DEL MONTE FOODS CO - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996].

For the fiscal year ended June 30, 1997

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 333-29079
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DEL MONTE FOODS COMPANY
(Exact name of registrant as specified in its charter)

Maryland 13-3542950
--------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)

One Market, San Francisco, California 94105
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including
area code: (415) 247-3000

Securities registered pursuant to
Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----

Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

The common stock of the registrant is not publicly
traded. Therefore, the aggregate market value is not readily
determinable.

Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by Section
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a
court. Yes No
----- -----

As of August 31, 1997, 140,000 shares of Common Stock,
par value $.01 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

As used throughout this Annual Report, unless the
context otherwise requires, "DMC" means Del Monte Corporation, a
New York corporation, "DMFC" means Del Monte Foods Company, a
Maryland corporation and the parent of DMC, and the "Company" or
"Del Monte" means DMC and DMFC, together with each of their
direct and indirect subsidiaries. Unless otherwise indicated,
references herein to U.S. market share data are to case volume
and are based upon data provided to the Company by A.C. Nielsen &
Co., an independent market research firm. Market share data for
canned vegetables and cut tomato products include only those
categories in which the Company competes. Such data for canned
fruit include those categories in which the Company competes
other than the "specialty" category. See "Business--General."
With respect to market share data used herein, the term fiscal
1997 refers to the 52-week period ended June 28, 1997.

Certain statements in this Annual Report under the
captions "Business", "Selected Financial Data", Management's
Discussion and Analysis of Financial Condition and Results of
Operations", Financial Statements and Supplementary Data" and
elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company, or
industry results, to differ materially from any future results,
performances or achievements expressed or implied by such
forward-looking statements. Such risks and uncertainties and
other important factors include among others; general economic
and business conditions; weather conditions; crop yields;
industry trends; competition; raw material costs and
availability; the loss of significant customers; changes in
business strategy or development plans; availability, terms and
deployment of capital; availability of qualified personnel;
changes in, or failure or inability to comply with, governmental
regulations, including, without limitation, environmental
regulations; industry trends and capacity and other factors
referenced in this Annual Report. These forward-looking
statements speak only as of the date of the Annual Report. The
Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in the Company's
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.

PART I

ITEM 1. BUSINESS

General

The Company was originally incorporated in 1916 and
remained a publicly-traded company for over sixty years until its
acquisition in 1979 by the predecessor of RJR Nabisco, Inc. ("RJR
Nabisco"). In December 1989, RJR Nabisco sold the Company's fresh
produce operations, Del Monte Fresh Fruit, to Polly Peck
International. In January 1990, an investor group led by Merrill
Lynch & Co. purchased the Company and certain of its subsidiaries
from RJR Nabisco for $1.5 billion. Following such sale, the
Company divested several of its non-core businesses. In April
1997, the Company was recapitalized with an equity infusion from
TPG Partners, L.P. ("TPG"), its affiliates and other investors.

The Company is the largest producer and distributor of
canned vegetables and canned fruit in the United States, with net
sales to its customers in excess of $1 billion in fiscal 1997.
The Company's primary domestic channel of distribution is retail
outlets, which accounted for approximately $885 million (or 74%)
of the Company's fiscal 1997 domestic sales. In fiscal 1997, the
Company had market shares of 20.3% of all canned vegetable
products and 40.6% of all canned major fruit products in the
United States. The Company's market share in vegetables is larger
than the market share of the Company's two largest branded
competitors combined and its market share of canned fruit is
larger than the fruit market share of all other branded
competitors combined. In addition, the Company enjoys strong
market shares in various cut tomato product categories.

The Del Monte brand name, which has been in existence
since 1892, is one of the leading brand names in the food
industry and maintains a reputation for premium quality. Del
Monte brand products are found in substantially all chains and
independent grocery stores throughout the United States, with the
average supermarket carrying approximately 100 Del Monte brand
items. The Company estimates that Del Monte brand products are

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purchased by over 80% of U.S. households and that the Del Monte
brand is recognized by 96% of all consumers of products in the
Company's categories. The Del Monte brand has the highest unaided
brand awareness of any canned food brand in the United States. As
the brand leader in three major processed food categories (canned
vegetables, fruit and cut tomato products), the Company has a
multi-category presence that management believes provides it with
a competitive advantage in selling to the retail grocery
industry.

The Company sells its products to national chains and
wholesalers through a nationwide sales network consisting
primarily of independent food brokers. The Company's
direct sales force also sells Del Monte products to Warehouse
Clubs, Mass Merchandisers and Supercenters. In addition, the
Company sells its products to the foodservice industry, food
processors and the military through different independent food
brokers. The Company also exports a small percentage of its
products to certain foreign countries directly and through
independent exporters based in the United States.

The Company has over 2,500 contracts to purchase
vegetables and fruit from individual growers and cooperatives
located in various geographic regions of the United States,
principally the Midwest, the Northwest, California and Texas.
This diversity of sourcing helps insulate the Company from
localized disruptions during the growing season, such as weather
conditions, that can affect the price and supply of vegetables
and fruit.

The Company owns a number of registered and
unregistered trademarks that it uses in conjunction with its
business, including the trademarks Del Monte(R), FreshCut(TM),
Snack Cups(R), Fruit Cup(R), Fruit Naturals(R), and Del Monte
LITE(R). In connection with and subsequent to the RJR Nabisco
Sale, the Company granted various perpetual, royalty-free
licenses for the use of the Del Monte name and trademark,
generally outside of the United States. The licensees
of the Del Monte name and trademark include Del Monte Europe,
Kikkoman Corporation, Fresh Del Monte Produce, affiliates of RJR
Nabisco and Yorkshire Food Group. The licensees are not
affiliates of the Company.

In fiscal 1995, 1996 and 1997, the Company invested an
aggregate of approximately $50 million of capital in its domestic
operating facilities. The Company believes that the efficiency of
its fully-integrated production facilities, its proprietary seed
varieties and its bulk supply agreements make it one of the
lowest-cost producers of canned vegetables, fruit and cut tomato
products in the United States.

DMC was incorporated under the laws of the State of
New York in 1978. DMFC, then known as DMPF Holdings Corp., was
incorporated under the laws of the State of Maryland in 1989. DMC
and DMFC each maintains its principal executive office at One
Market, San Francisco, California 94105, and their telephone
number is (415) 247-3000. DMC is a wholly owned subsidiary of
DMFC.

Current Developments

Recapitalization. On February 21, 1997, DMFC entered
into an agreement and plan of merger (amended and restated as of
April 14, 1997) (the "Merger Agreement") with TPG and TPG Shield
Acquisition Corporation, a Maryland corporation ("Shield").
Pursuant to the Merger Agreement, DMFC was recapitalized through
the merger of Shield with and into DMFC with DMFC being the
surviving corporation (the "Recapitalization"). By virtue of the
Recapitalization, shares of DMFC's preferred stock having an
implied value of approximately $14 million held by certain of
DMFC's stockholders, who remained investors, were cancelled and
were converted into the right to receive new DMFC common stock.
All other shares of DMFC stock were cancelled and were converted
into the right to receive cash consideration. In the
Recapitalization, the common stock and preferred stock of Shield
was converted into shares of new DMFC common stock and preferred
stock, respectively.

Immediately following the consummation of the
Recapitalization, the charter of DMFC authorized DMFC to issue
capital stock consisting of 1,000,000 shares of new common stock,
$.01 par value per share (the "Common Stock"), and 1,000,000
shares of new preferred stock, $.01 par value per share (the
"Preferred Stock"). DMFC issued and has outstanding 140,000
shares of Common Stock, and 35,000 shares of Preferred Stock. TPG
and certain of its affiliates or partners hold 109,248 shares of
Common Stock, the shareholders of DMFC prior to the consummation
of the Recapitalization who received shares of Common Stock in
the Recapitalization hold 14,252 shares of Common Stock, and
other investors hold 16,500 shares of Common Stock. TPG and
certain of its

2

affiliates hold 17,500 shares of Preferred Stock, and TCW
Capital Investment Corporation holds 17,500 shares of Preferred
Stock.

The Preferred Stock accumulates dividends at the annual
rate of 14% of the liquidation value, payable quarterly. These
dividends are payable in cash or additional shares of Preferred
Stock, at the option of the Company, subject to availability of
funds and the terms of its loan agreements, or through a
corresponding increase in the liquidation value of such stock.
The Preferred Stock has a liquidation preference of $1,000 per
share and may be redeemed at the option of the Company at a
redemption price equal to the liquidation preference plus
accumulated and unpaid dividends (the "Redemption Price"). The
Company is required to redeem all outstanding shares of Preferred
Stock on or prior to April 17, 2008 at the Redemption Price or
upon a change in control of the Company at 101% of the Redemption
Price. In connection with the issuance and sale of the Preferred
Stock, the initial purchasers of the Preferred Stock received
warrants to purchase, at a nominal exercise price, shares of
Common Stock representing 2% of the outstanding shares of Common
Stock.

Cash funding requirements for the Recapitalization,
including repayment of substantially all previous indebtedness,
were $809 million and were satisfied through the following: (i) a
cash equity investment by TPG and other investors of $126 million
in common stock, (ii) a cash equity investment by TPG and other
investors of $35 million in shares of redeemable preferred stock
and warrants to purchase Common Stock, (iii) $380 million of
borrowings under a senior secured term loan facility (the "Term
Loan Facility"), (iv) $119 million of borrowings under a senior
secured revolving credit facility (the "Revolving Credit
Facility" and, together with the Term Loan Facility, the "Bank
Financing"), (v) $147 million, net of $3 million of discount,
from the issuance of senior subordinated notes (the "Unregistered
Notes"), and (vi) $2 million of proceeds from the sale of a
surplus property.

Concurrent with the Recapitalization, the Company
entered into a credit agreement with respect to the Bank
Financing. The Term Loan Facility provides for term loans in the
aggregate amount of $380 million, consisting of Term Loan A in a
principal amount of $200 million and Term Loan B in a principal
amount of $180 million. The Revolving Credit Facility provides
for revolving loans in an aggregate amount of $350 million,
including a $70 million Letter of Credit subfacility. The
Revolving Credit Facility will expire in fiscal 2003, Term Loan A
will mature in fiscal 2003, and Term Loan B will mature in fiscal
2005.

