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 payable and accrued
expenses 29 (28) 25
Other non-current liabilities (12) 14 33
------ ------ ----

NET CASH PROVIDED BY
OPERATING ACTIVITIES 25 60 63

INVESTING ACTIVITIES:
Capital expenditures (20) (16) (24)
Proceeds from sales of
fixed assets 9 4 3
Proceeds from sales of
divested assets 48 182
---- ------ ------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 37 170 (21)

FINANCING ACTIVITIES:
Short-term borrowings 1,137 1,276 1,901
Payment on short-term
borrowings (1,098)(1,354) (1,867)
Proceeds from
long-term borrowing 582 188
Principal payments on
long-term debt (407) (108) (238)
Deferred debt issuance costs (26) (2) (24)
Prepayment penalty (20) (5)
Payments to previous shareholders
for cancellation of stock (422)
Issuance of common and preferred
stock 161
Specific Proceeds
Collateral Account 30 (30)
Dividends paid to minority
shareholders (1)
Other (1) (3)

NET CASH USED IN
FINANCING ACTIVITIES (63) (224) (44)

Effect of exchange rate
changes on cash and cash equivalents (8) 3
------ ----- ----
NET CHANGE IN CASH AND CASH
EQUIVALENTS (1) (2) 1
Cash and cash equivalents at
beginning of year 6 8 7
----- ------ ----
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 5 $ 6 $ 8
======= ======= =====

See Notes to Consolidated Financial Statements.

30

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

Business: Del Monte Foods Company ("DMFC") and its wholly
owned subsidiary, Del Monte Corporation ("DMC"), (DMFC together
with DMC, "the Company") purchased the Del Monte processed foods
division of RJR Nabisco, Inc. effective January 9, 1990 ("the
Acquisition"). The Company operates in one business segment: the
manufacturing and marketing of processed foods, primarily canned
vegetables, fruits and tomato products. The Company primarily
sells its products under the Del Monte brand to a variety of food
retailers, supermarkets and mass merchandising stores. The
Company holds the rights to the Del Monte brand in the United
States.

Basis of Accounting: Pursuant to the Agreement and Plan of
Merger, dated February 21, 1997, and amended and restated as of
April 14, 1997 (the "Merger Agreement"), entered into among TPG
Partners, L.P., a Delaware partnership ("TPG"), TPG Shield
Acquisition Corporation, a Maryland corporation ("Shield"), and
DMFC, Shield merged with and into DMFC (the "Merger"), with DMFC
being the surviving corporation. By virtue of the Merger, shares
of DMFC's preferred stock having an implied value of
approximately $14 held by certain of DMFC's stockholders, who
remained investors, were cancelled and were converted into the
right to receive common stock of the surviving corporation. All
other shares of DMFC stock were cancelled and were converted into
the right to receive cash consideration as set forth in the
Merger Agreement. In the Merger, the common stock and preferred
stock of Shield was converted into shares of new DMFC common
stock and preferred stock, respectively. The Merger was accounted
for as a leveraged recapitalization for accounting purposes (the
"Recapitalization"); accordingly, all assets and liabilities are
stated at historical cost. In connection with the Merger, DMC
repaid substantially all of its funded debt obligations existing
immediately before the closing of the Merger.

Principles of Consolidation: The consolidated financial
statements include the accounts of the Company and its majority
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates: Certain amounts reported in the consolidated
financial statements are based on management estimates. The
ultimate resolution of these items may differ from those
estimates.

Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents. The carrying amount reported in
the balance sheet for cash and cash equivalents approximates its
fair value.

Restricted Cash: Restricted cash at June 30, 1996 represents a
portion of the proceeds from the Company's sale of its 50.1%
interest in Del Monte Pacific Resources Limited ("Del Monte
Philippines"), a joint venture operating primarily in the
Philippines, which were deposited into the Specific Proceeds
Collateral Account until agreement was reached with the Term Loan
lenders as to final application of the funds (see Note B). These
funds were used to repurchase outstanding PIK Notes in September
1996.

Inventories: Inventories are stated at the lower of cost or
market. The cost of substantially all inventories is determined
using the LIFO method. The Company has established various LIFO
pools that have measurement dates coinciding with the natural
business cycles of the Company's major inventory items.

Inflation has had a minimal impact on production costs since
the Company adopted the LIFO method as of July 1, 1991.
Accordingly, there is no significant difference between LIFO
inventory costs and current costs.

31

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

Property, Plant and Equipment and Depreciation: Property,
plant and equipment are stated at cost and depreciated over their
estimated useful lives, principally by the straight-line method.
Maintenance and repairs are expensed as incurred. Significant
expenditures that increase useful lives are capitalized.

The principal estimated useful lives are: land improvements --
10 to 30 years; building and leasehold improvements -- 10 to 30
years; machinery and equipment -- 7 to 15 years. Depreciation of
plant and equipment and leasehold amortization was $24, $26 and
$34 for the years ended June 30, 1997, 1996 and 1995,
respectively.

Cost of Products Sold: Cost of products sold includes
raw material, labor and overhead.

Research and Development: Research and development costs are
included as a component of "Selling, advertising, administrative
and general expense." Research and development costs charged to
operations were $5, $6 and $6 for the years ended June 30, 1997,
1996 and 1995, respectively.

Foreign Currency Translation: For the Company's operations in
countries where the functional currency is other than the U.S.
dollar, asset and liability accounts were translated at the rate
in effect at the balance sheet date, and revenue and expense
accounts were translated at the average rates during the period.
Translation adjustments were reflected as a separate component of
stockholders' equity.

Interest Rate Contracts: To manage interest rate exposure, the
Company uses interest-rate swap agreements. These agreements
involve the receipt of fixed rate amounts in exchange for
floating rate interest payments over the life of the agreement
without an exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates
change and recognized as an adjustment to interest expense
related to the debt. The related amount payable to or receivable
from counterparties is included in other liabilities or assets.

Fair Value of Financial Instruments: The carrying amount of
the Company's financial instruments, which primarily include
cash, accounts receivable, accounts payable, and accrued
expenses, approximates fair value due to the relatively short
maturity of such instruments.

The carrying amounts of the Company's borrowings under its
short-term revolving credit agreement and long-term debt
instruments, excluding the Subordinated Notes, approximate their
fair value. At June 30, 1997, the fair value of the Subordinated
Notes was $161, as estimated based on quoted market prices from
dealers.

The fair value of the interest rate swap agreements at June
30, 1997 was $(1). The fair value of interest rate swap
agreements are the estimated amounts that the Company would
receive or pay to terminate the agreements at the reporting date,
taking into account current interest rates and the current credit
worthiness of the counterparties.

Net Income (Loss) per Common Share: Net income (loss) per
common share is computed by dividing net income (loss)
attributable to common shares by the weighted average number of
common and redeemable common shares outstanding during the
period. Net income (loss) attributable to common shares is
computed as net income (loss) reduced by the cash and in-kind
dividends for the period on redeemable preferred stock.

Minority Interest: Minority interest represents the
minority shareholders' proportionate share of the earnings of Del
Monte Philippines, a consolidated subsidiary.

Change in Accounting Principle: Effective July 1, 1995, the
Company adopted the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". The statement requires that assets held and used be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company has identified certain events as
possible indicators that an asset's carrying value may not be
recoverable including the elimination of or a significant
reduction in a product line. Future cash flows will be estimated
based on current levels of production, market sales

32

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

price and operating costs adjusted for expected trends. The
statement also requires that all long-lived assets, for which
management has committed to a plan to dispose, be reported at the
lower of carrying amount or fair value. During fiscal 1996, a
review of assets to be disposed of resulted in identification of
certain assets (farm lands and plants no longer in use) whose
carrying value exceeded their present fair value, and a loss of
$7 was recorded. The Company does not depreciate long-lived
assets held for sale.

Reclassification: 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
and $106 in the fiscal years ended June 30, 1997, 1996, and 1995,
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 and $1 in fiscal years
ended June 30, 1997, 1996 and 1995, respectively. All financial
information has been restated to conform to this presentation.

NOTE B -- DIVESTED ASSETS

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 which 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
was completed on November 13, 1996. The sales price for PDM 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. In addition, the
purchasers have alleged, among other things, that the Company
breached the purchase agreement 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 Company does not believe that this claim will have a material
adverse effect on the Company's financial position or results of
operations (see Note H). The combined proceeds of both sales of
$50, reduced by $2 of related transaction expenses, resulted in a
loss of $5.

The following results of the Latin American operations are
included in the Statements of Operations:

Year Ended June 30,
-------------------
1997 1996 1995
----- ------- -------
Net sales $17 $55 $65
Costs and expenses 17 50 62
----- ----- -----
Income from operations
before income taxes -- 5 3
Provision for income taxes 1 1
------ ------ ------
Income from Latin
American operations $-- $ 4 $ 2
====== ===== =====

Del Monte Philippines. On March 29, 1996, the Company sold its
50.1% interest in Del Monte Philippines, a joint venture
operating primarily in the Philippines, for $100 net of $2 of
related transaction expenses. This sale resulted in a gain of
$52, reduced by taxes of $6. Of the net gain of $46, $16 was
deferred and $30 was recognized in fiscal 1996. The purchase
price included a premium paid to the Company as consideration for
signing an eight-year supply agreement whereby the Company must
source substantially all of its pineapple requirements from Del
Monte Philippines over the agreement term. The gain associated
with the value of the premium was deferred and will be amortized
over the term of the agreement.

33

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

The following results of the Del Monte Philippines operations
are included in the Statements of Operations:

Year Ended
June 30,
--------
1996 1995
---- ----
Net sales $102 $142
Costs and expenses 97 141
------ -----
Income from operations
before income taxes 5 1
Provision for income taxes 2
---- ---
Income from operations $ 3 $ 1
===== ===

All of the net proceeds from the sale of Del Monte Philippines
were temporarily applied to the revolving credit facility. In
April 1996, $13 of Senior Secured Notes were prepaid along with a
$1 prepayment premium recorded as an extraordinary loss. In
addition, $30 was placed in the Specific Proceeds Collateral
Account until final agreement was reached with the Term Loan
lenders as to the application of funds. These funds were used in
the September 1996 exchange offer.

Pudding Business. On November 27, 1995, the Company
sold its Pudding Business, including the capital assets and
inventory on hand, to Kraft Foods, Inc. ("Kraft") for $89, net of
$4 of related transaction expenses. The sale resulted in the
recognition of a $71 gain, reduced by $2 of taxes.

