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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended July 30, 2006

OR

For the transition period from                      to                     

Commission file number 001-14335

DEL MONTE FOODS COMPANY

(Exact name of registrant as specified in its charter)

One Market @ The Landmark, San Francisco, California 94105

(Address of Principal Executive Offices including Zip Code)

(415) 247-3000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of August 31, 2006, there were 200,942,476 shares of Del Monte Foods Company Common Stock, par value $0.01 per share, outstanding.

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PART I. FINANCIAL INFORMATION

DEL MONTE FOODS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

Note 1. Business and Basis of Presentation

Del Monte Foods Company and its consolidated subsidiaries (“Del Monte” or the “Company”) is one of the country’s largest producers, distributors and marketers of premium quality, branded food and pet products for the U.S. retail market. The Company’s leading food brands include Del Monte, StarKist, S&W, Contadina and College Inn. In addition, the Company has pet food and pet snack brands including Meow Mix, Kibbles ’n Bits, 9Lives, Milk-Bone, Pup-Peroni, Meaty Bone, Snausages, and Pounce. The Company acquired the Meow Mix and Milk-Bone brands during the three months ended July 30, 2006 in connection with the acquisitions discussed in Note 5. The Company also produces private label food and pet products. The majority of its products are sold nationwide in all channels serving retail markets, mass merchandisers, the U.S. military, certain export markets, the foodservice industry and food processors.

For reporting purposes, the Company’s businesses are aggregated into two reportable segments: Consumer Products and Pet Products. The Consumer Products reportable segment includes the Del Monte Brands and StarKist Seafood operating segments, which manufacture, market and sell shelf-stable products, including fruit, vegetable, tomato, broth and tuna products. The Pet Products reportable segment includes the Pet Products operating segment, which manufactures, markets and sells dry and wet pet food and pet snacks.

The Company operates on a 52 or 53-week fiscal year ending on the Sunday closest to April 30. The results of operations for the three months ended July 30, 2006 and July 31, 2005 each reflect periods that contain 13 weeks.

The accompanying unaudited condensed consolidated financial statements of Del Monte as of July 30, 2006 and for the three months ended July 30, 2006 and July 31, 2005 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for annual financial statements. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited condensed consolidated financial statements. Therefore, actual results could differ from those estimates. Furthermore, operating results for the three months ended July 30, 2006 are not necessarily indicative of the results expected for the year ending April 29, 2007. These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the financial statements contained in the Company’s annual report on Form 10-K for the year ended April 30, 2006 (“2006 Annual Report”). All significant intercompany balances and transactions have been eliminated.

Beginning in the period ended January 29, 2006, the Company has combined cash flows from discontinued operations with cash flows from continuing operations within the operating, investing and financing categories in the statement of cash flows. In prior periods, cash flows from discontinued operations had been reported on a combined basis as a single amount. Prior period amounts have been revised for comparative purposes to conform to the current year presentation.

Certain items in the consolidated financial statements of prior years have been reclassified to conform to the current year’s presentation, including the classification of certain assets, liabilities and results of operations as discontinued operations. All amounts discussed in these Notes to the Condensed Consolidated Financial Statements represent continuing operations, unless otherwise noted.

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

Note 2. Employee Stock Plans

For a description of the Company’s stock-based incentive plans, see Note 9 of the 2006 Annual Report.

Stock-based Compensation. In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces FASB Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). The accounting required by SFAS 123R is similar to that of SFAS 123; however, the choice between recognizing the fair value of stock options in the income statement or disclosing the pro forma income statement effect of the fair value of stock options in the notes to the financial statements allowed under SFAS 123 has been eliminated in SFAS 123R. The Company adopted the provisions of SFAS 123R as of May 1, 2006 and has elected to use the modified prospective transition method of adoption.

Prior to May 1, 2006, the Company followed the fair value recognition provisions of SFAS 123, to account for its stock-based compensation effective at the beginning of fiscal 2004. The Company elected the prospective method of transition as permitted by FASB Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”). Effective April 28, 2003, future employee stock option grants and other stock-based compensation were expensed over the vesting period, based on the fair value at the time the stock-based compensation was granted.

The fair value for stock options granted subsequent to April 28, 2003 was estimated at the date of grant using a Black-Scholes option-pricing model. The following table presents the weighted average assumptions for the three months ended July 30, 2006 and July 31, 2005:

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

SFAS 123R requires disclosure of pro forma information for periods prior to adoption. The pro forma disclosures are based on the fair value of awards at the grant date, which is amortized to expense over the service period. The following table illustrates the effect on prior period net income and earnings per share if the Company had accounted for all its employee stock options under the fair value method of SFAS 123R:

Stock option activity and related information during the period indicated was as follows:

As of July 30, 2006, the aggregate intrinsic values of options outstanding and options exercisable were $20.9 and $15.8, respectively.