The Senior Subordinated Notes and the Exchange Offer.
The Unregistered Notes issued by the Company on April 18, 1997
were in an aggregate principal amount of $150 million and yielded
net proceeds to the Company of $147 million. The Unregistered
Notes were issued with registration rights requiring the Company
to exchange the Unregistered Notes for new notes ("Subordinated
Notes" (and together with any outstanding Unregistered Notes, the
"Notes")) registered under the Securities Act of 1933, as
amended. The form and terms of the Subordinated Notes are
substantially the same, in all material respects, as the form and
terms of the Unregistered Notes, except that there is no
restriction on the transfer thereof. The Company filed a
registration statement on Form S-4 with respect to the
Unregistered Notes on June 12, 1997, which became effective on
June 24, 1997. The exchange of the Subordinated Notes for the
Unregistered Notes was completed on July 31, 1997.

The Notes accrue interest at 12.25% per year, payable
semiannually in cash on each April 15 and October 15. The Notes
are guaranteed by DMFC and mature on April 15, 2007. The Notes
are redeemable at the option of the Company on or after April 15,
2002 at a redemption price of initially 106.313% of par,
decreasing to par on April 15, 2006 and thereafter. On or prior
to April 15, 2000, the Company, at its option, may redeem up to
35% of the aggregate principal amount of Notes originally issued
with the net cash proceeds of one or more public equity offerings
at a redemption price equal to 112.625% of the principal amount
thereof, plus accrued and unpaid interest to the date of
redemption, provided that at least 65% of the aggregate principal
amount of the Notes originally issued remains outstanding
immediately after any such redemption.

Sale of Del Monte Latin America. On August 27, 1996,
the Company signed a stock purchase agreement to sell its Latin
America subsidiaries to an affiliate of Hicks, Muse, Tate & Furst
Incorporated ("Hicks Muse"). This agreement was amended and
restated on October 25, 1996 for the sale of only the Company's
Mexican subsidiary, Productos Del Monte, S.A. de C.V. ("PDM"), to
an affiliate of Hicks Muse for $38 million, which sale was
completed on October 28, 1996. The sale of the Central America
and Caribbean subsidiaries to an affiliate of Donald W.
Dickerson, Inc. for $12 million was completed on November 13,
1996. The sales price for PDM is

3

subject to adjustment based on the final balance sheet. The
amount of any adjustment to the purchase price is currently in
dispute but is not expected to be material. In addition, the
purchasers have filed an action in Texas state court entitled
HMTF Acquisition Corp. et al v. Del Monte Corporation, alleging,
among other things, that the Company breached the purchase
agreement. Specifically, the purchasers claim that the financial
statements of the Mexican subsidiary did not fairly present its
financial condition and results of operations in accordance with
U.S. generally accepted accounting principles. In connection with
this action, $8 million of the cash proceeds which were payable
to shareholders and certain members of senior management of DMFC
in the Recapitalization have been held in escrow and will be
applied to fund the Company's costs and expenses in defending the
action, with any remaining amounts available to pay up to 80% of
any ultimate liability of the Company to the purchasers. See
"Item 3. Legal Proceedings." The combined proceeds of both sales
of $50 million, reduced by $2 million of related transaction
expenses, resulted in a loss of $5 million.

Company Products

The Company has a multi-category presence with
products in four major processed food categories: canned
vegetables, fruit, tomato products and pineapple.

Canned Vegetables. The canned and jarred vegetable
industry in the United States generated approximately $3.2
billion in sales in calendar 1996. The domestic canned vegetable
industry is a mature segment characterized by high household
penetration. Industry sales of canned and jarred vegetables have
remained stable in recent years.

The canned retail vegetable market consists of three
distinct segments: major, flanker, and specialty products. The
major segment consists of corn, green beans and peas and
represents the largest volume segment. The flanker segment
includes mixed vegetables, spinach, beets, carrots, potatoes and
sauerkraut. The specialty segment is comprised of asparagus,
zucchini, baby beets and a variety of corn and bean offerings. A
cross-segment, buffet products, includes all of the above
varieties in smaller can sizes. The Company also offers a no-salt
product line across most of its core varieties. The Company
competes in each of the major, flanker, buffet and specialty
categories of canned vegetables. Within these categories, the Del
Monte brand accounted for $465 million in retail sales in
calendar 1996.

The canned vegetable market is concentrated among a
small universe of branded players and a large, fragmented pool of
private label competitors. In the major vegetable market, the
Company is the branded market share leader. The Company also is
the branded market share leader in the flanker category and is
the overall market share leader in the buffet market. Private
label products taken as a whole command the largest share of the
canned vegetable market (41.8% in fiscal 1997), but their market
share has remained relatively stable over the past decade. The
primary branded competitors in the market include Del Monte and
Green Giant nationally, and regional brands such as Freshlike,
Stokely and Libby's in addition to private label producers.

The Company has relationships with approximately 900
vegetable growers located primarily in Wisconsin, Illinois,
Minnesota, Washington, and Texas.

Canned Fruit. The canned and jarred fruit industry in
the United States, including pineapple, generated approximately
$2.4 billion in sales in calendar 1996. The domestic canned fruit
industry is a mature segment characterized by high household
penetration. Industry sales of canned and jarred fruit have
remained virtually flat in recent years.

The Company competes in three distinct segments of the
canned fruit industry: major, specialty, and pineapple products.
These three distinct segments account for over 60% of the canned
fruit industry's total sales. The major segment consists of cling
peaches, pears and fruit cocktail/mixed fruit and Fruit Cup
products. The specialty segment includes apricots, freestone and
spiced peaches, mandarin oranges and cherries. The pineapple
segment is discussed separately below.

4

The Company is the largest processor of branded canned
fruit in the United States. The Company competes in the major
fruit and specialty fruit segments of the canned fruit market
which together accounted for approximately $1 billion of total
canned fruit industry sales in calendar 1996.

Major fruit accounted for sales by retailers of $803
million in calendar 1996. Sales by retailers of Del Monte brand
major fruit products totaled $306 million in calendar 1996. The
Company is the branded share leader in every significant
sub-segment of the major fruit category. The Company's major
fruit and Fruit Cup products are distributed in substantially all
grocery outlets.

The Company is the branded leader in the specialty
category as a whole and the market leader in apricots and
freestone and spiced peaches. Specialty fruits are higher margin,
lower volume niche items, which benefit from the Company's brand
recognition.

The Company competes in the canned fruit business on
the basis of product quality and category support to both the
trade and consumers. The Company faces competition in the canned
fruit segment primarily from Tri-Valley Growers and Pacific Coast
Producers ("PCP"), both of which are grower co-operatives that
produce private label products. Tri-Valley Growers also packs the
Libby's and S&W brands.

The Company has relationships with approximately 600
fruit growers located in California, Oregon and Washington.

Tomato Products. Tomato products generated calendar
1996 industry-wide sales of $5.3 billion. Total sales of tomato
products have grown steadily in recent years, achieving a
five-year compound annual growth rate of 3.6% per year. Sales by
retailers of Del Monte branded tomato products in calendar 1996
accounted for $273 million. The Company's tomato product
offerings include four major segments: cut tomatoes (stewed,
diced, chunky and wedges), ketchup, tomato sauce and paste, and
value-added products such as spaghetti/pasta sauce and sloppy joe
sauce.

The processed tomato market can be separated into more
than ten distinct product categories which differ widely in terms
of profitability, price sensitivity and growth potential.
Consumers use tomato products for a variety of purposes ranging
from ingredients to condiments, beverages and main dishes.

The highest growth is taking place in value-added
categories such as spaghetti/pasta sauce and diced tomatoes.
Growth in spaghetti sauce and in the value-added diced and chunky
segment of the solids category is anticipated to remain strong as
a result of the shift in consumer preferences towards
convenience-oriented items.

In fiscal 1995, the Company exited the whole-peeled
tomato segment to focus on cut tomato products, which is
generally a less price sensitive and higher-margin segment. The
Company is the branded leader in the diced segment, which is the
fastest growing segment in the tomato products group.

The Company offers products in nearly every canned
tomato product category, and faces competition in the tomato
product market from brand name competitors including S&W,
Contadina, Red Gold and Hunt's in the cut tomato category; Heinz
and Hunt's in the ketchup category; Campbell Soup's Prego, Van
Den Bergh's Ragu and Hunt's in the spaghetti sauce category; and
Hunt's and Hormel in the sloppy joe sauce category. In addition,
the Company faces competition from private label products in all
major categories.

The Company has relationships with approximately 40
tomato growers located primarily in California, where
approximately 95% of domestic tomatoes are produced.

Canned Pineapple. The canned pineapple products
industry in the United States generated approximately $338
million in sales in calendar 1996. The domestic pineapple
industry is a mature segment of the canned fruit industry that
has generated stable sales. Industry sales of canned pineapple
products have remained virtually flat in recent years.

5

Individual pineapple items are differentiated by cut style,
with varieties including sliced, chunk, tidbits and crushed. Most
pineapple product sold is packed in juice, with some products
packed in heavy syrup. The dominant size offering is the 20 oz.
size with 8 oz. and 15 oz. varieties also being offered.

The Company's retail pineapple line consists of sliced,
chunk, crushed and juice products in a variety of container
sizes. In addition to sales by retailers, which totaled $55
million in fiscal 1997, the Company sells a significant amount of
juice concentrate and crushed pineapple through the food
ingredients channel and also sells pineapple solids and juice
products to foodservice customers.

The Company is the second leading brand of canned
pineapple with Dole as the industry leader. Private label and
foreign pack brands comprise the low-price segment of this
category. The five major foreign pack brands, Geisha, Libby's,
Liberty Gold, Empress, and 3- Diamond, have regional distribution
and are supplied by Thai and Indonesian packers. Certain foreign
brands grew through 1995 by "dumping" product in the United
States at below cost prices which depressed category pricing. In
1995, the U.S. government imposed anti-dumping tariffs on Thai
packers which allowed the domestic industry to recover some of
its margins and volume.

The Company sources virtually 100% of its pineapple
requirements from its former subsidiary, Del Monte Philippines,
under a long-term supply agreement. The agreement provides for a
guaranteed supply of quality pineapple and a steady profit stream
due to pricing based on fixed retail and foodservice margins.