The following results of the Pudding Business are included in
the Statements of Operations:

Year Ended
June 30,
--------
1996 1995
---- ----

Net sales $15 $47
Costs and expenses 11 33
---- ----
Income from operations $ 4 $14
==== ====

The net proceeds received from the Pudding Business sale were
used to prepay $54 of the term debt and $25 of the Senior Secured
Notes. In conjunction with the prepayment, the Company recorded
an extraordinary loss for the early retirement of debt. The
extraordinary loss consists of a $4 prepayment premium and a $5
write-off of capitalized debt issue costs related to the early
retirement of debt.

34

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION

June 30,
--------
1997 1996
------- ---------
Trade Accounts Receivable:
Trade $ 68 $ 99
Allowance for doubtful accounts (1) (1)
------- -------
TOTAL TRADE ACCOUNTS RECEIVABLE $ 67 $ 98
====== =======

Inventories:
Finished product $ 239 $ 198
Raw materials and supplies 13 12
Other, principally packaging material 87 94
-------- ------
TOTAL INVENTORIES $ 339 $ 304
====== =====

Property, Plant and Equipment:
Land and land improvements $ 37 $ 44
Buildings and leasehold improvements 93 98
Machinery and equipment 233 240
Construction in progress 10 9
--------- -------
373 391
Accumulated depreciation (151) (144)
TOTAL PROPERTY, PLANT AND EQUIPMENT $ 222 $ 247

Other Assets:
Deferred debt issue costs $ 19 $ 26
Other 4 10
-------- -------
23 36
Accumulated amortization -- (6)
-------- -------
TOTAL OTHER ASSETS $ 23 $ 30
====== =====

Accounts Payable and Accrued Expenses:
Accounts payable--trade $ 79 $ 76
Marketing and advertising 59 39
Payroll and employee benefits 17 18
Current portion of accrued pension
liability 12 13
Current portion of other
noncurrent liabilities 19 22
Other 36 34
-------- -------
TOTAL ACCOUNTS PAYABLE AND
ACCRUED EXPENSES $ 222 $ 202
====== ======
Other Noncurrent Liabilities:
Accrued postretirement benefits $ 145 $ 140
Accrued pension liability 26 48
Self-insurance liabilities 15 12
Other 29 50
-------- -------
TOTAL OTHER NONCURRENT LIABILITIES $ 215 $ 250
====== =====

35

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

NOTE D -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Short-term borrowings under revolving credit agreements at
June 30, 1997 and 1996 were $82 and $43, respectively. Unused
amounts under the revolving credit agreements at June 30, 1997
and 1996 totaled $242 and $328, respectively.

On April 18, 1997, the Company completed a recapitalization
transaction in which $301 of proceeds from the transaction were
used to repay the outstanding balances of the then-existing $400
revolving credit facility, term loan, and Senior Subordinated
Guaranteed Pay-in-Kind Notes. Concurrent with the
Recapitalization, the Company entered into a credit agreement
with respect to the Term Loan Facility (the "Term Loan") and the
Revolving Credit Facility (the "Revolver"). The Term Loan
provides for term loans in the aggregate amount of $380,
consisting of Term Loan A of $200 and Term Loan B of $180. The
Revolver provides for revolving loans in an aggregate amount of
up to $350, including a $70 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 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%
(8.25% at June 30, 1997). 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% (8.875% at June 30, 1997).

The Company is required to pay the lenders under the Revolving
Credit Facility a commitment fee of 0.50% on the unused portion
of such Facility. The Company is also required to pay the lenders
under the Revolving Credit Facility letter of credit fees of
1.75% per year for commercial letters of credit and 2.25% per
year for all other letters of credit, as well as an additional
fee in the amount of 0.25% per year to the bank issuing such
letters of credit. Upon attainment of certain leverage ratios,
the base rate margin, offshore rate margin, as well as the
commitment fees and letter of credit fees will be adjusted. At
June 30, 1997, a balance of $26 was outstanding on these letters
of credit.

In addition, on April 18, 1997, the Company issued senior
subordinated notes (the "Unregistered Notes") with an aggregate
principal amount of $150 and received gross proceeds of $147. 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 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 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 (the
"Subordinated 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 Unregistered Notes for the
Subordinated Notes was completed on July 31, 1997.

In connection with the Recapitalization, the Company incurred
expenses totaling $85 of which $25 were included in selling,
advertising, administrative and general expense, $22 were charged
to other expense and $38 were accounted for as an extraordinary
loss. The extraordinary loss consisted of previously capitalized
debt issue costs of approximately $19 and a 1996 PIK Note premium
and a term loan make-whole aggregating $19. In addition, in
conjunction with the Bank Financing, $19 of debt issue costs were
capitalized.

36

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

Long-term debt consists of the following:

June 30,
-------------
1997 1996
---- ----
Term Loan $ 380 $ 68
Subordinated Debt 243
Subordinated Notes 147
Senior Secured Notes 13
Other 1 6
---- ----
528 330
Less Current Portion 2 7
---- ----
$526 $323

At June 30, 1997, scheduled maturities of long-term debt in
each of the next five fiscal years and thereafter will be as
follows:

1998 $ 2
1999 32
2000 36
2001 42
2002 47
Thereafter 372
----
531
Less discount 3
----
$528
====

The Term Loan and Revolver are collateralized by security
interests in certain of the Company's assets. At June 30, 1997,
total assets that are not pledged to secure the Debt are less
than 10% of the Company's total consolidated assets. At June 30,
1997, assets totaling $639 were pledged as collateral for
approximately $462 of short-term borrowings and long-term debt.

The Subordinated Notes, Term Loan and Revolver (collectively
"the Debt") agreements contain restrictive covenants with which
the Company must comply. These restrictive covenants, in some
circumstances, limit the incurrence of additional indebtedness,
payment of dividends, transactions with affiliates, asset sales,
mergers, acquisitions, prepayment of other indebtedness, liens
and encumbrances. In addition, the Company is required 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.
The Company is in compliance with all of the Debt covenants at
June 30, 1997.

In June 1995, the Company refinanced its then-existing
revolving credit agreement, term loan and Senior Secured Floating
Rate Notes. In conjunction with the refinancing, capitalized debt
issue costs of $7 were charged to fiscal 1995 income and were
accounted for as an extraordinary item.

At June 30, 1996, a balance of $29 was outstanding on letters
of credit. Letter of credit fees were 2.25% per year for
commercial letters of credit and 2.75% per year for all other
letters of credit with an additional fee of 0.50% to the bank
issuing such letters of credit. The Company paid a commitment fee
to maintain the lines of credit equal to .50% of the unused
balance.

At June 30, 1996, the then-existing term loan consisted of
three components. A $31 amortizing component was due in quarterly
installments with an interest rate of LIBOR plus 3.25%. The
second component of this loan of $30 and the third component of
$7 were non-amortizing with interest fixed at 11.11% and LIBOR
plus 4.75%,

37

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

respectively. At June 30, 1996, the interest rate on the $31
component was 8.75% and on the $7 component was 10.25%.

The Senior Secured Notes carried an interest rate of 18%, 14%
payable in cash and 4% payable in-kind in Secondary Notes, at the
Company's option. Interest payments were due quarterly.

Subordinated Debt consisted of Subordinated Guaranteed
Payment-in-Kind Notes ("PIK Notes"). Interest accrued at 12.25%
per year and was generally payable through the issuance of
additional PIK Notes. The payment of such interest in additional
PIK Notes since issuance resulted in an increase in the principal
amount outstanding of such indebtedness.

In August 1996, the Company offered to redeem (the "Exchange
Offer") a portion of its outstanding PIK Notes for a cash payment
and exchange the remaining PIK Notes for new Senior Subordinated
Guaranteed Pay-in-Kind Notes due 2002 (the "1996 PIK Notes"). On
September 11, 1996, the Company repurchased PIK Notes in an
aggregate amount of $102 for a cash payment of $100 and,
concurrently, exchanged essentially all remaining PIK Notes for
1996 PIK Notes in an aggregate amount of $156. In addition, the
$13 Senior Secured Notes outstanding were repaid. Funding for the
Exchange Offer was accomplished through the application of $30
from the Specific Proceeds Collateral Account held by the
then-existing term lenders, additional borrowing in an aggregate
amount of $55 under the then-existing term loan, and borrowing of
approximately $36 from the then-existing revolving credit
facility. In conjunction with the Exchange Offer, capitalized
debt issue costs of approximately $4, net of a discount on the
PIK Notes, have been charged to net income in fiscal 1997 and
accounted for as an extraordinary loss.

The Company made cash interest payments of $24, $30 and $44
for the years ended June 30, 1997, 1996 and 1995, respectively.

As required by the Company's Debt agreements, the Company has
entered into interest-rate swap agreements which effectively
converts $235 notional principal amount of floating rate debt to
a fixed rate basis for a three-year period beginning May 22,
1997, thus reducing the impact of interest-rate changes on future
income. The Company paid a fixed rate of 6.375% and received a
weighted average rate of 5.875%. The incremental effect on
interest expense for 1997 was insignificant. The agreements also
include a provision establishing the rate the Company will pay as
7.50% if the three-month LIBOR rate sets at or above 7.50% during
the term of the agreements. The Company will continue paying
7.50% until the three-month LIBOR again sets below 7.50% at which
time the fixed rate of 6.375% will again become effective. The
Company is exposed to credit loss in the event of nonperformance
by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the
counterparties.

NOTE E -- STOCKHOLDERS' EQUITY AND REDEEMABLE STOCK

On February 21, 1997, Del Monte Foods Company entered into a
recapitalization agreement and plan of merger, which was amended
and restated as of April 14, 1997, with affiliates of Texas
Pacific Group. Under this agreement, a corporation affiliated
with TPG ("Merger Sub") was to be merged with and into DMFC, with
DMFC being the surviving corporation. The Merger became effective
on April 18, 1997. By virtue of the Merger, shares of DMFC's
outstanding preferred stock having a value implied by the Merger
consideration of approximately $14, held by certain of DMFC's
pre-recapitalization stockholders who remained investors pursuant
to the Recapitalization, 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, as set forth in the Merger Agreement.
In the Merger, the common and preferred stock of Merger Sub were
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
(the "Common Stock"), $.01 par value, and 1,000,000 shares of new
preferred stock (the "Preferred Stock"), $.01 par value. The
Company issued and has

38

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

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 DMFC's Common Stock, continuing
shareholders of DMFC hold 14,252 shares of such stock, and other
investors hold 16,500 shares. TPG and certain of its affiliates
hold 17,500 outstanding shares of Series A Preferred Stock, and
TCW Capital Investment Corporation holds 17,500 outstanding
shares of Series B 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 of control of the Company at 101% of the Redemption
Price. The initial purchasers of Preferred Stock for
consideration of $35 received 35,000 shares of Preferred Stock
and warrants (exercisable after October 17, 1997) to purchase, at
a nominal exercise price, shares of DMFC Common Stock
representing 2% of the outstanding shares of DMFC Common Stock. A
value of $3 was placed on the warrants, and such amount is
reflected as paid-in-capital within stockholders' equity. The
remaining $32 is reflected as redeemable preferred stock.

