impact our ability to deduct the cost of certain purchases in those jurisdictions. We are actively analyzing the enacted and proposed draft legislation to assess whether, and to what extent, these provisions impact the Company. 35
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Results of Operations
The following tables present for each of the periods indicated (i) net sales by geographic region and (ii) net sales and gross profit by segment, and in each case, the percentage of the total represented thereby (U.S. dollars in millions):
Net sales by geographic region:
Quarter ended Nine months ended
Region September 25, 2020 September 27, 2019 September 25, 2020 September 27, 2019
North America $ 619.4 63 % $ 720.8 67 % $ 1,992.0 62 % $ 2,286.4 66 %
Europe 150.0 15 % 140.4 13 % 485.2 15 % 482.9 14 %
Asia 107.9 11 % 99.6 9 % 355.3 11 % 351.4 10 %
Middle East 102.7 10 % 103.4 10 % 329.3 11 % 310.5 9 %
Other 9.7 1 % 6.0 1 % 38.2 1 % 32.6 1 %
Totals $ 989.7 100 % $ 1,070.2 100 % $ 3,200.0 100 % $ 3,463.8 100 %
Net sales and gross profit by segment:
Quarter ended
September 25, 2020 September 27, 2019
Segment Net Sales Gross Profit Net Sales Gross Profit
Fresh and value-added
products $ 600.6 61 % $ 54.2 81 % $ 652.9 61 % $ 53.3 70 %
Banana 361.8 36 % 10.8 16 % 385.8 36 % 18.6 24 %
Other products and services 27.3 3 % 2.3 3 % 31.5 3 % 4.3 6 %
Totals $ 989.7 100 % $ 67.3 100 % $ 1,070.2 100 % $ 76.2 100 %
Nine months ended
September 25, 2020 September 27, 2019
Net Sales Gross Profit Net Sales Gross Profit
Fresh and value-added
products $ 1,897.8 59 % $ 133.8 62 % $ 2,107.2 61 % $ 172.3 64 %
Banana 1,218.4 38 % 74.3 35 % 1,257.3 36 % 90.2 34 %
Other products and services 83.8 3 % 6.4 3 % 99.3 3 % 6.4 2 %
Totals $ 3,200.0 100 % $ 214.5 100 % $ 3,463.8 100 % $ 268.9 100 %
Third Quarter of 2020 Compared with Third Quarter of 2019
Net Sales . Net sales for the third quarter of 2020 were$989.7 million compared with$1,070.2 million for the third quarter of 2019. The decrease in net sales of$80.5 million was attributable to lower net sales in all of our business segments. The COVID-19 pandemic negatively impacted our net sales during the third quarter of 2020 by an estimated$73.0 million in our fresh and value-added products and banana segments, as compared to our third quarter of 2019 performance for these segments. These negative impacts were primarily the result of volatile supply and demand conditions resulting from the pandemic, as well as reduced demand in our foodservice distribution channel and shifting demand in retail due to government imposed mandatory closures and restrictions across various of our key global markets. The effect of government imposed mandatory closures and restrictions and the lack of family gatherings and summer events specifically inNorth America has significantly reduced demand for many of our fresh and value-added products. 36 -------------------------------------------------------------------------------- Table of Contents •Fresh and value-added products - Net sales in the fresh and value-added products segment decreased$52.3 million , primarily as a result of lower net sales of fresh-cut vegetables, avocados, fresh-cut fruit, vegetables, and prepared food products. The COVID-19 pandemic negatively affected our net sales of fresh and value-added products by an estimated$56.0 million in the quarter endedSeptember 25, 2020 when compared with our third quarter of 2019 performance for this segment. Partially offsetting the decrease in net sales were increases in sales of pineapples and non-tropical fruit. •Net sales of fresh-cut vegetables decreased principally due lower sales volumes as a result of the COVID-19 pandemic which continued to negatively impact demand in our foodservice distribution channel. In addition, our voluntary product recall in the fourth quarter of 2019 continued to adversely affect net sales during the quarter as volumes have not returned to pre-recall levels. Partially offsetting this decrease were higher per unit sales prices. •Net sales of avocados decreased primarily due to lower per unit sales prices inNorth America as a result of normalized industry supplies in the market when compared to the prior year. Partially offsetting this decrease were higher sales volumes as a result of increased capacity due to our new packing plant inMexico which opened inDecember 2019 . •Net sales of fresh-cut fruit decreased principally due to lower sales volumes inNorth America resulting from the continued impact of the COVID-19 pandemic which resulted in lower demand for our products combined with a shortage of raw materials. •Net sales of vegetables decreased primarily inNorth America due to the effect of the COVID-19 pandemic which continued to negatively impact demand in our foodservice distribution channel. Partially offsetting this decrease were higher per unit sales prices. •Net sales of prepared food products decreased principally due to