Sales, Marketing and Distribution

Sales. The Company's sales organization for retail
products is divided into four groups: (i) a retail broker network
(which consists of 100% independent broker representation at the
market level, managed by Company sales managers); (ii) national
accounts; (iii) Warehouse Clubs, Mass Merchandisers and
Supercenters; and (iv) customer marketing. Retail brokers are
independent, commissioned sales organizations which represent
multiple manufacturers. The Company's broker network represents
the Company to a broad range of grocery retailers. The national
accounts group maintains relationships with the corporate
headquarters of key national chain and wholesaler accounts such
as Fleming, Kroger, Super Valu and Winn-Dixie. The Company's
Warehouse Club, Mass Merchandiser and Supercenter group calls on
these customers directly (non-brokered) and is responsible for
the development and implementation of sales programs for
non-grocery channels of distribution that include Wal-Mart,
Price/Costco, Kmart and Target. The fourth group, customer
marketing, is responsible for managing internal customer oriented
resources including order management, continuous replenishment
program, logistics, trade promotion, strategic initiatives and
sales information and administration. Foodservice, food
ingredients, private label and military sales are accomplished
through both direct sales and brokers.

Marketing. Marketing includes product development,
pricing strategy, consumer and trade promotion, advertising,
publicity and package design. Consumer advertising and promotion
support are used, together with trade spending, to support
awareness of new items and initial trial by consumers, and to
build recognition of the Del Monte name.

Distribution. The Company's distribution organization is
responsible for the distribution of finished goods to over 2,400
customer destinations. Customers can order products to be
delivered via truck, rail or on a customer pickup basis. The
Company's distribution centers provide, among other services,
casing, labeling, special packaging, cold storing and fleet
trucking services. Other services the Company provides to
customers include One Purchase Order/One Shipment, in which the
Company's most popular products are listed on a consolidated
invoicing service; the UCS Electronic Data Interchange, a
paperless system of purchase orders and invoices; and the Store
Order Load Option (SOLO), in which products are shipped directly
to stores.

Supply and Production

The Company owns virtually no agricultural land. Each
year, the Company buys over one million tons of fresh vegetables
and fruits pursuant to over 2,500 contracts with individual
growers and cooperatives located primarily in the United States.
The Company enters into individual fixed price contracts with
growers of vegetables, fruits and tomatoes. The vegetable growers
are located in Wisconsin, Illinois, Minnesota, Washington, Texas and

6

Arizona. The Company provides the growers with planting
schedules, seeds, insecticide management and hauling capabilities
and actively participates in agricultural management and quality
control with respect to all sources of supply. The vegetable
contracts are generally for a one-year term.

The Company's fruit and tomato growers are located
primarily in California; pear growers are also located in Oregon
and Washington. The fruit contracts range from one to ten years
each and as of June 30, 1997 the Company had purchase commitments
outstanding of approximately $265 million. Prices are generally
negotiated with grower associations. The Company actively
participates in agricultural management and quality control and
provides insecticide management and hauling capabilities. Where
appropriate, the Company manages the growers' agricultural
practices.

Thirteen Company-owned plants, located throughout the
United States, process the Company's products. Generally located
near growing areas, vegetable processing plants are located in
Illinois, Wisconsin, Minnesota, Texas and Washington, while fruit
and tomato plants are located in California, Indiana and
Washington. The Company produces the majority of its products
between June and October. Most of the Company's seasonal plants
operate at close to full capacity during the packing season.

Co-packers are used for pickles and certain other
non-core products and to supplement supplies of certain canned
vegetables, fruit and tomato products.

Prior to December 1993, the Company produced almost all
of the cans used to package its products in the United States at its
nine can manufacturing facilities located throughout the United
States. In December 1993, the Company sold substantially all the
assets (and certain related liabilities) of the Company's can
manufacturing business to Silgan Container Corporation
("Silgan"). The transaction included the sale or lease of the
Company's nine can manufacturing facilities. In connection with
this agreement, Silgan and the Company entered into a ten-year
supply agreement, with optional successive five-year extensions
under which Silgan agreed to supply all of the Company's
requirements for metal food and beverage containers in the United
States. The Company's total annual can usage is approximately two
billion cans, representing approximately 5.5% of total domestic
food can volume in the United States.

In connection with the Recapitalization, the Company
has developed a capital expenditure program that is designed to
generate additional cost savings to be achieved over the next
four years as certain initiatives are completed. There can be no
assurance, however, that such cost savings will be realized.
Management currently plans to introduce new processing equipment
such as modern high-speed fillers, optical sorting equipment and
packaging machinery, each of which is intended to generate cost
savings and to help the Company maintain its position as a low
cost producer. Such savings would result primarily from general
production efficiencies and, to a lesser degree, from decreased
labor costs.

Foreign Operations

The Company has sold all of its non-U.S. operations
and now conducts substantially all of its business domestically.

Customers

The Company's customer base is broad and diverse and
no single customer accounted for more than 10% of fiscal 1997 net
sales. The Company's 15 largest customers during fiscal 1997
represented approximately 45.1% of the Company's net sales. These
companies have all been Del Monte customers for at least ten
years and, in some cases, for more than twenty years.

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Competition

The Company faces substantial competition throughout
its product lines from numerous well-established businesses
operating nationally or regionally with single or multiple
branded product lines. In general, the Company competes on the
basis of quality, breadth of product line and price. See
"--Company Products."

The domestic canned food industry is characterized by
relatively stable growth based on modest price and population
increases. Over the last ten years, the industry has experienced
consolidation as competitors have shed non-core business lines
and made strategic acquisitions to complement category positions,
maximize economies of scale in raw material sourcing and
production and expand retail distribution. Sustaining strong
relationships with retailers has become a critical success factor
for food companies and is driving initiatives such as category
management. Food companies with category leadership positions and
strong retail relationships have increasingly benefited from
these initiatives as a way to maintain shelf space and maximize
distribution efficiencies.

Each product segment of the canned food industry is
typically comprised of a few branded players who control one
third to more than one half of total industry market share and a
large, fragmented private label segment. Leading brands are
generally able to command a pricing premium over private label
competitors. Although private label products have held
significant market shares in the aggregate for canned fruit
(42.0% in fiscal 1997), vegetables (41.8% in fiscal 1997) and cut
tomato products (31.4% in fiscal 1997) for some time, their
market shares have remained relatively stable over the past
decade. Since the canned food industry is mature and capital
intensive, there have been few new entrants into the major
product markets in recent years. Moreover, the industry has
experienced plant closures and consolidation over the past
decade.

Information Services

In November 1992, the Company entered into an
agreement with Electronic Data Systems Corporation ("EDS") to
provide services and administration to the Company in support of
its information services functions for all domestic operations.
Payments under the terms of the agreement are based on scheduled
monthly base charges subject to various adjustments based on such
factors as production levels and inflation. Base charge payments
under the agreement total $137 million, to be paid over the
ten-year term of the contract. The agreement expires in November
2002 with optional successive one-year extensions. As a part of
the agreement, the Company sold EDS certain of its information
technology equipment and software for approximately $6 million.
The Company periodically reviews its general information system
needs.

Research and Development

The Company's research and development ("R&D")
organization provides product, packaging and process development
and analytical and microbiological services, as well
as agricultural research and seed production. In fiscal 1997,
1996 and 1995, R&D expenditures (net of revenue for services to
third parties) were $5 million, $6 million and $6 million,
respectively. The Company maintains an R&D facility in Walnut
Creek, California where it conducts research in a number of areas
related to its business including seed production, packaging,
pest management, food and nutrition science and plant breeding.

Employees

At June 30, 1997, the Company had approximately 2,100
full-time employees. An additional 12,000 individuals are hired
on a temporary basis during the pack season. The Company
considers its relations with its employees to be satisfactory.

The Company has eight collective bargaining agreements
with seven unions covering approximately 9,850 of its hourly and
seasonal employees. Three collective bargaining agreements expire
in calendar 1998. The remaining agreements expire in calendar
1999, 2000 and 2001. The Company believes that each of these
agreements will be successfully renegotiated, but there can be no
assurance that negotiations will be successful.

8

Trademarks and Licenses

The Company owns a number of registered and
unregistered trademarks for use in connection with various food
products. These trademarks are important to the Company because
brand name recognition is a key factor in the success of the
Company's products. The current registrations of these trademarks
in the United States and foreign countries are effective for
varying periods of time, and may be renewed periodically provided
that the Company, as the registered owner, and its licensees,
where applicable, comply with all applicable laws. The Company is
not aware of any material challenge to the ownership by the
Company of its major trademarks.

In connection with the RJR Nabisco Sale and the
divestitures of certain operations subsequent to that sale, the
Company granted various perpetual, royalty-free licenses for use
of certain trade secrets, trademarks, patents and other
intellectual property to the acquiring companies. With respect to
processed food products, affiliates of RJR Nabisco hold the
rights to use Del Monte trademarks in Canada and South America;
Kikkoman Corporation holds the rights to use Del Monte trademarks
in the Far East (excluding the Philippines); Del Monte Europe
holds the rights in Europe, Africa, the Middle East and the
Indian Subcontinent; and Dewey Limited (an affiliate of Del Monte
Europe) owns the rights in the Philippines to the Del Monte brand
name. Fresh Del Monte Produce holds the rights to use the Del
Monte trademark with respect to fresh produce and certain chilled
and frozen products related thereto throughout the world. With
respect to dried fruit and snack products, Yorkshire Food Group
holds the rights to use Del Monte trademarks in the United
States, Mexico, Central America and the Caribbean. In connection
with agreements to sell Del Monte Latin America, an affiliate of
Hicks Muse acquired the right to use the Del Monte trademarks
with respect to processed foods in Mexico and Donald W.
Dickerson, Inc. acquired such right in Central America and the
Caribbean. The Company retains the right to review the quality of
the licensee's products under each of its license agreements. The
Company generally may inspect the licensees' facilities for
quality and the licensees must periodically submit samples to the
Company for inspection. Licensees may grant sublicenses but all
sublicensees are bound by these quality control standards and
other terms of the license. The Company has also granted various
security interests in its trademarks and related trade names,
patents and trade secrets to its creditors in connection with the
Bank Financing and to its licensees.

Governmental Regulation

The Company's operating businesses are subject to
regulation and inspection by various federal, state and local
governmental agencies which enforce strict standards of
sanitation, product composition, packaging and labeling, work
place safety and environmental compliance. The Company believes
it is in substantial compliance with such regulations. New
nutrition labeling and health claim requirements proposed by the
U.S. Food and Drug Administration (the "FDA") were passed by
Congress in 1990 and became effective on August 4, 1994. The
Company believes it is in substantial compliance with such
regulations. See "Item 3. Legal Proceedings."