The two series of preferred stock have no voting rights except
the right to elect one director to the Board for each series,
resulting in the authorized number of directors to be increased,
in cases where dividends are in arrears for six quarters or
shares have not been redeemed within ten days of a redemption
date.

Earnings (loss) per common share calculated on a proforma
basis, as if the changes in the shares of Preferred and Common
Stock issued and outstanding due to the Recapitalization had
occurred at the beginning of fiscal 1997, results in the
following:

Net loss attributable to common shares $(96)
====

Loss per common share:
Loss before extraordinary item $(390.14)
Extraordinary loss from early debt
retirement (297.06)

Net loss per common share $(687.20)
========

Stockholders' equity at June 30, 1996 included the following
classes of common stock, $.01 par value per share:

Class Shares Authorized Shares Issued and
Outstanding
----- ----------------- -----------------

A 1,000,000 198,468
B 150,000
E 550,000 25,000
---------- --------
1,700,000 223,468
========= =======

39

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

Redeemable common and redeemable preferred stock at June 30,
1996 consisted of the following:

Redeemable non-voting common stock ($.01 par value per
share):

Class Shares Authorized Shares Issued and
Outstanding
----- ----------------- -----------------

C 550,000 6,903
D 550,000 102,483
F 550,000 50,000
---------- --------
1,650,000 159,386
========= =======

Redeemable preferred stock ($.01 par value per share):

Series Shares Authorized Shares Issued and
Outstanding
------ ----------------- -----------------

A Cumulative (issuable in 16,523,000 8,336,795
B Cumulative subseries A1 3,616,000 1,602,845
C Cumulative and A2) 2,900,000 1,522,353
D Cumulative 1,454,000 1,356,955
E Cumulative 5,000,000 3,328,002
F Cumulative 3,000,000 1,153,091
32,493,000 17,300,041

The Company declared dividends for the following series of
redeemable preferred stock:

Series Dividend Rate Per Share
Year Ended June 30

1997 1996 1995
---- ---- ----
A1 $1.92 $3.81 $3.80
B $1.95 $3.87 $3.87
D $1.98 $3.94 $3.93
E $1.98 $3.94 $3.93

These dividends were paid in like-kind redeemable preferred stock
at the rate of .04 shares for each $.001 dividend declared.
Resulting issuance of additional shares and related par values
were:

Year Ended June 30,

1997 1996 1995
---- ---- ----
Additional shares 1,027,406 1,824,999 1,564,117
Total par value $0.010 $0.018 $0.016

In the Recapitalization, all of the redeemable preferred stock
issued prior to April 18, 1997 was either cancelled and converted
into the right to receive new DMFC common stock or cancelled and
converted into the right to receive cash consideration as set
forth in the Merger Agreement.

40

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

NOTE F -- RETIREMENT BENEFITS

The Company sponsors three non-contributory defined benefit
pension plans covering substantially all full-time employees.
Plans covering most hourly employees provide pension benefits
that are based on the employee's length of service and final
average compensation before retirement. Plans covering salaried
employees provide for individual accounts which offer lump sum or
annuity payment options, with benefits based on accumulated
compensation and interest credits made monthly throughout the
career of each participant. Assets of the plans consist primarily
of equity securities and corporate and government bonds.

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.
Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be
earned in the future. Del Monte's defined benefit retirement
plans have been determined to be underfunded under federal ERISA
guidelines. 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 will
contribute a total of $55 to its defined benefit pension plans
through calendar 2001, with $15 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 letter of
credit to be obtained by the Company by August 31, 1998.

The following table sets forth the pension plans' funding
status and amounts recognized on the Company's balance sheet:

June 30,
-------------
1997 1996
---- ----
Actuarial present value of
benefit obligations:
Vested benefit obligation $(269) $(265)
===== =====
Accumulated benefit obligation $(274) $(270)
===== =====

Projected benefit obligation for
services rendered to date $(279) $(277)
Plan assets at fair value 276 245
----- -----
Projected benefit obligation
in excess of plan assets (3) (32)
Unrecognized net actuarial gain (34) (27)
Unrecognized prior service income (1) (2)
----- -----
Accrued pension cost recognized in
the consolidated balance sheet $ (38) $ (61)
===== ====

The components of net periodic pension cost for the years
ended June 30, 1997, 1996 and 1995 for all defined benefit plans
are as follows:

June 30,
--------------------
1997 1996 1995
---- ---- ----
Service cost for benefits
earned during period $ 3 $ 4 $ 4
Interest cost on projected
benefit obligation 21 21 22
Actual return on plan assets (35) (32) (31)
Net amortization and deferral 13 11 11
Net periodic pension cost $ 2 $ 4 $ 6

41

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

Significant rate assumptions used in determining net periodic
pension cost and related pension obligations, are as follows:

As of June 30,
--------------------
1997 1996 1995
---- ---- ----
Discount rate used in determining
project benefit obligation 7.75% 8.0% 7.75%
Rate of increase in compensation
levels 5.0 5.0 5.0
Long-term rate of return on assets 9.0 9.0 9.0

In addition, the Company participates in several
multi-employer pension plans which provide defined benefits to
certain of its union employees. The contributions to
multi-employer plans for each of the years ended June 30, 1997,
1996 and 1995 were $4. The Company also sponsors defined
contribution plans covering substantially all employees. Company
contributions to the plans are based on employee contributions or
compensation. Contributions under such plans totaled $1, $2, and
$3 for the years ended June 30, 1997, 1996, and 1995,
respectively.

The Company provided retirement benefits under various
arrangements to substantially all employees in foreign locations
who were not covered under the above plans. Generally, benefits
under these arrangements were based on years of service and
levels of salary. The majority of the Company's foreign plans
were commonly referred to as termination indemnities. The plans
provided employees with retirement benefits in accordance with
programs mandated by the governments of the countries in which
such employees worked. The expense and related liabilities
associated with these arrangements were recorded by the Company
based on established formulas, with funding generally occurring
when employees ceased active service.

The Company sponsors several unfunded defined benefit
postretirement plans providing certain medical, dental and life
insurance benefits to eligible retired, salaried, non-union
hourly and union employees. Benefits, eligibility and
cost-sharing provisions vary by plan and employee group.

Net periodic postretirement benefit cost for the fiscal years
1997, 1996 and 1995 included the following components:

June 30,
---------------------
1997 1996 1995
---- ---- ----
Service cost $ 1 $ 2 $ 2
Interest cost 9 9 9
Amortization of
prior service cost (1)
Amortization of actuarial
losses (gains) (3) (3)
Curtailment gain (4)
---- ---- ----
Net periodic postretirement
benefit cost $ 6 $ 4 $11
==== ==== ====

The Company amortizes unrecognized gains and losses at the end
of the fiscal year over the expected remaining service of active
employees. The curtailment gain results from a reduction in
personnel in fiscal 1996. The following table sets forth the
plans' combined status reconciled with the amount included in the
consolidated balance sheet:

June 30,
--------------
1997 1996
---- ----
Accumulated postretirement
benefit obligation:
Current retirees $ 80 $ 85
Fully eligible active
plan particicipants 11 16
Other active plan participants 13 18
---- ----
104 119
Unrecognized prior service cost 10
Unrecognized gain 38 30
---- ----
Accrued postretirement
benefit cost $152 $149
==== ====

41

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

For fiscal years 1997 and 1996, the weighted average annual
assumed rate of increase in the health care cost trend is 12.42%
and 13.33%, respectively, and is assumed to decrease gradually to
6.0% in the year 2004. The health care cost trend rate assumption
has a significant effect on the amounts reported. An increase in
the assumed health care cost trend by 1% in each year would
increase the accumulated postretirement benefit obligation as of
June 30, 1997 by $10 and the aggregate of the service and
interest cost components of net periodic postretirement benefit
cost for the year then ended by $1.

The discount rate used in determining the accumulated
postretirement benefit obligation as of June 30, 1997 was 7.75%.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation as of June 30, 1996
was 8.32%.

NOTE G -- PROVISION FOR INCOME TAXES

The provision for income taxes consists of the following:

Year Ended June 30,
-----------------------
1997 1996 1995
---- ---- ----
Income (loss) before
minority interest and taxes:
Domestic $(56) $ 90 $ 2
Foreign 1 12 6
$(55) $102 $ 8
==== ==== ====
Income tax provision (benefit)
Current:
Federal $ -- $ 5 $ --
Foreign and state -- 6 1
---- ---- ----
Total Current -- 11 1
---- ---- ----
Deferred:
Federal -- -- --
Foreign and state -- -- 1
---- ---- ----
Total Deferred -- -- 1
---- ---- ----
$ -- $ 11 $ 2
==== ==== ====

Pre-tax income for foreign operations includes income of all
operations located outside the United States, some of which are
currently subject to U.S. taxing jurisdictions.

43

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

Significant components of the Company's deferred tax assets
and liabilities as of June 30, 1997 and 1996 are as follows:

Year Ended June 30,
------------------
1997 1996
---- ----
Deferred tax assets:
Post employment benefits $ 53 $ 53
Pension expense 16 24
Deferred gain 5 6
Workers' compensation 8 7
Leases and patents 4 5
Other 24 20
Net operating loss and
tax credit carry forward 33 16
Gross deferred tax assets 143 131
Valuation allowance (113) (98)
---- ----
Net deferred tax assets 30 33
Deferred tax liabilities:
Depreciation 30 30
Other -- 3
---- ----
Gross deferred liabilities 30 33

Net deferred tax asset $ -- $ --
==== ====

The net change in the valuation allowance for the years ended
June 30, 1997 and 1996 was an increase of $15 and a decrease of
$27, respectively.