a decrease in sales of meals and snacks as a result of the COVID-19 pandemic, the continuing impact of the 2019 product recall, and product rationalization efforts in our Mann Packing operations inNorth America which led to the discontinuance of low margin products. Partially offsetting this decrease were higher per unit sales prices of pineapple concentrate due to lower industry supply and higher per unit sales prices of canned pineapple products due to increased customer demand. •Net sales of pineapples increased primarily due to higher sales volumes across all of our regions, mainly as a result of lower production in the comparative prior year period due to adverse weather conditions in our growing regions. Worldwide pineapple sales volume increased 15% during the third quarter of 2020. •Net sales of non-tropical fruit increased primarily as a result of higher sales volumes inEurope due to increased customer demand and higher sales volumes in theMiddle East due to increased sales in developing markets. Also contributing to the increase in net sales were higher per unit sales prices, primarily in theMiddle East . •Banana - Net sales of bananas decreased by$24.0 million principally due to lower net sales inNorth America ,Europe , and theMiddle East partially offset by higher net sales inAsia . We estimate that COVID-19 negatively affected our banana net sales by$17.0 million during the third quarter of 2020 when compared with our third quarter of 2019 performance for this segment. Worldwide banana sales volume decreased 4%. •North America banana net sales decreased due to lower sales volumes, principally the result of lower demand due to the COVID-19 pandemic. Also contributing to the net sales decrease were lower per unit sales prices. •Europe banana net sales decreased due to lower sales volumes and lower per unit sales prices, primarily as a result of the COVID-19 pandemic which led to lower demand and an excess of industry supply as product from theAsia market was redirected to theEurope market. •Middle East banana net sales decreased primarily due to lower per unit sales prices as a result of excess industry supply fromEcuador and lower demand. •Asia banana net sales increased primarily as a result of higher sales volumes inJapan andKorea due to improved customer demand. Cost of Products Sold. Cost of products sold was$922.4 million for the third quarter of 2020 compared with$994.0 million for the third quarter of 2019, a decrease of$71.6 million . The decrease was primarily attributable to lower per unit costs and sales volumes in our fresh and value-added products segment, and lower sales volumes in our banana segment. Partially offsetting this decrease were higher distribution costs per unit in our fresh and value-added products segment and$2.3 million of other product-related charges. These other product-related charges include$1.9 million of charges attributable to our fresh and value-added products segment, primarily relating to pineapples, and$0.4 million of charges related to our banana segment. 37 -------------------------------------------------------------------------------- Table of Contents These charges primarily consist of inventory write-offs due to volatile supply and demand conditions caused by the COVID-19 pandemic as well as incremental costs incurred for cleaning and social distancing protocols, also associated with the pandemic. Gross Profit. Gross profit was$67.3 million for the third quarter of 2020 compared with$76.2 million for the third quarter of 2019, a decrease of$8.9 million . This decrease was primarily attributable to lower gross profit in our banana and other products and services segments, partially offset by a slight increase in gross profit in our fresh and value-added products segment. •Banana - Gross profit in the banana segment decreased$7.8 million principally due to lower per unit sales prices, primarily inNorth America as a result of lower demand. Partially offsetting this decrease in gross profit were lower costs per unit, primarily driven by lower ocean freight expenses. Worldwide banana per unit sales prices decreased 3% and per unit costs decreased 1%. •Other products and services - Gross profit in the other products and services segment decreased principally due to lower per unit sales prices in our Jordanian poultry business as a result of lower foodservice demand associated with the COVID-19 pandemic, partially offset by lower per unit costs primarily due to increased efficiencies. •Fresh and value-added products - Gross profit in the fresh and value-added products segment increased$0.9 million principally due to higher gross profit on prepared food products, avocados, and pineapples, partially offset by lower gross profit on vegetables, fresh-cut vegetables, and fresh-cut fruit. •Gross profit on prepared food products increased due to higher per unit sales prices of pineapple concentrate and canned pineapple