Pension Contributions

As described more fully in Note F to the audited
consolidated financial statements of the Company for the year
ended June 30, 1997 in Item 8., the Company's defined benefit
pension plans are underfunded. In connection with the
Recapitalization, the Company entered into an agreement with the
U.S. Pension Benefit Guaranty Corporation dated April 7, 1997
whereby the Company contributed $15 million within 30 days after
the consummation of the Recapitalization to its defined benefit
pension plans. The Company will also contribute a minimum of $15
million in calendar 1998, $9 million in calendar 1999, $8 million
in calendar 2000 and $8 million in calendar 2001, for a total of
$55 million. The contributions required to be made in 1999, 2000
and 2001 will be secured by a $20 million letter of credit to be
obtained by the Company by August 31, 1998. The contributions
required to be made in 1998 will be paid prior to any scheduled
amortization under the Bank Financing in excess of $1 million,
and the Company has agreed not to make voluntary prepayments of
the loans under the Bank Financing prior to making the
contributions required to be made in 1998 or prior to obtaining
the letter of credit.

Environmental Compliance

As a result of its agricultural, food processing
and canning activities, the Company is subject to numerous
environmental laws and regulations. Many of these laws and
regulations, both foreign and domestic, are becoming

9

increasingly stringent and compliance with them is becoming
increasingly expensive. The Company believes that it is in
substantial compliance with all such laws and regulations. The
Company is engaged in a continuing program to maintain its
compliance with existing laws and regulations and to establish
compliance with anticipated future laws and regulations. The
Company spent an aggregate of $5 million on domestic
environmental expenditures from fiscal 1995 through fiscal 1997,
and projects that it will spend an aggregate of approximately $4
million in fiscal 1998 and 1999 on capital projects and other
expenditures in connection with environmental compliance.

In addition, in connection with the Company's
divestiture of owned or operated properties, the Company may be
required to remediate environmental conditions at such
properties. The Company has also identified certain conditions
that require remediation at properties it continues to own or
operate. The Company does not expect that such remediation costs
will have a material adverse effect on the Company's financial
condition or results of operations.

The Company has been notified by governmental
authorities and private claimants that it may be a potentially
responsible party ("PRP") for environmental investigation and
remediation costs at certain designated "Superfund Sites" under
CERCLA or under similar state laws. The Company resolved its
liability at three Superfund Sites in fiscal 1996 and at two
Superfund Sites in fiscal 1997. Currently, the Company is
involved as a PRP at six Superfund Sites. The Company is
indemnified for any liability at two of these sites.

In most cases, the Company is considered a PRP because
it sent certain wastes (usually non-hazardous materials) from its
operations to these sites for disposal. With respect to the four
Superfund Sites at which the Company is currently involved and is
not indemnified by another party, the environmental investigation
and remediation are at various stages. Because the investigation
and remediation process is usually long and complicated, it is
sometimes difficult to predict the ultimate extent of the
Company's liability. However, at most Superfund Sites, the
Company has a de minimis share of liability. There can be no
assurance that the Company will not be identified as a PRP at
additional sites in the future or that additional remediation
requirements will not be imposed on properties currently owned
and operated. In addition, there can be no assurance that other
sites to which the Company has sent waste will not be identified
for investigation or proposed for listing under CERCLA or similar
state laws. The Company believes that its CERCLA and other
environmental liabilities, if any, will not have a material
adverse effect on the Company's financial position or results of
operations.

Working Capital

The inventory position of the Company is seasonally
affected by the growing cycle of the vegetables, fruits and
tomatoes it processes. Substantially all inventories are produced
during the harvesting and packing months of June through October
and depleted through the remaining seven months. The Company
maintains a revolving line of credit to fund its seasonal working
capital needs.

Backlog

The Company does not experience significant backlog.

ITEM 2. PROPERTIES

As of June 30, 1997, the Company operated 13
production facilities and six distribution centers. The Company's
production facilities are owned properties, while the
distribution centers are owned or leased and the Company's
various warehousing/storage facilities are primarily leased
facilities. Virtually all of the Company's properties, whether
owned or leased, are subject to liens or security interests
pursuant to the Bank Financing.

The Company's principal administrative headquarters
are located in leased office space in San Francisco, California.
The Company owns its primary research and development facility in
Walnut Creek, California.

10

The Company holds certain excess properties for sale
and periodically disposes of excess land and facilities through
sales.

Management considers its facilities to be suitable and
adequate for the business conducted therein, and to have
sufficient production capacity for the purposes for which they
are presently intended.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings
incidental to its business, including claims with respect to
product liability, worker's compensation, tort and other general
liability and automobile liability, for which the Company carries
insurance or is self-insured, as well as trademark, copyright and
related litigation, and wrongful discharge and other
employer/employee claims and litigation. The Company believes
that no such legal proceedings will have a material adverse
effect on the business or financial condition of the Company. See
"Item 1. Business--Environmental Compliance" for a description of
certain environmental litigation to which the Company is a party.

During fiscal years 1993, 1994 and 1995, the Company
had exclusive supply arrangements (the "PCP Agreement") with PCP
to purchase substantially all of PCP's tomato and fruit
production. PCP continued to own and operate its production
facilities, as well as purchase raw products through its
established grower network. The PCP Agreement was to expire in
June 1998. During fiscal 1995, the U.S. Federal Trade Commission
("FTC") conducted an investigation to determine whether the
supply arrangement was in violation of certain United States
antitrust laws. In January 1995, the Company and PCP agreed to
terminate the PCP Agreement and other supply and purchase option
agreements in settlement of the FTC investigation. The Company
negotiated a consent order with the FTC which was issued on April
11, 1995. Pursuant to this consent order, the PCP Agreement was
terminated in late fiscal 1995. The order imposes restrictions on
the Company's ability to acquire existing domestic canned fruit
businesses and assets.

The Company is engaged in ongoing discussions with the
FDA concerning the Company's FreshCut brand labeling on certain
tomato, vegetable and pineapple products. The Company believes
that its labeling complies in all respects with applicable law.
However, as part of these discussions, the Company has proposed
modifying its labeling in order to address certain concerns
expressed by the FDA.

On March 25, 1997, the entities that purchased the
Company's Mexican subsidiary in October 1996 commenced an action
in Texas state court entitled HMTF Acquisition Corp. et al v. Del
Monte Corporation, alleging, among other things, that the Company
breached the agreement with respect to the purchase because the
financial statements of the Mexican subsidiary did not fairly
present its financial condition and results of operations in
accordance with U.S. generally accepted accounting principles.
The purchasers have claimed damages in excess of $10 million as a
result of these alleged breaches. In connection with this action,
$8 million of the cash proceeds payable to current shareholders
and certain members of senior management of DMFC in the
Recapitalization will be held in escrow and applied to fund the
Company's costs and expenses in defending the action, with any
remaining amounts available to pay up to 80% of any ultimate
liability of the Company to the purchasers. Separately, the
purchasers claim that they are entitled to receive from the
Company as a purchase price adjustment an additional
approximately $2.6 million pursuant to provisions of the purchase
agreement. The Company does not believe that these claims, in the
aggregate, will have a material adverse effect on the Company's
financial position or results of operations.

11

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On April 17, 1997, a Special Meeting of Stockholders
of Del Monte Foods Company was held to consider (i) the merger of
Shield with and into DMFC pursuant to the Merger Agreement, (ii)
the management equity compensation plan referred to in the Merger
Agreement and (iii) amendments to the Charter of DMFC necessary
to be consistent with the Merger Agreement. One hundred
ninety-eight thousand sixty-eight shares of Class A Common Stock;
6,716 shares of Class C Common Stock; 97,254 shares of Class D
Common Stock; 25,000 shares of Class E Common Stock and 50,000
shares of Class F Common Stock; 7,195,748.818 shares of Series A1
Preferred Stock; 1,661,271 shares of Series A2 Preferred Stock;
1,730,204.650 shares of Series B Preferred Stock; 1,522,353.269
shares of Series C Preferred Stock; 1,466,582.463 shares of
Series D Preferred Stock; 3,596,865.931 shares of Series E
Preferred Stock; and 1,128.815 shares of Series F Preferred Stock
were represented by proxy at the meeting. All three matters
submitted to the stockholders were approved by a unanimous vote
of all shares represented at the meeting.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY SECURITIES AND
RELATED STOCKHOLDER MATTERS

There is no established public market for any class of
DMFC capital stock. See "Item 12. Security Ownership of Certain
Beneficial Owners and Management" for a discussion of the
ownership of DMFC.

12

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth historical consolidated
financial information of the Company. The statement of operations
data for each of the fiscal years in the four-year period ended
June 30, 1996 and the balance sheet data as of June 30, 1993,
1994, 1995 and 1996 have been derived from consolidated financial
statements of the Company audited by Ernst & Young LLP,
independent auditors. The statement of operations data for the
year ended June 30, 1997 and the balance sheet data as of June
30, 1997 have been derived from consolidated financial statements
of the Company audited by KPMG Peat Marwick LLP, independent
auditors. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," the consolidated financial statements of
the Company and related notes and other financial information
included elsewhere in this Annual Report on Form 10-K.

Fiscal Year Ended June 30,

1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in millions, except per share amounts)
Statement of
Operations Data:
Net sales(a)............ $ 1,217 $ 1,305 $ 1,527 $ 1,500 $ 1,556
Cost of sales(a)........ 817 984 1,183 1,208 1,213
------- ------- ------- ------- -------

Gross profit............ 400 321 344 292 343
Selling, advertising,
administrative and
general expenses(a)(b) 327 239 264 225 286
Special charges(c)...... -- -- -- -- 140
------- ------- ------- ------- -------

Operating income (loss). 73 82 80 67 (83)
Interest expense........ 52 67 76 61 68
Loss (gain) on sale
of assets(d)........... 5 (107) -- (13) (13)
Other (income)
expense(e)............. 30 3 (11) 8 4
------- ------- ------- ------- -------

Income (loss) before
income taxes, minority
interest, extraordinary
item and cumulative
effect of accounting
change(f)(g)........... (14) 119 15 11 (142)
Provision for income
taxes.................. -- 11 2 3 10
Minority interest in
earnings of subsidiary -- 3 1 5 8
------- ------- ------- ------- -------
Income (loss) before
extraordinary item
and cumulative effect
of accounting
change(f)(g)........... (14) 105 12 3 (160)
Extraordinary loss(f)... 42 10 7 -- --
Cumulative effect of
accounting change(g)... -- 7 -- -- 28
------- ------- ------- ------- -------
Net income (loss)....... $ (56) $ 88 $ 5 $ 3 $ (188)
======= ======= ======= ======= =======

Income (loss) per
common share
Income (loss) before
extraordinary item
and cumulative effect
of accounting change
per common share....... $(261.72) $ 59.40 $(145.35) $(143.08) $(504.36)
Extraordinary loss...... (129.10) (26.39) (18.34) -- --
Cumulative effect
of accounting
change -- (18.14) -- -- (67.34)
-------- ------- ------- ------- -------