The differences between the provision for income taxes and
income taxes computed at the statutory U.S. federal income tax
rates are explained as follows:

Year Ended June 30,
-----------------------
1997 1996 1995
---- ---- ----
Income taxes (benefit) computed
at the statutory
U.S. federal income tax rates $(19) $ 3 $ 2
Taxes on foreign income at
rates different than
U.S. federal income tax rates (1)
State taxes, net of federal benefit 3
Net operating losses for
which no benefit has been
recognized 19
Realization of prior years'
net operating losses
and tax credits (27
---- ---- ----
Provision for income taxes $ -- $ 11 $ 2
==== ==== ====

As of June 30, 1997, the Company had operating loss
carryforwards for tax purposes available from domestic operations
totaling $84 which will expire between 2008 and 2012.

Extraordinary losses from refinancing of debt and early debt
retirement and the cumulative effect of change in accounting
principle did not have any tax effect due to the Company's
current tax position.

The Company made income tax payments of $4, $5 and $3 for the
years ended June 30, 1997, 1996 and 1995, respectively.

44

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

NOTE H -- COMMITMENTS AND CONTINGENCIES

The Company leases certain property and equipment,
agricultural lands, and office and plant facilities. At June 30,
1997, the aggregate minimum rental payments required under
operating leases that have initial or remaining terms in excess
of one year are as follows:

1998 $14
1999 13
2000 12
2001 9
2002 6
Thereafter 41
----
$95
====

Minimum payments have not been reduced by minimum sublease
rentals of $7 due through 2016 under noncancelable subleases.

Rent expense was $32, $28, and $32 for fiscal years ended June
30, 1997, 1996, and 1995, respectively. Rent expense includes
contingent rentals on certain equipment based on usage.

The Company has entered into noncancelable agreements with
growers, with terms ranging from two to ten years, to purchase
certain quantities of raw products. Total purchases under these
agreements were $114, $54, and $68 for the years ended June 30,
1997, 1996, and 1995, respectively. The Company also has
commitments to purchase certain finished goods.

At June 30, 1997, aggregate future payments under such
purchase commitments (priced at the June 30, 1997 estimated cost)
are estimated as follows:

1998 $ 68
1999 56
2000 44
2001 33
2002 26
Thereafter 60
------
$287
======

In addition, the Company expects to purchase $46 in fiscal
1998 under the supply agreement for pineapple products entered
into in conjunction with the sale of the Del Monte Philippines
operations (see Note B).

Effective August 13, 1993, DMC sold its dried fruit and snack
operations to Yorkshire Dried Fruits and Nuts, Inc., ("YDFNI").
In connection with this asset sale, DMC entered into certain
agreements with YDFNI which, among other things, grant YDFNI the
right to use certain Del Monte trademarks. Under these
agreements, as a service to, and for the benefit of YDFNI, DMC
purchased and resold certain of the former DMC dried fruit and
snack products. This resale agreement was terminated by the
Company as of June 30, 1997.

Effective December 21, 1993, DMC sold substantially all of the
assets and certain related liabilities of its can manufacturing
operations in the United States to Silgan Containers Corporation
("Silgan"). In connection with the sale to Silgan, DMC entered
into a ten-year supply agreement under which Silgan, effective
immediately after the sale, began supplying substantially all of
DMC's metal container requirements for foods and beverages in the
United States. Purchases under the agreement in fiscal 1997
amounted to $134. The Company believes the supply agreement
provides it with a long term supply of cans at competitive prices
that adjust over time for normal manufacturing cost increases or
decreases.

45

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

In May 1992, DMC entered into an exclusive supply agreement
(the "Agreement") with Pacific Coast Producers ("PCP"), a canned
fruit and tomato processor, to purchase substantially all of
PCP's tomato and fruit production commencing July 1, 1992. PCP
continued to own and operate its production facilities, as well
as purchase raw products via its established grower network. The
Agreement was to expire in June 1998 with optional successive
five-year extensions. Total payments under the Agreement for the
twelve months ended June 30, 1995 were $186.

The Federal Trade Commission ("FTC") conducted an
investigation to determine whether the supply arrangement was in
violation of certain U.S. antitrust laws. In January 1995, the
Company and PCP agreed to terminate their supply and purchase
option agreements in settlement of the FTC investigation. In
response to the Company's actions, the FTC issued a final consent
order on April 18, 1995. A consent agreement does not constitute
an admission of any violation of law. The option and supply
agreements were terminated in late fiscal 1995. As a condition of
the termination, the Company was required to make a termination
payment of $4 to PCP.

On November 1, 1992, DMC 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 such as system usage and
inflation. Total payments for the twelve months ended June 30,
1997, 1996, and 1995 were $18, $16, and $16, respectively. The
agreement expires in November 2002 with optional successive one
year extensions.

At June 30, 1997, base charge payments under the agreement are
as follows:

1998 $14
1999 14
2000 13
2001 13
2002 13
Thereafter 6
-----
$73
=====

Del Monte has a concentration of labor supply in employees
working under union collective bargaining agreements, which
represent approximately 75% of its hourly and seasonal work
force. Of these represented employees, 7% of employees are under
agreements that will expire in 1998.

The Company is defending various claims and legal actions that
arise from its normal course of business, including certain
environmental actions. While it is not feasible to predict or
determine the ultimate outcome of these matters, in the opinion
of management none of these actions, individually or in the
aggregate, will have a material effect on the Company's results
of operations, cash flow, liquidity and financial position.

On March 25, 1997, the entities that purchased the Company's
Mexican subsidiary in October 1996 commenced an action in Texas
state court 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 as a result
of these alleged breaches. In connection with this action. $8 of
the cash proceeds from the Recapitalization which were payable to
shareholders and certain members of senior management of DMFC
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. Separately, the
purchasers claim that they are entitled to receive from the
Company as a purchase price adjustment an additional
approximately $2 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.

47

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

NOTE I -- FOREIGN OPERATIONS AND GEOGRAPHIC DATA

The Company's earnings have historically been derived in part
from foreign operations. As of November 1996, all of these
operations had been sold. Transfers between geographic areas have
been accounted for as intercompany sales, and transfer prices
have been based generally on negotiated contracts.

The following table shows certain financial information
relating to the Company's operations in various geographic areas:

Year Ended June 30,
----------------------
1997 1996 1995
Net Sales
United States $1,203 $1,147 $1,331
Philippines 142 180
Latin America 17 55 65
Transfer between
geographic areas (3) (39) (49)
------ ------ ------
Total Net Sales $1,217 $1,305 $1,527
====== ====== ======

Operating Income (Loss):
United States $ 73 $ 65 $ 64
Philippines 12 11
Latin America 5 5
------ ------ ------
Total Operating Income $ 73 $ 82 $ 80
====== ====== ======

Assets:
United States $ 667 $ 70 $ 754
Philippines 164
Latin America 35 42
------ ------ ------
$ 667 $ 736 $ 960
====== ====== ======

Liabilities of the Company's
operations located in

foreign countries $ -- $ 7 $ 128
====== ====== ======

NOTE J -- DEL MONTE CORPORATION

DMC is directly- and wholly-owned by DMFC. In the fiscal years
ended June 30, 1997 and 1996, DMC and DMC's subsidiaries
accounted for 100% of the consolidated revenues and net earnings
of the Company. In the fiscal year ended June 30, 1995, DMC and
DMC's subsidiaries accounted for all of the consolidated revenues
and net earnings of the Company except for proceeds recorded by
DMFC from a $30 letter of credit related to the termination of an
Agreement and Plan of Merger (see Note K). As of June 30, 1997
and 1996, the Company's sole asset, other than intercompany
receivables from DMC, was the stock of DMC. The Company had no
subsidiaries other than DMC and DMC's subsidiaries, and had no
direct liabilities other than intercompany payables to DMC. The
Company is separately liable under various guarantees of
indebtedness of DMC, which guarantees of indebtedness are in most
cases full and unconditional.

47

DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Millions Except Per Share Amounts)

NOTE K -- TERMINATION OF AGREEMENT AND PLAN OF MERGER

On June 27, 1994 the Company entered into an Agreement and
Plan of Merger with Grupo Empacador de Mexico, S.A. de C.V., and
CCP Acquisition Company of Maryland, Inc. (the "Purchasers"). The
Purchasers were formed by an investor group led by Mr. Carlos
Cabal Peniche for the purpose of effecting an acquisition (the
"Proposed Acquisition") of the Company. The Agreement and Plan of
Merger provided that the Company was entitled to terminate the
Agreement and Plan of Merger if the effective date of the
Proposed Acquisition failed to occur on or prior to September 19,
1994. The effective date of the Proposed Acquisition did not
occur on or prior to such date and, on September 21, 1994, the
Company terminated the Agreement and Plan of Merger in accordance
with its terms.

Pursuant to the Agreement and Plan of Merger, the Purchasers
caused a $30 letter of credit (the "Letter of Credit") to be
issued by Banco Union, S.A., a Mexican bank affiliated with Mr.
Cabal, and confirmed by Midland Bank plc, New York Branch, in
favor of the Company. Under the terms of the Agreement and Plan
of Merger, the Company was entitled to draw under the Letter of
Credit if the effective date of the Proposed Acquisition failed
to occur on or prior to September 19, 1994. Because the Proposed
Acquisition did not close by September 19, 1994, on September 20,
1994 the Company drew $30 under the Letter of Credit. This
amount, net of $4 of related transaction expenses, is included in
"Other (income) expense". The cash was applied to the repayment
of indebtedness then outstanding under the Company's revolving
credit agreement.

NOTE L --RELATED PARTY TRANSACTIONS

In connection with the Recapitalization, the Company entered
into a ten-year agreement (the "Management Advisory Agreement")
with TPG pursuant to which TPG is entitled to receive an annual
fee from the Company for management advisory services equal to
the greater of $500,000 and 0.05% of the budgeted consolidated
net sales of the Company. In addition, the Company has agreed to
indemnify TPG, its affiliates and shareholders, and their
respective directors, officers, agents, employees and affiliates
from and against fees and expenses, arising out of or in
connection with the services rendered by TPG thereunder. The
Management Advisory Agreement makes available the resources of
TPG concerning a variety of financial and operational matters.
The services that will be provided by TPG cannot otherwise be
obtained by the Company without the addition of personnel or the
engagement of outside professional advisors. In management's
opinion, the fees provided for under the Management Advisory
Agreement reasonably reflect the benefits to be received by the
Company.