products. Partially offsetting this increase were higher per unit costs of pineapple concentrate products. •Gross profit on avocados increased primarily due to lower product costs resulting from improved capacity utilization at our new packing plant inMexico which opened inDecember 2019 . Partially offsetting this increase were lower per unit sales prices. •Gross profit on pineapples increased due to higher sales volumes across all of our regions and lower per unit costs. Partially offsetting this increase were lower per unit sales prices, primarily inNorth America , combined with the impact of inventory write-offs and other incremental product costs associated with the COVID-19 pandemic. •Gross profit on vegetables decreased primarily due to higher per unit production and distribution costs as a result of lower sales volumes. Partially offsetting this decrease were higher per unit sales prices. •Gross profit on fresh-cut vegetables decreased primarily due to lower sales volumes inNorth America as a result of lower demand combined with higher per unit costs, principally consisting of higher production and distribution costs. Partially offsetting this decrease were higher per unit sales prices. •Gross profit on fresh-cut fruit decreased primarily due to lower sales volumes inNorth America and higher production and distribution costs per unit inAsia andEurope . Partially offsetting this decrease were higher per unit sales prices, primarily inEurope . Selling, General and Administrative Expenses. Selling, general and administrative expenses were$44.1 million for the third quarter of 2020 compared with$51.3 million for the third quarter of 2019, a decrease of$7.2 million . The decrease was principally due to lower selling and marketing expenses in theMiddle East as a result of a lower provision for credit losses. Also contributing to the decrease were lower administrative and selling and marketing expenses inNorth America , primarily as a result of cost saving initiatives. Gain (Loss) on Disposal of Property, Plant and Equipment, Net. The loss on disposal of property, plant and equipment, net, of$0.1 million during the third quarter of 2020 primarily related to a$0.4 million loss on disposal of certain production assets inNorth America which was partially offset by a$0.3 million gain on the sale of surplus land inChile . The gain on disposal of property, plant and equipment during the third quarter of 2019 of$6.9 million primarily related to the sale of surplus land inFlorida . Asset Impairment and Other (Credits) Charges, Net. Asset impairment and other (credits) charges, net, was$(3.5) million during the third quarter of 2020, as compared with$4.7 million during the third quarter of 2019. Asset impairment and other (credits) charges, net, for the third quarter of 2020 were comprised of the following: •$(4.4) million insurance recovery related to a voluntary product recall in our fresh and value-added products segment; 38 -------------------------------------------------------------------------------- Table of Contents •$0.8 million in severance expense for the reorganization of the sales and marketing function inNorth America related to the fresh and value-added products and banana segments; •$0.1 million in asset impairment charges relating to low-yielding banana plants inthe Philippines . Asset impairment and other (credits) charges, net, for the third quarter of 2019 were comprised of the following: •$4.7 million in asset impairment charges relating to low-yielding banana plants inthe Philippines . Operating Income. Operating income for the third quarter of 2020 decreased by$0.5 million from$27.1 million in the third quarter of 2019 to$26.6 million in the third quarter of 2020. This decrease was due to lower gross profit and lower gains on disposal of property, plant and equipment, net, partially offset by lower selling, general and administrative expenses and lower asset impairment and other charges, net. Interest Expense. Interest expense was$5.1 million for the third quarter of 2020 as compared with$6.0 million for the third quarter of 2019. The decrease was due to lower interest rates combined with lower average loan balances. Other (Expense) Income, Net. Other (expense) income, net, was$(0.8) million for the third quarter of 2020 as compared to$(0.5) million for the third quarter of 2019. The increase in other expense of$0.3 million was principally attributable to lower foreign exchange gains during the third quarter of 2020 as compared with the third quarter of 2019. Provision for Income Taxes. Provision for income taxes was$4.9 million for the third quarter of 2020 compared to$2.9 million for the third quarter of 2019. The increase in the provision for income taxes of$2.0 million is primarily due to increased earnings in certain higher tax jurisdictions. 