NOTE 12. PLANT CONSOLIDATION


In the third quarter of fiscal 1998, management committed to a plan to consolidate processing operations. In connection with this plan, Del Monte established an accrual of $6.6 in fiscal 1998 relating to severance and benefit costs for 433 employees to be terminated. At June 30, 2000, a balance of $2.9 remained in this accrual. Cash expenditures of $0.1 were recorded against this accrual as of June 30, 1999. For the year ended June 30, 2000, cash expenditures charged to this accrual totaled $2.3. In the fourth quarter of fiscal 2000, this accrual was reduced by $1.3 due primarily to changes in severance and related benefit estimates. Implementation of the plant consolidation was planned to occur in a specific sequence over a three-year period. Operations were suspended at the Modesto facility for approximately a year while that facility underwent reconfiguration to accommodate fruit processing which has previously taken place at the San Jose facility and is currently taking place at the Stockton facility. Del Monte closed the San Jose facility in December 1999, and the sale of this property is expected to close in fiscal 2001. The Stockton facility will close after the 2000 production season. The tomato processing formerly performed at the Modesto facility has been moved to the Hanford facility.

In August 1998, management announced its intention to close Del Monte’s vegetable processing plant located in Arlington, Wisconsin after the summer 1998 pack. Upon completion of this pack, a charge of $3.5 was taken during the first quarter of fiscal 1999 representing primarily the write-down to fair value of the assets held for sale. These assets included building, building improvements, and machinery and equipment with a carrying value of $4.1. Fair value was based on current market values of land and buildings in the area and estimates of market values of equipment to be disposed of. As of June 30, 1999, non-cash charges of $0.5 and cash expenditures of $0.4 were charged against this accrual. For the year ended June 30, 2000, non-cash charges of $1.8 and $0.1 of cash expenditures were charged against this accrual. In addition, upon the sale of this plant in fiscal 2000, the sale proceeds exceeded original estimates resulting in a reduction of the accrual of $0.7. No balance remained in this accrual at year-end June 30, 2000.

Del Monte incurred charges representing accelerated depreciation of $4.3 during fiscal 2000, $9.4 during fiscal 1999 and $3.0 during fiscal 1998. This acceleration results from the effects of adjusting the tomato and fruit processing assets’ remaining useful lives to match the period of use prior to the closures of these plants. Assets that are subject to accelerated depreciation consist primarily of buildings and of machinery and equipment, which will no longer be needed due to the consolidation of the operations of the two fruit processing plants and the consolidation of the operations of two tomato processing plants. The remaining useful lives of the buildings at the San Jose facility were decreased by approximately 20 years due to this acceleration.

Del Monte anticipates that it will incur additional charges relating to plant closures of approximately $2.9 in fiscal 2001, $0.7 in fiscal 2002 and $0.3 in fiscal 2003. These expenses include costs to remove and dispose of assets and ongoing fixed costs to be incurred until the sale of the San Jose and Stockton properties. Costs incurred due to plant consolidation in fiscal 2000 were $10.9, including $4.3 of accelerated depreciation, $2.7 for equipment removal, $5.9 of ongoing fixed costs and other period costs, and a $2.0 reversal of prior accruals, as discussed above. Total charges relating to plant closures were $17.2 in fiscal 1999, including depreciation expense of $9.4, $1.9 representing direct costs incurred to remove and dispose of tomato processing equipment at Modesto that would not be transferred to Del Monte’s tomato processing operations at the Hanford facility, as well as $3.5 for the Arlington closure and $2.4 of ongoing fixed costs and other period costs. Costs relating to plant closures recorded in fiscal 1998 totaled $9.6 (including depreciation expense of $3.0).