In connection with the Recapitalization, the Company also
entered into an agreement (the "Transaction Advisory Agreement")
with TPG pursuant to which TPG received a cash financial advisory
fee of approximately $8.4 million upon the closing of the
Recapitalization as compensation for its services as financial
advisor for the Recapitalization. TPG also is entitled to receive
fees up to 1.5% of the "transaction value" for each subsequent
transaction in which the Company is involved. The term
"transaction value" means the total value of any subsequent
transaction, including, without limitation, the aggregate amount
of the funds required to complete the subsequent transaction
(excluding any fees payable pursuant to the Transaction Advisory
Agreement and fees, if any paid to any other person or entity for
financial advisory, investment banking, brokerage or any other
similar services rendered in connection with such transaction)
including the amount of indebtedness, preferred stock or similar
items assumed (or remaining outstanding). In management's
opinion, the fees provided for under the Transaction Advisory
Agreement reasonably reflect the benefits to be received by the
Company.

48

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES

At a meeting held on April 18, 1997, the Board of
Directors of the Company approved the engagement of KPMG Peat
Marwick LLP as its independent auditors for the fiscal year
ending June 30, 1997 to replace the firm of Ernst & Young LLP,
who were dismissed as auditors of the Company effective April 18,
1997.

The reports of Ernst & Young LLP on the Company's
financial statements for the previous two fiscal years did not
contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope, or
accounting principles.

In connection with the audits of the Company's
financial statements for each of the years in the two-year period
ended June 30, 1996 and in the subsequent interim period, there
were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of Ernst & Young LLP would have
caused Ernst & Young LLP to make reference to the matter in their
report.

The Company requested Ernst & Young LLP to furnish it
a letter addressed to the Commission stating whether it agrees
with the above statements. A copy of that letter, dated June 11,
1997 was previously filed with the Commission.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following tables sets forth certain information
concerning the directors and executive officers of the Company as
of the date of this report:

Name Age Positions

Dick W. Boyce........... 43 Chairman of the Board; Director
Richard G. Wolford...... 52 Chief Executive Officer, Director
Wesley J. Smith......... 50 Chief Operating Officer, Director
Timothy G. Bruer........ 38 Director
Patrick Foley........... 65 Director
Brian E. Haycox......... 55 Director
Denise M. O'Leary....... 40 Director
William S. Price, III... 41 Director
Jeffrey A. Shaw......... 33 Director
David L. Meyers......... 51 Executive Vice President, Admini-
stration and Chief Financial Officer
Glynn M. Phillips....... 60 Executive Vice President, Sales
Thomas E. Gibbons....... 49 Senior Vice President and Treasurer
William J. Spain........ 55 Senior Vice President, Technology
Richard L. French....... 40 Vice President and Chief Accounting
Officer
William R. Sawyers...... 35 Vice President, General Counsel
and Secretary

49

Dick W. Boyce, Chairman of the Board; Director. Mr. Boyce
became Chairman of the Board and a director of both DMC and DMFC
in August 1997. Mr. Boyce became President of CAF, Inc., an
affiliate of TPG in 1997. He was employed by PepsiCo from 1992 to
1997, most recently as Senior Vice President of Operations for
Pepsi-Cola North America. From 1980 to 1992, Mr. Boyce was
employed by Bain & Co.

Richard G. Wolford, Chief Executive Officer; Director.
Mr. Wolford joined both DMC and DMFC as Chief Executive Officer
and a director in April 1997 upon consummation of the
Recapitalization. From 1967 to 1987, he held a variety of
positions at Dole Foods, including President of Dole Packaged
Foods from 1982 to 1987. From 1988 to 1996, he was Chief
Executive Officer of HK Acquisition Corp. where he developed food
industry investments with venture capital investors.

Wesley J. Smith, Chief Operating Officer; Director. Mr.
Smith joined both DMC and DMFC as Chief Operating Officer and a
director in April 1997 upon consummation of the Recapitalization.
From 1972 to 1995, he was employed by Dole Foods in a variety of
positions, including senior positions in finance, marketing,
operations and general management in California, Hawaii and
Honduras.

Timothy G. Bruer, Director. Mr. Bruer became a director
of both DMC and DMFC in August 1997. Mr. Bruer has been President
and Chief Executive Officer of Silverado Foods, Inc. since March
1997. From 1992 until that time, he was Vice President and
General Manager of the Culinary Division of Nestle USA.

Patrick Foley, Director. Mr. Foley became a director of
both DMC and DMFC in August 1997. Mr. Foley is Chairman, President
and Chief Executive Officer of DHL Corporation, Inc. and its major
subsidiary, DHL Airways, Inc. He joined DHL in September 1988
with more than 30 years experience in hotel and airline
industries. He was formerly Chairman and President of Hyatt Hotel
Corporation. Mr. Foley serves on the Boards of Directors of
Continental Airlines, Inc., DHL International, Foundation Health
Systems, Inc. and Glenborough Realty Trust, Inc.

Brian E. Haycox, Director. Mr. Haycox was elected to the
Board of Directors of both DMC and DMFC in June 1995. He was
elected as Co-Chairman and Co- Chief Executive Officer of both
DMC and DMFC in December 1995, and he served in those capacities
until the consummation of the Recapitalization. Mr. Haycox served
as President and Chief Executive Officer of Del Monte Tropical
Fruit from 1988 until 1993. Prior to that time, Mr. Haycox served
in a variety of management positions within the Del Monte
organization.

Denise M. O'Leary, Director. Ms. O'Leary became a director
of both DMC and DMFC in August 1997. Ms. O'Leary has been a
Special Limited Partner of Menlo Ventures since 1996. From 1983
to 1996, she was a General Partner of Menlo Ventures. Ms. O'Leary
serves on the Boards of Directors of various private companies as
well as on the Board of ALZA Corporation. She is a member of the
Board of Trustees of Stanford University and a director of
Stanford Health Services.

William S. Price, III, Director. Mr. Price became a
director of both DMC and DMFC in August 1997. Mr. Price was
founding partner of TPG in 1992. Prior to forming TPG, he was Vice
President of Strategic Planning and Business Development for G.
E. Capital. Mr. Price is Chairman of the Board of Favorite Brands
International, Inc. and Co-Chairman of the Board of Beringer Wine
Estates. He also serves on the Boards of Directors of Continental
Airlines, Inc., Continental Micronesia, Inc., PPOM, L.P. and
Denbury Resources.

Jeffrey A. Shaw, Director. Mr. Shaw became a director of
both DMC and DMFC in May 1997. Mr. Shaw has been an executive of
TPG since 1993. Prior to joining TPG, Mr. Shaw was a principal of
Acadia Partners, L.P., an investment partnership, for three
years. Mr. Shaw serves as a director of Continental Micronesia,
Inc., Favorite Brands International, Inc., Ryanair PLC, Ducati
Motors, S.p.A. and Ducati North America, Inc.

50

David L. Meyers, Executive Vice President, Administration
and Chief Financial Officer. Mr. Meyers joined the Company in
1989. He was elected Chief Financial Officer of both DMC and DMFC
in December 1992 and was a member of the Board of Directors of
both DMC and DMFC from January 1994 until the consummation of the
Recapitalization. Prior to joining the Company, Mr. Meyers held a
variety of financial and accounting positions with RJR Nabisco
(1987 to 1989), Nabisco Brands USA (1983 to 1987), and Standard
Brands, Inc. (1973 to 1983).

Glynn M. Phillips, Executive Vice President, Sales. Mr.
Phillips joined the Company in October 1994. Prior to joining the
Company, Mr. Phillips was Vice President, Sales of the Clorox
Company where he also held various sales and marketing positions
from 1973 to 1994.

Thomas E. Gibbons, Senior Vice President and Treasurer. Mr.
Gibbons joined the Company in 1969 and was elected to his current
position in February 1995. He was elected Vice President and
Treasurer of both DMC and DMFC in January 1990. Mr. Gibbons'
prior experience also includes a variety of positions within the
Company's and RJR Nabisco's tax and financial organizations.

William J. Spain, Senior Vice President, Technology. Mr.
Spain joined the Company in 1966 and was elected to his current
position in February 1995. Previously, he was Vice President,
Research, Government and Industry relations of both DMC and DMFC.
Mr. Spain has also held various positions within the Company in
corporate affairs, production management, quality assurance,
environmental and energy management, and consumer services.

Richard L. French, Vice President and Chief Accounting
Officer. Mr. French joined the Company in 1980 and was elected to
his current position in August 1993. Mr. French was Controller
and Chief Accounting Officer of both DMC and DMFC from March 1990
through August 1993 and has held a variety of positions within
the Company's financial organization.

William R. Sawyers, Vice President, General Counsel and
Secretary. Mr. Sawyers joined the Company in November 1993 and
was elected to his current position in 1995. Prior to joining the
Company, Mr. Sawyers was an associate with the law firm of
Shearman & Sterling from 1987 to 1993.

51

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth compensation paid by
the company for fiscal years 1995, 1996 and 1997 to each
individual serving as its Chief Executive Officer during fiscal
year 1997, to each of the four other most highly compensated
executive officers of the Company as of the end of fiscal 1997
and to one executive officer whose employment terminated prior to
the end of fiscal 1997.

Long Term
Compen-
sation(3)
Other ---------
Annual LTIP All Other
Name and Principal Fiscal Salary(1) Bonus Comp.(2) Payouts Comp.(4)
Position Year ($) ($) ($) ($) ($)
- ------------------ ------ --------- ----- -------- ------- --------

Richard G. Wolford (5) 1997 100,641 -- -- -- 1,196
Chief Executive
Officer

Brian E. Haycox 1997 602,404 -- 73,471 -- 5,323,303
Co-Chairman/Co-CEO (6) 1996 420,673 -- 247,780 -- 8,052

Paul H. Mullan 1997 602,404 -- 221,940 -- 5,288,452
Co-Chairman/Co-CEO (7) 1996 420,673 -- 817,978 -- 8,052

David L. Meyers 1997 286,000 159,400 -- 421,000 2,959,771
Executive Vice 1996 273,000 143,000 55,386 421,000 11,242
President, 1995 302,500 -- 145,954 421,000 9,786
Administration & CFO

Glynn M. Phillips 1997 239,118 118,300 -- 280,000 1,974,454
Executive Vice 1996 225,750 118,250 -- 280,000 9,206
President, Sales 1995 158,907 -- -- 280,000 52,724

Thomas E. Gibbons 1997 183,458 59,900 -- 210,000 115,829
Senior Vice 1996 175,600 63,900 -- 54,600 4,717
President & 1995 161,703 53,600 -- 50,400 4,728
Treasurer

William J. Spain 1997 147,917 49,500 -- 162,000 115,766
Senior Vice 1996 139,167 49,700 -- 42,100 4,417
President, 1995 126,542 40,700 -- 38,900 4,024
Technology

David M. Little (8) 1997 250,250 -- -- 421,000 3,363,581
Executive Vice 1996 286,650 150,150 -- 421,000 10,660
President, Worldwide 1995 309,500 -- -- 421,000 10,302
Operations

(1) Reflects actual base earnings for the fiscal year specified.