Net income (loss)
per common
share(h)............... $(390.82) $ 14.87 $(163.69) $(143.08) $(571.70)
======= ======= ======= ======= =======

13

Selected Ratios:
Ratio of earnings
to fixed changes(i).... -- 2.6x 1.2x 1.2x --
Deficiency of
earnings to cover
fixed charges(i)....... $ 14 -- -- -- $ 142
Balance Sheet Data:
Working capital......... $ 116 $ 20 $ 99 $ 88 $ 92
Total assets............ 667 736 960 936 1,066
Total debt.............. 610 373 576 569 624
Redeemable preferred
stock.................. -- 213 215 215 216
Redeemable common
stock.................. -- 2 2 2 2
Redeemable Preferred
Stock.................. 32 -- -- -- --
Stockholders' equity
(deficit).............. (412) (304) (393) (384) (385)

- ----------------------

(a) Beginning in the fourth quarter of fiscal 1997, certain
merchandising allowances, which previously were included as
a cost of products sold, have been reclassified to selling
expense. Such merchandising allowances totaled $143, $100,
$106, $67 and $113 in the fiscal years ended June 30, 1997,
1996, 1995, 1994 and 1993 respectively. In addition,
certain military distributor allowances, which previously
were treated as a reduction in net sales, have been
reclassified to selling expense. Such military distributor
allowances amounted to $2, $1, $1, $1 and $1 in fiscal
years ended June 30, 1997, 1996, 1995, 1994 and 1993
respectively. All financial information has been restated
to conform to this presentation.

(b) In connection with the Recapitalization in fiscal 1997,
expenses of approximately $25 million were incurred
primarily for management incentive payments and, in part,
for severance payments.

(c) In June 1993, the Company recorded special charges of $140
million, which included $115 million for permanent
impairment of acquisition-related intangible assets,
including goodwill, and $25 million for facility
consolidations.

(d) The Company sold its equity investment in Del Monte Europe
in the fiscal quarter ended March 31, 1993 and recognized a
$13 million gain. The Company sold its can manufacturing
operations in the fiscal quarter ended December 31, 1993 and
recognized a $13 million gain. In November 1995, the Company
sold its pudding business for $89 million, net of $4 million
of related transaction fees. The sale resulted in a gain of
$71 million. In March 1996, the Company sold its 50.1%
ownership interest in Del Monte Philippines for $100
million, net of $2 million of related transaction fees. The
sale resulted in a gain of $52 million of which $16 million
was deferred and $36 million was recognized in fiscal 1996.
The purchase price included a premium paid to the Company as
consideration for an eight-year supply agreement. The gain
associated with the value of the premium was deferred and
will be amortized over the term of the agreement. In the
fiscal quarter ended December 1996, the Company sold Del
Monte Latin America. The combined sales price of $50
million, reduced by $2 million of related transaction
expenses, resulted in a loss of $5 million. The sales price
for Del Monte Latin America is subject to adjustment based
on the final balance sheet. The amount of any adjustment to
the purchase price is currently in dispute but is not
expected to be material. See "Business--Legal Proceedings."

(e) In fiscal 1995, other income reflects the Company's receipt
of proceeds of a $30 million letter of credit, reduced by
$4 million of related transaction expenses, as a result of
the termination of a merger agreement with Grupo Empacador
de Mexico, S.A. de C.V. In fiscal 1997, $22 million of
expenses were incurred in conjunction with the
Recapitalization, primarily for legal, investment advisory
and management fees.

(f) In June 1995, the Company refinanced its then-outstanding
revolving credit facility, term loan and senior secured
floating rate notes. In conjunction with this debt
retirement, capitalized debt issue costs of
$7 million were written off and accounted for as an
extraordinary loss. In December 1995 and April 1996, the

14

Company prepaid part of its term loan and senior secured
notes. In conjunction with the early debt retirement, the
Company recorded an extraordinary loss of $10 million for
the early retirement of debt. The extraordinary loss
consisted of a $5 million prepayment premium and a $5
million write-off of capitalized debt issue costs related
to the early retirement of debt. In fiscal 1997, $42
million of expenses related to the early retirement of debt
due to the exchange of PIK Notes and to the
Recapitalization was charged to net income. In September
1996, the Company repurchased PIK Notes and, concurrently,
exchanged essentially all remaining PIK Notes for 1996 PIK
Notes. In conjunction with this repurchase and exchange,
capitalized debt issue costs of $4 million, net of a
discount on the PIK Notes, were written off and accounted
for as an extraordinary loss. In conjunction with the
refinancing of debt that occurred at the time of the
Recapitalization in April 1997, the Company recorded $38
million related to the early retirement of debt. The $38
million consisted of previously capitalized debt issue
costs of approximately $19 million and a 1996 PIK Note
premium payment and a term loan make-whole payment
aggregating $19 million.

(g) Effective July 1, 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Post-Retirement Benefits Other
Than Pensions." The Company elected to recognize this
change in accounting on the immediate recognition basis.
The cumulative effect of adopting SFAS No. 106 resulted in
a charge to fiscal 1993 net earnings of $28 million.
Effective July 1, 1995, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The cumulative effect
of adopting SFAS No. 121 resulted in a charge to fiscal
1996 net earnings of $7 million.

(h) Net income (loss) attributed to common shares is computed
as net income (loss) reduced by the cash and in-kind
dividends for the period on redeemable preferred stock.

(i) For purposes of determining the ratio of earnings to fixed
charges and the deficiency of earnings to cover fixed
charges, earnings are defined as income (loss) before
extraordinary item, cumulative effect of accounting change
and provision for income taxes plus fixed charges. Fixed
charges consist of interest expense on all indebtedness
(including amortization of deferred debt issue costs) and
the interest component of rent expense.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This discussion summarizes the significant factors
affecting the consolidated operating results, financial condition
and liquidity of the Company during the three-year period ended
June 30, 1997. This discussion should be read in conjunction with
the audited consolidated financial statements of the Company for
the three-year period ended June 30, 1997 and notes thereto
included elsewhere in this Annual Report on Form 10-K.

General

The Company reports its financial results on a July 1
to June 30 fiscal year basis to coincide with its business cycle,
which is highly seasonal. Raw product is harvested and packed
primarily in the months of June through October, during which
time inventories rise to their highest levels. At the same time,
consumption of canned products drops, reflecting, in part, the
availability of fresh alternatives. This situation impacts
operating results as sales volumes, revenues and profitability
decline during this period. Results over the remainder of the
fiscal year are impacted by many factors including industry
supply and the Company's share of that supply.

The annual production volume of fruits and vegetables
is impacted by general seasonal fluctuations primarily due to
weather and overall growing conditions. During the early 1990s,
the markets for the Company's principal products of canned
vegetables and canned fruit were in a position of stable demand
and excess supply. This excess supply primarily resulted from
overplanting and abundant harvests of raw product, combined with
processing overcapacity. During such periods of industry
oversupply, pressure was placed on absolute volumes and gross
margins. The Company, as well as certain of its competitors,
implemented vegetable plant closures in an

15

attempt to reduce processing overcapacity. The summer 1993
pack and the summer 1995 pack were reduced by weather related
fluctuations. Yields from the summer 1993 pack were lower than
normal due to flooding in the Midwest. However, the overall
industry supply situation remained in excess due to higher than
usual inventories attributable to the summer 1992 pack. The
summer 1995 pack was below average for both vegetables and fruit
due to flooding in the Midwest and heavy rains in California
during the winter and spring of 1995. As a result, inventory
levels during fiscal 1996 were lower than in previous years,
leaving industry supply for vegetables and fruit in a
balanced-to-tight position. The summer 1996 pack was slightly
below average for fruit, while tomato production was slightly
higher than expected. Vegetable production during fiscal 1996 was
above average. This, coupled with an industry decrease in sales,
resulted in higher than expected carryover inventories of
vegetables. In response, vegetable plantings were decreased for
summer 1997 which resulted in higher vegetable costs. The summer
1997 pack is expected to yield a sufficient fruit harvest to meet
projected sales demand.

The weather conditions which existed during the summer
of 1995 resulted in reduced acreage yields and production
recoveries of fruits and vegetables which negatively impacted the
Company's production costs in fiscal 1996. During fiscal 1996,
the Company's management developed a strategy to increase prices.
These price increases resulted in volume and market share
decreases for the Company during fiscal 1996 as competitors sold
greater volume because their prices remained below the Company's.
Despite the reduced market share, the Company's profitability was
significantly higher in the fourth quarter of fiscal 1996 as a
result of higher net selling prices. These price increases were
applied to all product lines in fiscal 1997. Although the
Company's aggregate volumes decreased in fiscal 1997 as compared
to fiscal 1996, the Company regained and exceeded prior year
fruit market share while vegetable market share was maintained
and profitability growth continued due to these higher net
selling prices. Profitability growth and market share may be
unfavorably impacted in the future due to the market dynamics of
available supply and competitors' pricing.

In fiscal 1996, the Company also developed a new
marketing strategy which emphasizes consumption-driven trade
promotion programs as well as consumer-targeted promotions such
as advertising and coupons in an effort to build brand preference
and stimulate consumption. This strategy encourages retailers to
use store advertisements, displays and consumer-targeted
promotions and discourages the use of periodic price-only
promotions. Historically, the Company has relied primarily upon
periodic price-only trade promotions, rather than consumer
promotion.

In fiscal 1995, Del Monte terminated an exclusive supply
agreement with PCP to purchase substantially all of PCP's tomato
and fruit production. During fiscal 1996 and the first half of
fiscal 1997, the Company sold its pudding business, its 50.1%
interest in Del Monte Philippines and all of its interest in Del
Monte Latin America. At the end of fiscal 1997, a distribution
agreement under which Del Monte sold certain products for
Yorkshire at cost expired. These events are collectively referred
to as the "Divested Operations."