39 -------------------------------------------------------------------------------- Table of Contents First Nine Months of 2020 Compared with First Nine Months of 2019Net Sales . Net sales for the first nine months of 2020 were$3,200.0 million compared with$3,463.8 million for the first nine months of 2019. The decrease in net sales of$263.8 million is due to lower net sales in all of our business segments. The COVID-19 pandemic negatively impacted our net sales during the first nine months of 2020 by an estimated$232.0 million in our fresh and value-added products and banana segments, as compared with our net sales during the first nine months of 2019 for these segments. The effect of government imposed mandatory closures and restrictions and the lack of family gatherings for holidays, school graduations and summer events specifically inNorth America has significantly reduced demand for many of our fresh and value-added products. •Fresh and value-added products - Net sales in the fresh and value-added products segment decreased$209.4 million principally as a result of lower net sales of fresh-cut vegetables, fresh-cut fruit, avocados, vegetables, and prepared food products. The COVID-19 pandemic negatively affected our net sales of fresh and value-added products by an estimated$194.0 million during the nine months endedSeptember 25, 2020 when compared with our net sales during the first nine months of 2019 for this segment. Partially offsetting the decrease in net sales was an increase in sales of non-tropical fruit. •Net sales of fresh-cut vegetables decreased principally due to the effect of the COVID-19 pandemic which resulted in the elimination of most of our foodservice business since March of this year. In addition, our voluntary product recall in the fourth quarter of 2019 continued to negatively impact our fresh-cut vegetable net sales during the first nine months of 2020 as volumes have not returned to pre-recall levels. •Net sales of fresh-cut fruit decreased principally due to lower sales volumes to our retail store distribution channel inNorth America . These lower sales volumes were primarily the result of reduced demand caused by the COVID-19 pandemic and related government imposed social distancing initiatives. •Net sales of avocados decreased primarily inNorth America due to the combined impact of lower per unit sales prices resulting from normalized industry supplies and lower sales volumes due to the COVID-19 pandemic. •Net sales of vegetables decreased primarily inNorth America due to the effect of the COVID-19 pandemic which negatively impacted demand in our foodservice distribution channel. Partially offsetting this decrease were higher per unit sales prices. •Net sales of prepared food products decreased due to lower sales volumes of meals and snacks which was primarily driven by the impact of the COVID-19 pandemic, the continuing impact of the 2019 product recall, and product rationalization efforts in our Mann Packing operations inNorth America which resulted in the discontinuance of low margin products. Partially offsetting this decrease were higher sales volumes and per unit sales prices of canned pineapple products as a result of improved customer demand and higher per unit sales prices of pineapple concentrate products due to lower industry supply. •Net sales of non-tropical fruit increased primarily as a result of higher sales volumes in theMiddle East due to increased sales in developing markets and higher sales volumes inEurope due to increased customer demand. Partially offsetting this increase in net sales were lower per unit sales prices, primarily inNorth America . •Banana - Net sales of bananas decreased by$38.9 million principally due to lower net sales inNorth America andEurope , partially offset by higher net sales in theMiddle East . We estimate that COVID-19 negatively affected our banana net sales by$38.0 million during the first nine months of 2020 when compared with our net sales during the first nine months of 2019 for this segment. Worldwide banana sales volume decreased by 1%. •North America banana net sales decreased primarily due to lower sales volumes, principally the result of COVID-19 related lower demand. •Europe banana net sales decreased due to lower sales volumes and lower per unit sales prices primarily as a result of COVID-19 related lower demand. •Middle East banana net sales increased due to higher sales volumes as a result of increased shipments fromLatin America to new markets in the region. Partially offsetting this increase were lower per unit sales prices. •Other products and services - Net sales of other products and services decreased principally due to lower sales volume and per unit sales prices in our Jordanian poultry business as a result of reduced demand in the foodservice sector driven by the COVID-19 pandemic. 