(2) Fiscal 1995 reflects certain perquisites, including moving
expenses for Mr. Meyers ($129,838). Fiscal 1996 reflects
certain perquisites, including relocation related expenses
for Mr. Haycox ($243,092) and Mr. Mullan ($812,333); moving
expenses for Mr. Meyers ($33,091) and company car
($15,500). Fiscal 1997 reflects certain perquisites,
including relocation related taxes for Mr. Haycox ($57,005)
and Mr. Mullan ($198,955).

(3) Reflects payments under the Company's Management Equity Plan
and Long Term Incentive Plan.

52

(4) For fiscal 1995: Company contributions to the Del Monte
Corporation Savings Plan -- Mr. Meyers $4,500; Mr. Gibbons
$4,500; Mr. Spain $3,796; Mr. Little $4,500, Company paid
term life premiums -- Mr. Meyers $1,960; Mr. Phillips
$2,724; Mr. Gibbons $228; Mr. Spain $228; Mr. Little $2,080,
a sign-on bonus for Mr. Phillips $50,000, amount paid under
the nonqualified Additional Benefits Plan -- Mr. Meyers
$3,326; Mr. Little $3,722.

For fiscal 1996: Company contributions to the Del
Monte Corporation Savings Plan -- Mr. Haycox $4,500;
Mr. Mullan $4,500; Mr. Meyers $4,500; Mr. Phillips
$4,500; Mr. Gibbons $4,500; Mr. Spain $4,200; Mr.
Little $4,500, Company paid term life premiums -- Mr.
Haycox $3,552; Mr. Mullan $3,552; Mr. Meyers $3,407;
Mr. Phillips $4,706; Mr. Gibbons $217; Mr. Spain $217;
Mr. Little $2,428, amount paid under the nonqualified
Additional Benefits Plan -- Mr. Meyers $3,335; Mr.
Little $3,732.

For fiscal 1997: Company contributions to the Del Monte
Corporation Savings Plan -- Mr. Haycox $4,800; Mr. Mullan
$5,738; Mr. Meyers $4,500; Mr. Phillips $4,500; Mr. Gibbons
$4,500; Mr. Spain $4,437; Mr. Little $3,003, Company paid
term life premiums -- Mr. Wolford $1,196; Mr. Haycox
$13,057; Mr. Mullan $10,657; Mr. Meyers $4,198; Mr. Phillips
$5,325; Mr. Gibbons $217; Mr. Spain $217; Mr. Little $2,739,
amount paid under the nonqualified Additional Benefits Plan
-- Mr. Meyers $4,130; Mr. Little $4,567, amount paid due to
termination for Mr. Haycox $393,874; Mr. Mullan $360,485;
Mr. Little $406,329, change in control bonus paid April 1997
-- Mr. Haycox $4,911,572; Mr. Mullan $4,911,572; Mr. Meyers
$2,946,943; Mr. Phillips $1,964,629; Mr. Gibbons $111,112;
Mr. Spain $111,112; Mr. Little $2,946,943.

(5) Mr. Wolford became Chief Executive Officer as of April 18,
1997.

(6) Mr. Haycox's employment as Co-Chairman/Co-CEO terminated as
of April 18, 1997.

(7) Mr. Mullan's employment as Co-Chairman/Co-CEO terminated as
of April 18,1997.

(8) Mr. Little's employment as Executive Vice President, Worldwide
Operations terminated as of April 30, 1997.

Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values

Number of Securities
Underlying Unexercised
Options At Fiscal Year End(1)
(#)
Name Exercisable/Unexercisable
- ---- -------------------------
Richard G. Wolford................... --
Brian E. Haycox...................... --
Paul H. Mullan....................... --
David L. Meyers...................... 0/122
Glynn M. Phillips.................... --
Thomas E. Gibbons.................... 0/122
William J. Spain..................... 0/122
David M. Little...................... 0/122

(1) Representing nonqualified options granted pursuant to the
Del Monte Corporation Management Stock Option Plan (the
"MSOP") with respect to shares of Class A Common Stock of
the Company. All options granted under the MSOP were
out-of-the-money as of the end of fiscal year 1996, and all
options under the plan expired on August 31, 1996.

53

Employment and Other Arrangements

The Management Equity Plan. Established beginning in
fiscal 1995 and modified in March 1996, the Company's Management
Equity Plan ("MEP") provided awards to certain key executives
upon the sale of the Company or upon the public offering of the
Company's common stock. Under the terms of the MEP, the "Base
Value" of the Company's preferred and common stock was
established at $125 million. To the extent that proceeds from the
sale of the Company to preferred and common stockholders (after
repayment of debt but without reduction for payment to executives
under the MEP) exceeded the $125 million Base Value, an award
pool of 6% of such excess was set aside for payment to the
Company's executive officers. The MEP was terminated concurrent
with the Recapitalization.

In connection with the Recapitalization, the Company
made payments aggregating approximately $19.7 million pursuant to
the MEP. This amount was allocated as follows:

Mr. Haycox................... $4,911,572
Mr. Mullan................... 4,911,572
Mr. Little................... 2,946,943
Mr. Meyers................... 2,946,943
Mr. Phillips................. 1,964,629
Other officers(1)............ 2,000,016

(1) Other officers includes Messrs. Gibbons and Spain and
16 other senior officers.

Messrs. Meyers, Little and Phillips were participants
in the MEP prior to its modification in March 1996, and as such
became eligible for awards for fiscal 1995 based on the annual
equity growth formula in effect under the MEP for such year.
Messrs. Meyers, Little and Phillips were paid installment
payments of the pre-modification MEP awards in the amounts of
$421,000, $421,000 and $280,000, respectively, in June 1996 and
remained eligible for installment payment of the pre-modification
MEP awards in the amounts of $421,000, $421,000 and $280,000,
respectively, for fiscal 1997. The Company was obligated to pay
these fiscal 1997 awards at the time of the Recapitalization.

Long Term Incentive Plan. Established on July 1, 1990,
amended and restated on July 1, 1995, the Long Term Incentive
Plan ("LTIP") provided certain key management employees with a
long-term incentive program based on Company performance. The
LTIP had a performance cycle of three (3) fiscal years with
interim award payments at the end of each fiscal year based on
employee's target award. The three year target award was
determined by multiplying (i) the executive's base pay by (ii) a
percentage based on salary grade level, and multiplying the
result by (iii) three (for each fiscal year in the performance
cycle). Interim awards were determined by comparing actual
financial performance compared to target goals and subject to a
percentage payout schedule. Mr. Gibbons received fiscal 1995 and
fiscal 1996 awards of $50,400 and $54,600, respectively. Mr.
Gibbons received the final fiscal 1997 award in the amount of
$210,000 at the time of the Recapitalization. Mr. Spain received
fiscal 1995 and fiscal 1996 awards of $38,900 and $42,100,
respectively. Mr. Spain received the final fiscal 1997 award in
the amount of $162,000 at the time of the Recapitalization.

The Annual Incentive Award Plan. The Annual Incentive
Award Plan ("AIAP") provides annual cash bonuses to certain manage-
ment employees, including certain of the named senior executives. The
target bonus for each eligible employee is based on a percentage
of base salary. Actual payment amounts are based on the Company's
achievement of annual earnings objectives and individual
performance objectives at fiscal year end. The targeted
percentage of base salary is as follows: Mr. Little - 50%, Mr.
Meyers - 50%, Mr. Phillips - 50%, Mr. Gibbons - 30% and Mr. Spain
- - 30%. Mr. Haycox and Mr. Mullan were not eligible for the AIAP
for fiscal 1996 or fiscal 1997. Mr. Wolford was not eligible for
the AIAP for fiscal 1997. Mr. Little received his fiscal 1997
AIAP payment of $150,150 at the time of his termination as of
April 30, 1997.

54

Stock Purchase Plan. The Company intends to implement
a stock purchase plan under which specified key employees will be
permitted to purchase an aggregate amount of approximately $5
million in DMFC common stock at a price per share equal to the
purchase price paid by TPG.

Stock Option Plan. The Company intends to implement an
employee stock option plan providing for grants to specified
employees of options to purchase an aggregate of approximately 6%
of the outstanding common stock of DMFC.

The Del Monte Retirement Plan for Salaried Employees.
The Del Monte Corporation Retirement Plan for Salaried Employees
(the "Del Monte Corporation Retirement Plan"), which became
effective as of January 1, 1990, is a non-contributory defined
benefit retirement plan covering salaried employees of the
Company and its subsidiaries. Credits are made monthly to each
participant's personal retirement account ("PRA") consisting of a
percentage of that month's eligible compensation, plus interest
on his or her account balance. A participant is fully vested upon
completion of five years of service.

The percentage of monthly compensation credited varies
according to age as follows:

All Monthly Monthly Compensation
Participant Age Compensation Above Social Security Base
- --------------- ------------ --------------------------
Below 35................ 4.0% 3.0%
35 but below 45......... 5.0% 3.0%
45 but below 55......... 6.0% 3.0%
55 and over............. 7.0% 3.0%

A participant's annual retirement benefit will be
determined by dividing the participant's account balance at
retirement by an annuity conversion factor of 8.2 if retirement
occurs at age 55 or older, with somewhat higher factors
applicable to retirement at ages 50-54. Alternatively, a
participant at retirement or other termination of employment may
elect a lump sum distribution of his or her account balance.

Participants who, as of January 1, 1988, were at least
age 40 with ten or more years' service, or at least age 55 with
five or more years' service, are eligible to receive an
alternative retirement benefit that is based on the terms of the
prior Del Monte Corporation plan. For credited service after
December 31, 1981, such participants have accrued an annual
benefit of 1.75% of average final compensation multiplied by
years of credited service. Average final compensation is the
participant's highest five years' average compensation during his
or her last ten years of credited service; compensation generally
includes base salary and awards under the AIAP but not other
forms of incentive compensation. The amount determined by this
alternative benefit formula is reduced by .75% of the
participant's Social Security benefit multiplied by years of
credited service. For credited service prior to January 1, 1982,
a similar benefit formula is applied.