Results of Operations

The following table sets forth, for the periods
indicated, certain items from the Company's consolidated
statements of operations, expressed as percentages of the
Company's net sales for such fiscal period:

Fiscal Year Ended June 30,
--------------------------
1997 1996 1995
---- ---- ----
Net sales................. 100% 100% 100%
Cost of products sold..... 67 76 78
---- ---- ----
Gross margin............. 33 24 22
Selling, advertising,
administrative and
general expenses........ 27 18 17
---- ---- ----
Operating income......... 6% 6% 5%
==== ==== ====
Interest expense.......... 4% 5% 5%
==== ==== ====

16

The following table sets forth, for the periods
indicated, the Company's net sales by product categories,
expressed in dollar amounts and as a percentage of the Company's
total net sales for such period:

Fiscal Year Ended June 30,
--------------------------
1997 1996 1995
---- ---- ----
(Dollars in millions)

Net Sales:
Canned vegetables(a)...... $ 437 $ 402 $ 441
Canned fruit(a)........... 431 367 394
Tomato products(a)........ 229 217 211
Canned pineapple(a)....... 65 72 66
Other(b).................. 41 89 219
----- ----- -----
Subtotal domestic....... 1,203 1,147 1,331
Latin America............. 17 55 65
Philippines............... -- 142 180
Intercompany sales........ (3) (39) (49)
----- ----- -----
Total Net Sales......... $1,217 $1,305 $1,527
===== ===== =====

As a Percentage of Net Sales:
Canned vegetables(a)...... 36% 31% 29%
Canned fruit(a)........... 35 28 26
Tomato products(a)........ 19 16 14
Canned pineapple(a)....... 5 6 4
Other(b).................. 4 7 14
----- ----- -----
Subtotal domestic....... 99 88 87
Latin America............. 1 4 4
Philippines............... -- 11 12
Intercompany sales........ -- (3) (3)
----- ----- -----
Total................... 100% 100% 100%
===== ===== =====

- ----------------------
(a) Includes sales of the entire product line across each
channel of distribution, including sales to grocery chains,
Warehouse Clubs, Supercenters, Mass Merchandisers and other
grocery retailers, as well as the Company's foodservice,
food ingredients, export and vegetable private label
businesses and military sales.

(b) Includes dried fruit, gel and pudding cups, and certain
other retail products, as well as the Company's private
label fruit and tomato businesses which were discontinued
in fiscal 1995 with the termination of the alliance with
PCP.

Fiscal 1997 vs. Fiscal 1996 vs. Fiscal 1995

Net Sales. Consolidated net sales for fiscal 1997
decreased by $88 million or 7% from fiscal 1996. This decrease was
attributable to the absence of the Divested Operations. Net sales
for the domestic operations, after adjusting for the effect of
Divested Operations, increased by $97 million from $1,072 million
in fiscal 1996 to $1,169 million in fiscal 1997 due to higher
prices across all product lines. The retail vegetable and fruit
businesses increased prices in the second half of fiscal 1996.
The export and foodservice businesses each increased fruit prices
at the beginning of fiscal 1997. Generally balanced industry
supplies of fruit and the Company's emphasis on consumer
promotions were contributing factors towards realizing the higher
prices. Volume increases in the fruit business were more than
offset by volume decreases in the vegetable and tomato
businesses. The volume decrease in the Company's vegetable
business reflects, in part, an overall decline in canned vegetable
consumption. In fiscal 1997, the Company's market share for Del
Monte branded vegetables, based on case volume, was 20.3% versus

17

20.4% in the previous year, while the Company's market share
for Del Monte branded fruit was 40.6% compared to 35.6% for the
previous year. Consolidated net sales for fiscal 1996 decreased
$222 million or 15% from the prior year due to lower volumes in
domestic operations. Net sales for the domestic operations, after
adjusting for the effect of Divested Operations, were $1,072
million for fiscal 1996 as compared to $1,110 million for fiscal
1995, a decrease of $38 million or 3%. The Company increased
retail fruit and vegetable prices; however, these price increases
were not immediately followed by the competition and resulted in
lower sales volumes as compared to the prior year. In fiscal
1996, the Company's market share for Del Monte branded vegetables
was 20.4% versus 24.1% for the previous year, and the Company's
market share for Del Monte branded fruit was 35.6% versus 38.8%
for the previous year.

Del Monte Philippines' net sales for the first nine
months of fiscal 1996, until the Company's sale of its interest
in this joint venture, accounted for 8% of consolidated net sales
for the year ended June 30, 1996. Del Monte Latin America's net
sales for fiscal 1996 (4% of consolidated sales in fiscal 1996)
decreased $10 million or 15% even though volumes were at
approximately the same level as the prior year period. This
decrease was primarily due to the significant Mexican peso
devaluation.

Cost of Sales and Gross Profit. Gross margin was
32.9%, 24.6% and 22.5% in fiscal 1997, 1996 and 1995,
respectively. Domestic gross margin (adjusted for the absence of
the Divested Operations) was 34.0%, 26.4% and 26.4% in fiscal
1997, 1996 and 1995, respectively. Higher selling prices, changes
in marketing strategy and relatively stable costs resulted in
significantly higher gross profit margin than in prior years. In
fiscal 1996, higher manufacturing costs were offset by price
increases across all major product lines.

Del Monte Philippines' gross margins were 17.4% and
11.8% in fiscal 1996 and 1995, respectively. Gross margins for
Del Monte Latin America were 24.3% and 23.8% in fiscal 1996 and
1995, respectively. The increases in fiscal 1996 resulted
primarily from opportunistic price increases due to inflationary
conditions in Mexico with a lag in increases of cost of goods
sold due to seasonal packing.

Selling, Advertising, Administrative and General Expenses.
Selling, advertising, administrative and general expense as a
percentage of net sales (excluding the Divested Operations) were
27.5%, 19.8% and 21.2% in fiscal 1997, 1996 and 1995,
respectively. Selling, advertising, administrative and general
expenses for fiscal 1997 increased significantly due to the
Recapitalization and the change in marketing strategy. Expenses
incurred primarily for management incentive payments and, in
part, for severance payments incurred related to the
Recapitalization were approximately $25 million. Marketing
spending increased as the Company placed more emphasis on
consumer promotion programs versus discounts off of retailers'
list prices than in prior year.

Included in general and administrative expenses are
research and development costs of $5 million, $6 million and $6
million for fiscal 1997, 1996 and 1995, respectively. Research
and development spending in fiscal 1997, 1996 and 1995 remained
focused on strategic spending to maintain the existing business
and to develop product line extensions.

Interest Expense. Interest expense decreased 22% in
fiscal 1997 compared to fiscal 1996. This decrease was due to the
lower outstanding debt balances during the first nine months of
fiscal 1997 (before the Recapitalization). The 12% decrease in
interest expense for fiscal 1996 compared to fiscal 1995 resulted
from lower net borrowings under the Company's revolving credit
facility and lower outstanding debt balances resulting in part
from the sale of the Divested Operations.

Other (Income) Expense. Other expense for fiscal 1997
increased due to $22 million of expenses incurred in the
Recapitalization (primarily legal, investment advisory and
management fees). Also included in fiscal 1997 other expense is
the revaluation of a long-term asset. Other income for fiscal
1995 reflects the Company's receipt of the proceeds of a $30
million letter of credit (reduced by $4 million of related
transaction expenses) as a result of the termination of the
merger agreement with Grupo Empacador de Mexico, S.A. de C.V. in
September 1994.

Provision for Income Taxes. There was no tax provision
in fiscal 1997 compared to a provision of $11 million in fiscal
1996. This decrease was primarily due to the expenses of the
Recapitalization. The provision increased to $11 million in
fiscal 1996 from $2 million in fiscal 1995 primarily due to
alternative minimum tax and

18

state income tax as a result of the sales of divested assets
in fiscal 1996. As of June 30, 1997, the Company had $84 million
in net operating loss carryforwards for tax purposes, which will
expire between 2008 and 2012.

Extraordinary Loss. In conjunction with the 1996
Exchange Offer, capitalized debt issue costs of approximately $4
million, net of a discount on the PIK Notes, were charged to net
income in fiscal 1997 and accounted for as an extraordinary loss.
In conjunction with the refinancing of debt that occurred at the
time of the Recapitalization, previously capitalized debt issue
costs of approximately $19 million and a 1996 PIK Note premium
and a term loan make-whole aggregating $19 million were charged
to fiscal 1997 net income and accounted for as an extraordinary
loss. The net proceeds of the pudding business sale and proceeds
of the Del Monte Philippines sale were used for the early
retirement of debt. In conjunction with this early debt
retirement, in the second and fourth quarters of fiscal 1996, $5
million in capitalized debt issue costs were written off and $5
million primarily related to a prepayment premium were charged to
income, both of which have been accounted for as an extraordinary
item. In June 1995, the Company refinanced its then-outstanding
revolving credit facility, term loan and senior notes. In
conjunction with the debt retirement, capitalized debt issue
costs of $7 million were written off and accounted for as an
extraordinary loss as required by generally accepted accounting
principles.

Cumulative Effect of Accounting Change. Effective
July 1, 1995, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be
Disposed Of." The cumulative effect of adopting SFAS No. 121
resulted in a charge to fiscal 1996 net earnings of $7 million.

Recently Issued Accounting Standards

In October 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation". SFAS
No. 123 granted companies the option to recognize and measure
compensation costs related to employee stock plans based on
either the fair value of the award at date of grant or the
difference between the quoted market price of the stock at the
date the award is granted over the amount the employee must pay
to acquire the stock (the "intrinsic value based method"). The
Company plans to implement a stock option program and a stock
purchase program during the next fiscal year.

In October 1996, the AICPA Accounting Standards
Executive Committee issued Statement of Position ("SOP") No. 96-1
"Environmental Remediation Liabilities". The SOP provides
guidance with respect to the recognition, measurement and
disclosure of environmental remediation liabilities. SOP No. 96-1
is required to be adopted for fiscal years beginning after
December 15, 1996. The Company will adopt SOP 96-1 in the first
quarter of 1998 and, based on current circumstances, does not
believe the effect of adoption will be material.

The FASB recently issued SFAS No. 128, "Earnings per
Share"; SFAS No. 129, "Disclosure of Information about Capital
Structure"; SFAS No. 130, "Reporting Comprehensive Income"; and
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". The Company believes the effect of adoption
of these statements will not be material.

19

Liquidity and Capital Resources

The Company's primary cash requirements are to fund
debt service, finance seasonal working capital needs and make
capital expenditures. Internally generated funds and amounts
available under its revolving credit and other short-term
borrowing facilities are the Company's primary sources of
liquidity.

Operating Activities

The working capital position of the Company is
seasonally affected by the growing cycle of the vegetables, fruit
and tomatoes it processes. Substantially all inventories are
produced during the harvesting and packing months of June through
October and depleted through the remaining seven months.
Accordingly, working capital requirements fluctuate
significantly. The Company uses funds from its Revolving Credit
Facility, which provides for a $350 million line of credit, to
finance the seasonal working capital needs of its operations.