40 -------------------------------------------------------------------------------- Table of Contents Cost of Products Sold. Cost of products sold was$2,985.5 million for first nine months of 2020 compared with$3,194.9 million for the first nine months of 2019, a decrease of$209.4 million . The decrease was primarily attributable to lower sales volumes and lower production costs per unit in both our fresh and value-added products and banana segments. Partially offsetting this decrease were higher ocean freight and distribution costs and$20.9 million of other product-related charges which principally include$18.6 million of charges attributable to our fresh and value-added products segment, primarily consisting of write-offs of pineapples, fresh-cut vegetables, vegetables, and melons, and$2.2 million of charges related to our banana segment, also primarily consisting of inventory write-offs. These inventory write-offs were principally due to lower demand in our foodservice distribution channel, shifting demand in retail, and volatile supply and demand conditions caused by the COVID-19 pandemic. Gross Profit. Gross profit was$214.5 million for the first nine months of 2020 compared with$268.9 million for the first nine months of 2019, a decrease of$54.4 million . This decrease was attributable to lower gross profit in our fresh and value-added products and banana business segments. •Fresh and value-added products - Gross profit in the fresh and value-added products segment decreased$38.5 million principally due to lower gross profit on fresh-cut vegetables, vegetables, pineapples, melons, and fresh-cut fruit, partially offset by higher gross profit on prepared food products and avocados. •Gross profit on fresh-cut vegetables decreased primarily due to lower sales volumes inNorth America as a result of lower demand combined with higher per unit product and distribution costs. Also impacting gross profit were inventory write-offs related to the COVID-19 pandemic. •Gross profit on vegetables decreased primarily due to higher per unit costs, including higher production and distribution costs. Also impacting gross profit were inventory write-offs related to the COVID-19 pandemic. •Gross profit on pineapples decreased primarily due to higher costs, principally consisting of inventory write-offs and other incremental product costs related to the COVID-19 pandemic. Also contributing to the decrease in gross profit were lower sales volumes inNorth America andEurope and higher ocean freight and distribution costs per unit. Partially offsetting the decrease in gross profit were higher per unit sales prices inEurope and theMiddle East . •Gross profit on melons decreased primarily due to higher costs, including the impact of inventory write-offs related to the COVID-19 pandemic and higher per unit fruit costs. •Gross profit on fresh-cut fruit decreased primarily due to lower sales volumes inNorth America as a result of lower demand combined with higher distribution costs per unit inEurope ,Asia andNorth America . Partially offsetting this decrease in gross profit were improved operating margins of our fresh-cut fruit products inNorth America as a result of lower production costs and higher per unit sales prices. •Gross profit on prepared food products increased primarily due to higher per unit sales prices and lower production costs of canned pineapple products combined with higher sales prices for pineapple concentrate products. Partially offsetting this increase were lower sales volumes and lower per unit sales prices of meals and snacks. •Gross profit on avocados increased primarily due to lower product costs resulting from favorable exchange rates and improved capacity utilization at our new packing plant inMexico which opened inDecember 2019 . Partially offsetting these increases were lower per unit sales prices. •Banana - Gross profit in the banana segment decreased by$15.9 million principally due to lower per unit sales prices inEurope , theMiddle East ,Asia , andNorth America . Also contributing to the decrease in gross profit were higher ocean freight costs and inventory write-offs related to the COVID-19 pandemic. Partially offsetting the decrease in gross profit were lower per unit fruit and distribution costs. Worldwide banana per unit sales prices decreased 2% and per unit cost decreased 1%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased
Gain on Disposal of Property, Plant and Equipment, Net. The gain on disposal of property, plant and equipment, net, was$1.5 million during the first nine months of 2020 and was primarily related to the sale of surplus land inChile . During the first nine months of 2019, the gain on disposal of property, plant and equipment of$16.1 million primarily related to the sale of surplus land inFlorida and a refrigerated vessel. 41