The Del Monte Corporation Retirement Plan was amended
effective April 30, 1992 to cease recognition of any future
credited service or average final compensation under the
alternative retirement benefit. At retirement, a participant who
was eligible for the alternative retirement benefit will receive
an annual retirement benefit equal to the greater of the
retirement benefit determined by his or her PRA, or his or her
alternative retirement benefit based on compensation and credited
service to April 30, 1992. Alternatively, a participant may elect
the greater of a lump sum distribution of his or her PRA account
balance or the actuarial equivalent lump sum of the alternative
benefit.

Nonqualified Retirement Plans. Effective January 1,
1990, the Company established the Del Monte Corporation
Additional Benefits Plan and the Del Monte Corporation
Supplemental Benefits Plan (the "Nonqualified Retirement Plans").
The Nonqualified Retirement Plans are "top hat" and "excess"
benefit plans designed to provide benefits in excess of those
otherwise permitted under the Del Monte Corporation Retirement
Plan and the Del Monte Corporation Savings Plan (which is
qualified under Section 401(k) of the Internal Revenue Code) by
Sections 401(a)(17) and 415 of the Internal Revenue Code. The
Nonqualified Retirement Plans also provide benefits in respect of
certain amounts of deferred compensation and severance not taken
into account under

55

the Del Monte Corporation Retirement Plan or the Del Monte
Corporation Savings Plan. Employees who participate in the Del
Monte Corporation Retirement Plan or the Del Monte Corporation
Savings Plan are generally eligible to participate in the
Nonqualified Retirement Plans. Benefits under the Nonqualified
Retirement Plans are unfunded and paid from the general assets of
the Company.

Set forth below are the estimated annual benefits
payable at age 65 (assuming lump sum payments are not elected)
under the Del Monte Corporation Retirement Plan and the
Nonqualified Retirement Plans:

Year Attaining Estimated Annual
Participant Age 65 Retirement Benefit(a)
- ----------- ------ ---------------------
Mr. Wolford............ 2009 $100,770
Mr. Phillips........... 2002 35,277
Mr. Meyers............. 2010 203,244
Mr. Gibbons............ 2012 194,551
Mr. Spain.............. 2007 122,197

(a) The estimated annual retirement benefits shown assumes no
increase in compensation or AIAP and interest credits (as
defined in the plans) of 5.5%.

Employment Arrangements. During fiscal 1997, the Company
had employment agreements with each of Messrs. Haycox, Mullan,
Meyers, Little, Phillips, Gibbons and Spain. The following
summaries of the material provisions of the employment agreements
with Messrs. Haycox and Mullan (each, a "CEO Agreement" and
collectively, the "CEO Agreements"), the employment agreements
with Messrs. Meyers and Little (each, an "EVP Employment
Agreement" and collectively, the "EVP Employment Agreements") and
the employment agreement with Mr. Phillips (the "Phillips
Employment Agreement") do not purport to be complete and are
qualified in their entirety by reference to such agreements. The
employment of Messrs. Haycox and Mullan pursuant to the CEO
Agreements was terminated effective as of April 18, 1997. The
employment of Mr. Little pursuant to his EVP Employment Agreement
was terminated effective as of April 30, 1997.

The CEO Agreements provided for an initial term ending
on December 31, 1997. Under the terms of the CEO Agreements, if
an executive was terminated for any reason other than for Cause
(as defined), if he resigned for Good Reason (as defined), or if
his employment was terminated upon a sale of the Company, would
be entitled to a lump sum payment, within 10 days of his
termination, equal to the base salary that he would have earned
through December 31, 1997. The executive would also receive any
amounts due under the MEP, and would continue to participate in
any employee benefit plans and programs maintained by the Company
until the earlier of (1) December 31, 1997, or (2) such time as
he is covered by comparable programs of a subsequent employer.

Each of the EVP Employment Agreements is for an
indefinite term and contains virtually identical terms.
Specifically, each EVP Employment Agreement provides that if the
executive's employment terminates for any reason other than for
Cause (as defined) or if the executive resigns for Good Reason
(as defined), such executive would receive as severance, subject
to the executive's not competing with the Company or disclosing
confidential information or trade secrets of the Company,
severance payments over a three-year period commencing on the
date of such termination or resignation. The aggregate amount of
the severance payable to the executive over such three-year
period would equal two times the sum of: (a) the executive's
highest annual base salary in effect during the twelve-month
period prior to such termination or resignation and (b) the
target award (50% of annual base salary) under the AIAP (or
successor thereto) for the year in which such termination or
resignation occurs (or, if greater, the amount of the award for
the next preceding year). In addition, the executive would
receive a pro rata annual bonus under the AIAP for the year in
which such termination or resignation occurs and would be
entitled to participate in the employee benefit plans and
programs maintained by the Company in which the executive
participates until the earlier of (i) the end of the three-year
period and (ii) such time as the executive is covered by
comparable programs of a subsequent employer.

56

The Phillips Employment Agreement is for an indefinite
term. The Phillips Employment Agreement provides that if Mr. Phillips'
employment terminates for any reason other than for Cause (as
defined) or if Mr. Phillips resigns for Good Reason (as defined),
Mr. Phillips would receive as severance three months of his then
current base pay. In addition, if Mr. Phillips executes and
delivers to the Company a written agreement confirming his
commitment not to compete with the Company and not to disclose
confidential information or trade secrets of the Company, the
Company would then provide Mr. Phillips severance payments over
an eighteen-month period commencing on the date of such
termination or resignation. The aggregate amount of the severance
payable to Mr. Phillips over such eighteen-month period would
equal the sum of (a) Mr. Phillips' highest annual rate of base
salary in effect during the twelve-month period prior to such
termination or resignation, and (b) the target award under the
AIAP (or successor thereto) for the year in which such
termination or resignation occurs (or, if greater, the amount of
the award for the next preceding year of employment). In
addition, Mr. Phillips would receive a pro rata annual bonus
under the AIAP for the year in which such termination or
resignation occurs and would be entitled to participate in the
employee benefit plans and programs maintained by the Company in
which Mr. Phillips participates until the earlier of (i) the end
of the eighteen-month period or (ii) such time as Mr. Phillips is
covered by comparable programs of a subsequent employer.

Messrs. Gibbons' and Spain's employment agreements are
similar to that of Mr. Phillips except that they do not require
Messrs. Gibbons or Spain to execute an agreement not to compete
or disclose confidential information in order to receive
severance payments over an eighteen-month period.

The Company also intends to enter into an employment
agreement with each of Mr. Wolford and Mr. Smith, the terms of
which have not yet been finalized.

Director Compensation

Under Company policy, Messrs. Boyce, Bruer, Foley and
Haycox and Ms. O'Leary will each receive $25,000 per year to be
paid in cash or in Common Stock of DMFC, at the option of the
director. Each of these directors will also receive $2,000 for
each committee meeting of the Board of Directors attended in
person.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

DMC is a wholly owned subsidiary of DMFC. DMFC does
not have any material assets other than the stock of DMC.

57

The following tables sets forth the information regarding
the beneficial ownership of DMFC's Common Stock as of August 31,
1997 for each person that is know to DMFC to be the beneficial
owner of 5% or more of Common Stock. The holders listed have sole
voting power and investment power over the shares held by them,
except as indicated by the notes following the table:

Common Stock
Number and
Percentage of
Shares of Common
Owner Stock (1)
----- ---------
TPG (2) 110,676.93 (3)
600 California Street (77.5%)
San Francisco, California 94108

399 Venture Partners Inc. 13,000.00 (3)
399 Park Avenue, 14th (9.1%)
Floor/Zone 4
New York, New York 10043

All directors and officers as a 110,676.93
group (4) (77.5%)

(1) As of August 31, 1997, there were 140,000 shares of Common
Stock outstanding and warrants to purchase 2,587.14 shares
of Common Stock that were exercisable within 60 days.

(2) Shares of Common Stock are held by the following TPG
affiliates: TPG Partners L.P.; and TPG Parallel I L.P.

(3) Includes warrants to purchase 1,428.570 shares of
Common Stock that are exercisable within 60 days.

(4) Attributes TPG's ownership to Messrs. Price and Shaw
who are partners of TPG. Each of Messrs. Price and Shaw
disclaim beneficial ownership of the TPG owned shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the Recapitalization, the Company
entered into a ten-year agreement (the "Management Advisory
Agreement") with TPG pursuant to which TPG is entitled to receive
an annual fee from the Company for management advisory services
equal to the greater of $500,000 and 0.05% of the budgeted
consolidated net sales of the Company. In addition, the Company
has agreed to indemnify TPG, its affiliates and shareholders, and
their respective directors, officers, agents, employees and
affiliates from and against fees and expenses, arising out of or
in connection with the services rendered by TPG thereunder. The
Management Advisory Agreement makes available the resources of
TPG concerning a variety of financial and operational matters.
The services that will be provided by TPG cannot otherwise
be obtained by the Company without the addition of personnel or
the engagement of outside professional advisors. In management's
opinion, the fees provided for under the Management Advisory
Agreement reasonably reflect the benefits to be received by the
Company.

In connection with the Recapitalization, the Company
also entered into an agreement (the "Transaction Advisory
Agreement") with TPG pursuant to which TPG received a cash
financial advisory fee of approximately $8.4 million upon the
closing of the Recapitalization as compensation for its services
as financial advisor for the Recapitalization. TPG also is
entitled to receive fees up to 1.5% of the "transaction value"
for each subsequent

58

transaction in which the Company is involved. The term
"transaction value" means the total value of any subsequent
transaction, including, without limitation, the aggregate amount
of the funds required to complete the subsequent transaction
(excluding any fees payable pursuant to the Transaction Advisory
Agreement and fees, if any paid to any other person or entity for
financial advisory, investment banking, brokerage or any other
similar services rendered in connection with such transaction)
including the amount of indebtedness, preferred stock or similar
items assumed (or remaining outstanding). In management's
opinion, the fees provided for under the Transaction Advisory
Agreement reasonably reflect the benefits to be received by the
Company.

Also in connection with the Recapitalization, DMFC and
the holders of its common stock, including TPG and 399 Venture
Partners, Inc. ("399 Venture Partners") entered into a
stockholders' agreement dated as of April 18, 1997 (the
"Stockholders' Agreement"). Among other things, the Stockholders'
Agreement (i) imposes certain restrictions on the transfer of
shares of DMFC common stock and (ii) gives such holders
registration rights under certain circumstances. DMFC will bear
the costs of preparing and filing any such registration statement
and will indemnify and hold harmless, to the extent customary and
reasonable, holders selling shares covered by such a registration
statement.