In fiscal 1997, cash provided by operations decreased
by $35 million over fiscal 1996 primarily due to various expenses
associated with the Recapitalization, as well as an increase in
inventories due to lower sales volume during the year than
anticipated. Cash provided by operating activities decreased by
$3 million in fiscal 1996 over fiscal 1995 primarily due to a
decrease in inventories and in accounts receivable offset by a
decrease in accounts payable and accrued expenses. The decrease
in inventories resulted from high carry-over inventories from
fiscal 1995 versus low inventory levels at the end of fiscal 1996
due to a tight industry supply of certain inventory items. The
decrease in accounts receivable resulted primarily from a
decrease in sales activity during June 1996 as compared to June
1995. The decrease in accounts payable and accrued expenses was
due primarily to a decrease in amounts payable to PCP due to the
termination of a joint venture at the end of fiscal 1995 and a
decrease in marketing accruals due to a change in marketing
strategy during fiscal 1996. Also impacting accrued expenses in
fiscal 1996 was a charge to an accrual established in fiscal 1993
to implement multi-year cost savings measures. The decrease
occurred as costs associated with fiscal 1996 consolidation
efforts were charged to this accrual.

Investing Activities

The decrease of $133 million in cash provided by
investing activities in fiscal 1997 versus fiscal 1996 and the
increase of $191 million in cash provided by investing activities
in fiscal 1996 versus fiscal 1995 was principally due to net cash
proceeds from the sale of its Pudding Business ($85 million) and
the sale of its interest in Del Monte Philippines ($98 million)
in fiscal 1996. The effect of the fiscal 1996 divested asset
sales was partially offset in fiscal 1997 by the sale of the
Company's Latin America subsidiaries ($48 million).

Capital expenditures for fiscal 1997 were $20 million
including approximately $1 million for environmental compliance.
The Company expects that capital expenditures during fiscal 1998
will be approximately $40 million as the Company implements a new
program which is intended to generate cost savings by introducing
new equipment that would result in general production
efficiencies. Capital expenditures are expected to be funded from
internally generated cash flows and by borrowing from available
financing sources.

Financing Activities - 1997 Activity

The Recapitalization. On February 21, 1997, DMFC entered
into a Merger Agreement which was amended and restated as of
April 14, 1997, with TPG and Shield. On April 18, 1997, DMFC was
recapitalized through the merger of Shield with and into DMFC
with DMFC being the surviving corporation. By virtue of the
Recapitalization, shares of DMFC's preferred stock having an
implied value of approximately $14 million held by certain of
DMFC's stockholders who remained investors were cancelled and
were converted into the right to receive new DMFC Common Stock.
All other shares of DMFC stock were cancelled and were converted
into the right to receive cash consideration. In connection with
the Recapitalization, Del Monte Corporation repaid substantially
all of its funded debt obligations existing immediately before
the Recapitalization. In the Recapitalization, the common stock
and preferred stock of Shield was converted into new shares of
Common Stock and Preferred Stock, respectively, of DMFC.

Immediately following the consummation of the
Recapitalization, the charter of DMFC authorized DMFC to issue
capital stock consisting of 1,000,000 shares of new Common Stock,
$.01 par value, and 1,000,000 shares of new

20

Preferred Stock, $.01 par value, and issued and has outstand-
ing 140,000 shares of Common Stock, and 35,000 shares of
Preferred Stock.

Cash funding requirements for the Recapitalization totaled
$809 million and included repayment of $158 million of PIK Notes,
$113 million of the then-existing term loan, and $30 million of
the then-existing revolving credit facility. In addition, $422
million was paid to former shareholders as cash consideration for
their shares and approximately $86 million was paid in other fees
and expenses. These cash funding requirements were satisfied
through the following: (i) a cash equity investment by TPG and
other investors of $126 million in common stock; (ii) a cash
equity investment by TPG and other investors of $35 million in
shares of redeemable preferred stock and warrants to purchase
Common Stock; (iii) $380 million of borrowings under the Term
Loan facility; (iv) $119 million of borrowings under the
Revolving Credit Facility; (v) $147 million from the net proceeds
of the offering of the Unregistered Notes; and (vi) $2 million of
proceeds from the sale of a surplus property.

Bank Financing. Concurrent with the Recapitalization,
the Company entered into a credit agreement with respect to the
Bank Financing. The Term Loan Facility provides for term loans in
the aggregate amount of $380 million, consisting of Term Loan A
of $200 million and Term Loan B of $180 million. The Revolving
Credit Facility provides for revolving loans in an aggregate
amount of $350 million, including a $70 million Letter of Credit
subfacility. The Revolving Credit Facility will expire in fiscal
2003, Term Loan A will mature in fiscal 2003, and Term Loan B
will mature in fiscal 2005. Scheduled principal payments on Term
Loan A begin in the first quarter of fiscal 1999 and continue
quarterly through maturity. Initial quarterly amortization is
approximately $8 million per quarter, rising periodically at
approximately $1 million per quarter to a final quarterly
amortization, beginning in the first quarter of fiscal 2003,
of approximately $17 million through maturity. Scheduled
principal payments on Term Loan B begin in the third quarter of
fiscal 1998 and continue quarterly through maturity. Initial
quarterly amortization is nominal, amounting to approximately $2
million per year. Substantial amortization begins in the fourth
quarter of fiscal 2004, with quarterly amortization of
approximately $42 million. The interest rates applicable to
amounts outstanding under Term Loan A and the Revolving Credit
Facility are, at the Company's option, either (i) the base rate
(the higher of .50% above the Federal Funds Rate and the bank's
reference rate) plus 1.25% or (ii) the reserve adjusted offshore
rate plus 2.25%. Interest rates on Term Loan B are, at the
Company's option, either (i) the base rate plus 2.00% or (ii) the
offshore rate plus 3.00%.

In conjunction with the Bank Financing, previously
capitalized debt issue costs of approximately $19 million and a
1996 PIK Note premium and a term loan make-whole aggregating $19
million were charged to net income and accounted for as an
extraordinary loss.

Senior Subordinated Notes. In connection with the
Recapitalization, on April 18, 1997, the Company issued senior
subordinated notes with an aggregate principal amount of $150
million and received gross proceeds of $147 million. The
Unregistered Notes accrue interest at 12.25% per year, payable
semiannually in cash on each April 15 and October 15. These
Unregistered Notes are guaranteed by DMFC and mature on April 15,
2007. The Unregistered Notes are redeemable at the option of the
Company on or after April 15, 2002 at a premium to par that
initially is 106.313% and that decreases to par on April 15, 2006
and thereafter. On or prior to April 15, 2000, the Company, at
its option, may redeem up to 35% of the aggregate principal
amount of Unregistered Notes originally issued with the net cash
proceeds of one or more public equity offerings at a redemption
price equal to 112.625% of the principal amount thereof, plus
accrued and unpaid interest to the date of redemption; provided
that at least 65% of the aggregate principal amount of
Unregistered Notes originally issued remains outstanding
immediately after any such redemption. The Unregistered Notes
were issued with registration rights requiring the Company to
exchange the Unregistered Notes for new notes registered under
the Securities Act of 1933, as amended. The form and terms of the
Subordinated Notes are substantially the same as the Unregistered
Notes, except that there is no restriction on the transfer
thereof. The Company filed a registration statement on Form S-4
with respect to the Unregistered Notes on June 12, 1997, which
became effective on June 24, 1997. The exchange of the
Subordinated Notes for the Unregistered Notes was completed on
July 31, 1997.

1996 Exchange Offer. Also included in fiscal 1997 financing
activity is an exchange offer that occurred in September 1996. In
August 1996, the Company offered to redeem (the "1996 Exchange
Offer") a portion of its outstanding Subordinated Guaranteed
Pay-in-Kind Notes ("PIK Notes") for a cash payment and exchange
the remaining PIK Notes for new Senior Subordinated Guaranteed
Pay-in-Kind Notes due 2002. On September 11,

21

1996, the Company repurchased PIK Notes in an aggregate
amount of $102 million for a cash payment of $100 million and,
concurrently, exchanged essentially all remaining PIK Notes for
1996 PIK Notes in an aggregate amount of $156 million. In
addition, the $13 million outstanding in Senior Notes was repaid.
Funding for the Exchange Offer was accomplished through the
application of $30 million from a collateral account held by the
then-existing term lenders, additional borrowing in an aggregate
amount of $55 million under the then-existing term loan, and
borrowings of approximately $36 million from the then-existing
revolving credit facility. In conjunction with the 1996 Exchange
Offer, capitalized debt issue costs of approximately $4 million,
net of a discount on the PIK Notes, were charged to net income in
fiscal 1997 and accounted for as an extraordinary loss.

The Bank Financing and Subordinated Notes agreements
contain restrictive covenants which require the Company to meet
certain financial tests, including minimum levels of consolidated
EBITDA (as defined in the credit agreement), minimum fixed charge
coverage, minimum adjusted net worth and maximum leverage ratios.
These requirements and ratios generally become more restrictive
over time, subject to allowances for seasonal fluctuations. The
Company was in compliance with all debt covenants at June 30,
1997.

Financing Activities - 1996 Activity

The increase in net cash used in financing activities
of $180 million in fiscal 1996 as compared to fiscal 1995
reflects a lower balance under the Revolving Credit Facility at
year end 1996 versus 1995 and higher net pay-down of long-term
debt. The higher payments on the Revolving Credit Facility and
long-term debt were due to cash available from the Company's
sales of the pudding business and Del Monte Philippines. In
connection with the early debt repayment, a prepayment penalty of
$5 million was charged to income and recorded as an extraordinary
loss. Included in other financing activities in fiscal 1996 was a
deposit of $30 million of Del Monte Philippines sale proceeds
into the Specific Proceeds Collateral Account until agreement was
reached with the Term Lenders as to final application.

Pension Funding

Del Monte's defined benefit retirement plans have been
determined to be underfunded under federal ERISA guidelines. It
has been the Company's policy to fund the Company's retirement
plans in an amount consistent with the funding requirements of
federal law and regulations and not to exceed an amount that
would be deductible for federal income tax purposes. In
connection with the Recapitalization, the Company has entered
into an agreement with the U.S. Pension Benefit Guaranty
Corporation dated April 7, 1997 whereby the Company will
contribute a total of $55 million to its defined benefit pension
plans through calendar 2001 of which $15 million was contributed
within 30 days after the consummation of the Recapitalization.
The contributions to be made in 1999, 2000 and 2001 will be
secured by a $20 million letter of credit to be obtained by the
Company by August 31, 1998.