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Asset Impairment and Other (Credits) Charges, Net. Asset impairment and other (credits) charges, net was$(3.8) million during the first nine months of 2020 and$8.5 million during the first nine months of 2019. Asset impairments and other (credits) charges, net, for the first nine months of 2020 were primarily comprised of the following: •$(10.4) million insurance recovery related to a voluntary product recall in our fresh and value-added products segment; •$2.0 million charge relating to a settlement with the California Air Resource Board, related to the banana and fresh and value-added products segments; •$2.1 million in asset impairment charges of production facilities inNorth America andEurope related to our fresh and value-added products segment; •$1.5 million in severance expense for the reorganization of the sales and marketing function inNorth America related to the fresh and value-added products and banana segments; and •$0.8 million in asset impairment charges relating to low-yielding banana plants inthe Philippines . Asset impairments and other (credits) charges, net, for the first nine months of 2019 were comprised of the following: •$0.5 million in contract termination charges related to our decision to abandon in 2018 certain low-yield areas in our banana operations inthe Philippines ; •$4.7 million in asset impairment charges related to low-yielding banana plants inthe Philippines ; •$0.4 million in asset impairment charges related to our Chilean non-tropical fruit operation; and •$2.9 million in asset impairment charges related to our equity investment in Purple Carrot. Operating Income. Operating income decreased by$48.2 million from$125.6 million in the first nine months of 2019 to$77.4 million for the first nine months of 2020. The decrease in operating income was due to lower gross profit and lower gains on disposal of property, plant and equipment, partially offset by lower selling, general and administrative expenses and lower asset impairments and other charges, net. Interest Expense. Interest expense decreased by$3.7 million from$19.8 million for the first nine months of 2019 to$16.1 million for the first nine months of 2020 principally due to lower interest rates and lower average debt balances. Other (Expense) Income, Net. Other (expense) income, net, was expense of$(5.2) million for the first nine months of 2020 as compared with other income of$7.9 million for the first nine months of 2019. The change in other (expense) income, net, of$13.1 million was principally attributable to a net gain of$16.0 million as a result of the settlement of a business transaction litigation that was recorded during the first nine months of 2019. Partially offsetting the increase in other expense were higher foreign exchange losses during the first nine months of 2019 as compared with the first nine months of 2020. Provision for Income Taxes. Provision for income taxes was$9.4 million for the first nine months of 2020 compared with$20.0 million for the first nine months of 2019. The decrease in the provision for income taxes of$10.6 million is primarily due to lower earnings in certain higher tax jurisdictions. The tax provision for the nine months endedSeptember 25, 2020 also includes a$1.7 million benefit relating to the NOL carryback provision of the Coronavirus Aid, Relief and Economic Security Act (CARES) Act, which was enacted onMarch 27, 2020 . Recent Developments Subsequent to the quarter endedSeptember 25, 2020 and in connection with our ongoing Optimization Program, we finalized a transaction to sell a facility and related assets in theMiddle East with an aggregate carrying value of$10.6 million for a total purchase price of$15.4 million . Pursuant to the terms of the agreement, we received cash proceeds of$7.1 million associated with the sale during the quarter endedSeptember 25, 2020 , with the remainder of the purchase price to be collected over a five-year term. Contemporaneously with the closing of the sale, we entered into an operating lease agreement in which we leased back a portion of the facility for a term of six years. During the fourth quarter of 2019, our Mann Packing business voluntarily recalled a series of vegetable products sold to select customers inthe United States andCanada in our fresh and value-added products segment. During the nine months endedSeptember 25, 2020 , we recognized a$10.4 million insurance recovery associated with the voluntary product recall in asset impairments and other (credits) charges, net, of which$6 million had been received in cash. Subsequent to the quarter endedSeptember 25, 2020 , contingencies associated with the final portion of the insurance claim were resolved and as a result, an additional gain on insurance recovery of$4.6 million will be recognized in our Consolidated Statement of Operations during the fourth quarter of 2020. 42
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Liquidity and Capital Resources
We are a holding company with limited business operations of our own. Our only significant asset is 100% of 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.
A summary of our cash flows is as follows (
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