As set forth in the Merger Agreement, an affiliate of
399 Venture Partners and certain current and former employees of
an affiliate of 399 Venture Partners, received approximately $7.9
million, and $215,000, respectively, in return for shares of DMFC
preferred stock which were surrendered and were cancelled by
virtue of the Merger. Since the beginning of fiscal 1996, in
connection with the PIK Note exchange offer and the refinancing
activity relating to the senior debt, the Company has also paid
fees and made other payments to affiliates of 399 Venture
Partners totaling approximately $442,000. In addition, in
connection with the Recapitalization, the Company paid to 399
Venture Partners a transaction fee of approximately $900,000.

The employment contract of Mr. Haycox was terminated
effective as of April 18, 1997. Mr. Haycox will continue to
receive the salary that he would have earned pursuant to his CEO
Agreement until September 1997. In September 1997, the Company
will pay to Mr. Haycox a lump sum payment of salary. Such lump
sum payment will be in an amount equal to the base salary that
Mr. Haycox would have earned pursuant to the CEO Agreement
between the date the lump sum payment is made and December 31,
1997.

59

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K

(a) 1. Financial Statements

(i) The following financial statements of Del Monte
Foods Company and subsidiaries are included in
Item 8:

Report of KPMG Peat Marwick LLP, Independent
Auditors
Consolidated Balance Sheets - June 30,
1997 and 1996
Consolidated Statements of Operations - Years
ended June 30, 1997, 1996 and 1995
Consolidated Statements of Stockholders'
Equity (Deficit) - Years ended June 30, 1997,
1996 and 1995 Consolidated Statements of Cash
Flows - Years ended June 30, 1997,
1996 and 1995
Notes to consolidated financial statements

(ii) Report of Ernst & Young LLP, Independent
Auditors, on the Company's financial
statements as of June 30, 1996 and for each of
the years in the two year period then ended
follows on page 61.

2. Financial Statements Schedules:

Schedules have been omitted because they are
inapplicable, not required, or the information is
included elsewhere in the financial statements or
notes thereto.

3. Exhibits

The exhibits listed on the accompanying Exhibit Index
are incorporated by reference herein and filed as part
of this report.

(b) Reports on Form 8-K

No reports on Form 8-K have been filed by registrant during
the last quarter of the period covered by this report.

(c) See Item 14(a)3 above.

(d) See Item 14(a)1 and 14(a)2 above.

60

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, 1996, and
the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended June 30, 1996 and 1995.
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 audits.

We conducted our audits 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
audits provides a reasonable basis for our opinion.

In our opinion, the 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, 1996 and the consolidated results of
their operations and their cash flows for the years ended June
30, 1996 and 1995 in conformity with generally accepted
accounting principles.

In the fiscal year ended June 30, 1996, Del Monte Foods
Company changed its methods of accounting for impairment of
long-lived assets and for long-lived assets to be disposed of.

ERNST & YOUNG LLP

August 29, 1996
San Francisco, California

61

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.

DEL MONTE FOODS COMPANY

Date: September 18, 1997
By: /s/ Richard G. Wolford
--------------------------
Richard G. Wolford
Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND
EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.

Signature Title Date
- --------- ----- ----

/s/ Richard G. Wolford Chief Executive Officer; September 18, 1997
- ------------------------- Director
Richard G. Wolford

/s/ David L. Meyers Executive Vice President, September 18, 1997
- ------------------------- Administration and
David L. Meyers Chief Financial Officer

/s/ Richard L. French Vice President and Chief September 18, 1997
- ------------------------- Accounting Officer
Richard L. French

/s/ Dick W. Boyce Director; Chairman of September 18, 1997
- ------------------------- the Board
Dick W. Boyce

/s/ Timothy G. Bruer Director September 18, 1997
- -------------------------
Timothy G. Bruer

/s Patrick Foley Director September 18, 1997
- -------------------------
Patrick Foley

/s Brian E. Haycox Director September 18, 1997
- -------------------------
Brian E. Haycox

/s/ Denise O'Leary Director September 18, 1997
- -------------------------
Denise O'Leary

S-1

/s/ William S. Price, III Director September 18, 1997
- -------------------------
William S. Price, III

/s/ Jeffrey A. Shaw Director September 18, 1997
- -------------------------
Jeffrey A. Shaw

/s/ Wesley J. Smith Director September 18, 1997
- -------------------------
Wesley J. Smith

S-2

EXHIBIT INDEX

Exhibit
No. Description
- ------- -----------

2.1 Agreement and Plan of Merger, dated as of February 21,
1997, amended and restated as of April 14, 1997, among
TPG Partners, L.P., TPG Shield Acquisition Corporation
and Del Monte Foods Company (the "Agreement and Plan of
Merger") (incorporated by reference to Exhibit 2.1 to
Registration Statement No. 333-29079, filed June 24,
1997 (the "Registration Statement"))

NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Agreement and Plan of Merger.

3.1 Restated Certificate of Incorporation of Del Monte
Corporation, dated as of June 5, 1997 (incorporated by
reference to Exhibit 3.1 to the Registration Statement)

* 3.2 Amended and Restated By-laws of Del Monte Corporation,
as amended

3.3 Articles of Amendment and Restatement of TPG Shield
Acquisition Corporation, filed April 17, 1997 (included
as Exhibit A of the Articles of Merger filed as Exhibit
3.5)

3.4 Articles Supplementary of TPG Shield Acquisition
Corporation, filed April 18, 1997 (included as Exhibit
A of the Articles of Merger filed as Exhibit 3.5)

3.5 Articles of Merger between TPG Acquisition Corporation
and Del Monte Foods Company, filed April 18, 1997
(incorporated by reference to Exhibit 3.6 to the
Registration Statement)

* 3.7 Bylaws of Del Monte Foods Company, as amended

4.1 Indenture, dated as of April 18, 1997, among Del Monte
Corporation, as issuer, Del Monte Foods Company, as
guarantor, and Marine Midland Bank, as trustee,
relating to the Notes (the "Indenture") (incorporated
by reference to Exhibit 4.2 to the Registration
Statement)

4.2 Form of Series B 12-1/4% Senior Subordinated Note Due
2007 of Del Monte Corporation (the "New Notes")
(included as Exhibit B of the Indenture filed as
Exhibit 4.2) (incorporated by reference to Exhibit 4.3
to the Registration Statement)

4.3 Registration Rights Agreement, dated as of April 18,
1997, by and among Del Monte Corporation and the
Purchasers listed therein, relating to the Notes
(incorporated by reference to Exhibit 4.9 to the
Registration Statement)

NOTE: Pursuant to the provisions of paragraph
(b)(4)(iii) of Item 601 of Regulation S-K, the
Registrant hereby undertakes to furnish to the
Commission upon request copies of the instruments
pursuant to which various entities hold long-term debt
of the Company or its parent or subsidiaries, none of
which instruments govern indebtedness exceeding 10
percent of the total assets of the Company and its
parent or subsidiaries on a consolidated basis.

X-1

10.1 Stockholders' Agreement, dated as of April 18, 1997,
among Del Monte Foods Company and its Stockholders
(incorporated by reference to Exhibit 3.6 to the
Registration Statement)

10.2 Transaction Advisory Agreement, dated as of April 18,
1997, between Del Monte Corporation and TPG Partners,
L.P. (incorporated by reference to Exhibit 10.1 to the
Registration Statement)

10.3 Management Advisory Agreement, dated as of April 18,
1997, between Del Monte Corporation and TPG Partners,
L.P. (incorporated by reference to Exhibit 10.2 to the
Registration Statement)

10.4 Credit Agreement, dated as of April 18, 1997, among Del
Monte Corporation, Bank of America N.T. & S.A., as
Administrative Agent, and other financial institutions
parties thereto (incorporated by reference to Exhibit
4.4 to the Registration Statement)

10.5 Guaranty, dated April 18, 1997, executed by Del Monte
Company, with respect to the obligations under the
Credit Agreement (incorporated by reference to Exhibit
4.5 to the Registration Statement)

10.6 Security Agreement, dated April 18, 1997, between Del
Monte Corporation and Del Monte Foods Company and Bank
of America National Trust and Savings Association
(incorporated by reference to Exhibit 4.6 to the
Registration Statement)

10.7 Pledge Agreement, dated April 18, 1997. between Del
Monte Corporation and Bank of America National Trust
and Savings Association (incorporated by reference to
Exhibit 4.7 to the Registration Statement)

10.8 Parent Pledge Agreement, dated April 18, 1997. between
Del Monte Foods Company and Bank of America National
Trust and Savings Association (incorporated by
reference to Exhibit 4.8 to the Registration Statement)

10.9 Retention Agreement between Del Monte Corporation and
David L. Meyers, dated November 1, 1991 (incorporated
by reference to Exhibit 10.3 to the Registration
Statement)

10.10 Retention Agreement between Del Monte Corporation and
Glynn M. Phillips, dated October 5, 1994 (incorporated
by reference to Exhibit 10.4 to the Registration
Statement)

10.11 Retention Agreement between Del Monte Corporation and
Thomas E. Gibbons, dated January 1, 1992 (incorporated
by reference to Exhibit 10.5 to the Registration
Statement)

10.12 Del Monte Foods Annual Incentive Award Plan and 1997
Plan Year Amendments (incorporated by reference to
Exhibit 10.8 to the Registration Statement)

10.13 Additional Benefits Plan of Del Monte Corporation, as
amended and restated effective January 1, 1996
(incorporated by reference to Exhibit 10.9 to the
Registration Statement)

10.14 Supplemental Benefits Plan of Del Monte Corporation,
effective as of January 1, 1990, as amended as of
January 1, 1992 and May 30, 1996 (incorporated by
reference to Exhibit 10.10 to the Registration
Statement)

X-2

10.15 Agreement for Information Technology Services between
Del Monte Corporation and Electronic Data Systems
Corporation, dated November 1, 1992, as amended as of
September 1, 1993 and as of September 15, 1993
(incorporated by reference to Exhibit 10.11 to the
Registration Statement)

10.16 Supply Agreement between Del Monte Corporation and
Silgan Containers Corporation, dated as of September 3,
1993, as amended as of December 21, 1993 (incorporated
by reference to Exhibit 10.12 to the Registration
Statement)

*12.1 Computation of ratio of earnings to fixed charges

21.1 Subsidiaries of Del Monte Foods Company and Del Monte
Corporation

*27.1 Financial Data Schedule

* filed herewith

X-3