Management believes that cash flow from operations and
availability under the Revolving Credit Facility will provide
adequate funds for the Company's foreseeable working capital
needs, planned capital expenditures and debt service obligations.
The Company's ability to fund its operations and make planned
capital expenditures, to make scheduled debt payments, to
refinance its indebtedness and to remain in compliance with all
of the financial covenants under its debt agreements depends on
its future operating performance and cash flow, which, in turn,
are subject to prevailing economic conditions and to financial,
business and other factors, some of which are beyond its control.

Tax Net Operating Loss Carryforwards

As of June 30, 1997, the Company had $84 million in
net operating loss carryforwards for tax purposes, which will
expire between 2008 and 2012.

22

Inflation

The Company's costs are affected by inflation and the
effects of inflation may be experienced by the Company in future
periods. However, the Company has historically mitigated the
inflationary impact of increases in its costs by controlling its
overall cost structure.

Environmental Matters

As a result of its agricultural, food processing and
canning activities, the Company is subject to numerous
environmental laws and regulations. Many of these laws and
regulations, both foreign and domestic, are becoming increasingly
stringent and compliance with them is becoming increasingly
expensive. The Company believes that it is in substantial
compliance with all such laws and regulations. The Company is
engaged in a continuing program to maintain its compliance with
existing laws and regulations and to establish compliance with
anticipated future laws and regulations. The Company spent an
aggregate of $5 million on domestic environmental expenditures
from fiscal 1995 through fiscal 1997, and projects that it will
spend an aggregate of approximately $4 million in fiscal 1998 and
1999 on capital projects and other expenditures in connection
with environmental compliance.

In addition, in connection with the Company's
divestiture of owned or operated properties, the Company may be
required to remediate environmental conditions at such
properties. The Company has also identified certain conditions
that require remediation at properties it continues to own or
operate. The Company does not expect that such remediation costs
will have a material adverse effect on the Company's financial
condition or results of operations.

The Company has been notified by governmental
authorities and private claimants that it may be a potentially
responsible party ("PRP") for environmental investigation and
remediation costs at certain designated "Superfund Sites" under
CERCLA or under similar state laws. The Company resolved its
liability at three Superfund Sites in fiscal 1996 and at two
Superfund Sites in fiscal 1997. Currently, the Company is
involved as a PRP at six Superfund Sites. The Company is
indemnified for any liability at two of these sites.

In most cases, the Company is considered a PRP because
it sent certain wastes (usually non-hazardous materials) from its
operations to these sites for disposal. With respect to the four
Superfund Sites at which the Company is currently involved and is
not indemnified by another party, the environmental investigation
and remediation are at various stages. Because the investigation
and remediation process is usually long and complicated, it is
sometimes difficult to predict the ultimate extent of the
Company's liability. However, at most Superfund Sites, the
Company has a de minimis share of liability. There can be no
assurance that the Company will not be identified as a PRP at
additional sites in the future or that additional remediation
requirements will not be imposed on properties currently owned
and operated. In addition, there can be no assurance that other
sites to which the Company has sent waste will not be identified
for investigation or proposed for listing under CERCLA or similar
state laws. The Company believes that its CERCLA and other
environmental liabilities, if any, will not have a material
adverse effect on the Company's financial position or results of
operations.

23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

Del Monte Foods Company and subsidiaries

Page

Report of Independent Auditors............................. 25
Consolidated Balance Sheets - June 30, 1997 and 1996....... 26
Consolidated Statements of Operations - Years ended
June 30, 1997, 1996 and 1995 .............................. 27
Consolidated Statements of Stockholders' Equity (Deficit)
- Years ended June 30, 1997, 1996 and 1995 ............... 28
Consolidated Statements of Cash Flows - Years ended
June 30, 1997, 1996 and 1995 .............................. 30
Notes to Consolidated Financial Statements................. 31

24

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Del Monte Foods Company

We have audited the accompanying consolidated balance sheet of
Del Monte Foods Company and subsidiaries as of June 30, 1997, and
the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying
financial statements of Del Monte Foods Company and subsidiaries
as of June 30, 1996 and for each of the years in the two-year
period ended June 30, 1996 were audited by other auditors whose
report, dated August 29, 1996, on those statements included an
explanatory paragraph that described the change in the Company's
method of accounting for impairment of long-lived assets and for
long-lived assets to be disposed of discussed in Note A to the
financial statements.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the 1997 consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Del Monte Foods Company and
subsidiaries as of June 30, 1997 and the consolidated results of
their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

August 22, 1997
San Francisco, California

25

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Per Share Amounts)

June 30,
ASSETS 1997 1996
- ------ --------------
Current assets
Cash and cash equivalents $ 5 $ 6
Restricted cash 30
Trade accounts receivable,
net of allowance 67 98
Other receivables 2 8
Inventories 339 304
Prepaid expenses and other
current assets 9 13
----- ------
TOTAL CURRENT ASSETS 422 459

Property, plant and equipment, net 222 247
Other assets 23 30
------ ------
TOTAL ASSETS $667 $736
==== ====

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $222 $202
Short-term borrowings 82 43
Current portion of long-term debt 2 7
------ ------
TOTAL CURRENT LIABILITIES 306 252

Long-term debt 526 323
Other noncurrent liabilities 215 250
Redeemable common stock ($.01 par value per
share, 1,650,000 shares authorized; issued
and outstanding: 159,386 at June 30, 1996) 2
Redeemable preferred stock ($.01 par value per
share,32,493,000 shares authorized; issued
and: outstanding 17,300,041 at June 30, 1996;
aggregate liquidation preference: $579) 213
Redeemable preferred stock ($.01 par value
per share, 1,000,000 shares authorized; issued
and outstanding: 35,000 at June 30, 1997;
aggregate liquidation preference: $35) 32
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 1,700,000
shares authorized;
issued and outstanding: 223,468 in 1996)
Common stock ($.01 par value per share,
1,000,000 shares authorized;
issued and outstanding: 140,000 in 1997)
Paid-in capital 129 3
Retained earnings (deficit) (541) (281)
Cumulative translation adjustment (26)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (412) (304)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $667 $736
==== ====

See Notes to Consolidated Financial Statements.

26

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions Except Per Share Amounts)

Year
Ended June 30,
1997 1996 1995
-------- -------- ------
Net sales $1,217 $1,305 $1,527
Cost of products sold 817 984 1,183
------ ------ -------
Gross profit 400 321 344
Selling, advertising, administrative
and general expense 327 239 264
-------- ------- -------
OPERATING INCOME 73 82 80

Interest expense 52 67 76
Loss (gain) on sale of divested
assets (Note B) 5 (107)
Other (income) expense (Note D) 30 3 (11)
------- ----- -------

INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST, EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (14) 119 15

Provision for income taxes 11 2
Minority interest in earnings
of subsidiary 3 1
------ --------

INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (14) 105 12

Extraordinary loss from refinancing of
debt and early debt retirement 42 10 7
Cumulative effect of accounting change 7
______ _____ ______

NET INCOME (LOSS) $ (56) $ 88 $ 5
====== ====== =======

Net income (loss) attributable to
common shares $ (126) $ 6 $ (66)
====== ====== =======

Income (loss) per common share:
Income (loss) before
extraordinary item
and cumulative effect of
accounting change $(261.72) $59.40 $(145.35)
Extraordinary loss from
refinancing of debt and
early debtretirement (129.10) (26.39) (18.34)
Cumulative effect of
accounting change (18.14)
_______ _______ _______
Net income (loss)
per common share $(390.82) $ 14.87 $(163.69)
======== ======== ========

See Notes to Consolidated Financial Statements.

27

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in Millions)

Notes
Receivable
Common Paid-in from
Stock Capital Stockholders
----- ------- ------------

Balance at June 30,1994 $ -- $ 3 $ (1)

Repurchase of shares
Net income
Cumulative translation
adjustment
------- ------- -------

Balance at June 30, 1995 -- 3 (1)

Repayment of notes
receivable from 1
stockholders Repurchase of
shares Net income
------- ------- -------

Balance at June 30, 1996 -- 3 --

Cancellation of shares in
connection with the (3)
Recapitalization Issuance 129
of shares Net loss
Cumulative translation
adjustment
------- ------- -------
Balance at June 30, 1997 $ -- $129 $ --
===== ==== =====

Retained Cumulative Total
Earnings Translation Stockholders'
(Deficit) Adjustment (Deficit)
--------- ---------- ---------

Balance at June 30,1994 $(374) $(12) $(384)

Repurchase of shares
Net income 5 5
Cumulative translation
adjustment (14) (14)
-------- ----- -----

Balance at June 30, 1995 (369) (26) (393)

Repayment of notes
receivable from 1
stockholders Repurchase of
shares Net income 88 88
---- ----- ------

Balance at June 30, 1996 (281) (26) (304)

Cancellation of shares in connection
with the Recapitalization (204) (207)
Issuance of shares 129
Net loss (56) (56)
Cumulative translation
adjustment 26 26
----- ---- -------
Balance at June 30, 1997 $(541) $ -- $(412)
===== ===== ======

See Notes to Consolidated Financial Statements.

28

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

Number of Shares

Common Total Common
Stock Class A Class B Class E Shares
----- ------- ------- ------- ------

Shares issued and outstanding
at June 30, 1994 218,062 25,000 243,062

Repurchase of shares (3,353) (3,353)
-------- --------- ------ ------- ---------

Shares issued and outstanding
at June 30, 1995 214,709 25,000 239,709

Repurchase of shares (16,241) (16,241)
-------- ------- ------ -------- -------

Shares issued and outstanding
at June 30, 1996 198,468 25,000 223,468

Cancellation of shares (198,468) (25,000) (223,468)

Issuance of shares 140,000 140,000
------- ------- ------ -------- -------

Shares issued and
outstanding at
June 30, 1997 140,000 -- -- -- 140,000
======= ====== ====== ======== ========

See Notes to Consolidated Financial Statements.

29

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)

Year Ended June 30,
-------------------
1997 1996 1995
------ -------- ------
OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income
(loss) $ (56) $ 88 $ 5
to net cash flows:
Extraordinary loss from refinancing of
debt and early debt retirement 42 107 7
Cumulative effect of accounting change
Loss (gain) on sale of divested assets 5 (107)
Loss on sales of assets 3 2 3
Depreciation and amortization 29 31 40
Minority interest in earnings of
subsidiary 1
Changes in operating assets
and liabilities:
Accounts receivable 24 33 (37)
Inventories (48) 11 (21)
Prepaid expenses and other
current assets 3 (2) 3
Other assets 6 1 4
Accounts payabl