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

At July 30, 2006, the range of exercise prices and weighted-average remaining contractual life of outstanding options was as follows:

Other stock-based compensation activity and related information during the period indicated was as follows:

Note 3. Recently Issued Accounting Standards

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” (“FIN 48”), which seeks to reduce the diversity in practice associated with the accounting and reporting for uncertainty in income tax positions. This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. An uncertain tax position will be recognized if it is determined that it is more likely than not to be sustained upon examination. The tax position is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The cumulative effect of applying the provisions of this interpretation is to be reported as a separate adjustment to the opening balance of retained earnings in the year of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the Company plans to adopt the pronouncement in the first quarter of fiscal 2008. The Company is in the process of evaluating the impact of the adoption of FIN 48 on its consolidated financial statements.

Note 4. Discontinued Operations

On April 24, 2006, pursuant to an Asset Purchase Agreement dated March 1, 2006 between, Del Monte Corporation (“DMC”), a direct wholly-owned subsidiary of Del Monte Foods Company (“DMFC”), and TreeHouse Foods, Inc. (“TreeHouse”), DMC sold to TreeHouse certain real estate, equipment, machinery,

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

inventory, raw materials, intellectual property and other assets that were primarily related to the Company’s (1) private label soup business, (2) infant feeding business conducted under the brand name Nature’s Goodness, and (3) the food service soup business (collectively, the “Soup and Infant Feeding Businesses”). Under the terms of the Asset Purchase Agreement, TreeHouse also assumed certain liabilities to the extent related to the Soup and Infant Feeding Businesses. The divestiture of the Soup and Infant Feeding Businesses included the sale of Del Monte’s manufacturing facility and distribution center in Pittsburgh, PA and certain manufacturing assets associated with the private label soup business located at the Mendota, IL facility. Upon closing of the divestiture, approximately 790 of Del Monte’s plant employees and approximately 120 additional Del Monte employees joined TreeHouse. In the fourth quarter of fiscal 2006, the Company recognized a gain on the sale. As later revised in the first quarter of 2007, the total gain on the sale, net of tax, was approximately $10. During a transition period, not to exceed twelve months after the closing date, the Company is providing transition services for the buyer, including accounting, financial reporting, customer service, billing, transportation, warehousing and certain information technology services. For all periods presented, the operating results and assets and liabilities related to the Soup and Infant Feeding Businesses have been classified as discontinued operations.

In April 2004, the Company sold certain assets formerly included in the Pet Products reportable segment, including its rights in the IVD and Medi-Cal brands, its rights in the Techni-Cal brand in the United States and Canada, and related inventories, for $82.5 (the “2004 Asset Sale”). During a transition period after the sale, the Company manufactured certain products for the buyer. The Company also performed certain transition services for the buyer during agreed-upon post-closing periods. During the period ended October 30, 2005, the Company completed the sale of the remaining assets then included in discontinued operations, primarily consisting of the Canadian production facility. The Company recognized a $0.5 loss on the sale of the assets, which was offset by a non-cash gain of $2.7 due to the reversal of the cumulative foreign currency translation adjustment resulting from the substantial liquidation of the assets of its Canadian subsidiary due to the sale of the production facility. For all periods presented, the operating results related to the 2004 Asset Sale and other operating results from a related Canadian production facility have been classified as discontinued operations.

During the three months ended July 30, 2006, there was a reduction to net sales from discontinued operations of $0.2. Net sales from discontinued operations were $62.0 for the three months ended July 31, 2005.

Note 5. Acquisitions

On May 19, 2006, DMC completed the acquisition of Meow Mix Holdings, Inc. and its subsidiaries (“Meow Mix”), the maker of Meow Mix brand cat food and Alley Cat brand cat food. The preliminary total purchase price of $720.0 as of July 30, 2006 consisted of a $705.6 cash payment, an obligation to pay an additional $3.2 related to a post-closing working capital adjustment and direct transaction and other costs of $11.2. Included in this preliminary purchase price are severance-related costs of $3.9 of which $1.3 was paid during the period. As of July 30, 2006, the Company had $2.6 of accrued severance-related costs related to the acquisition. The $3.2 post-close working capital adjustment was paid in the second quarter. The financial results of Meow Mix are reported within the Pet Products reportable segment.

Effective July 2, 2006, DMC completed the acquisition of certain pet product assets, including the Milk-Bone brand (“Milk-Bone”), from Kraft Foods Global, Inc. The preliminary total purchase price as of July 30, 2006 of approximately $590.3, subject to a post-closing inventory adjustment, consisted of a $580.2 cash payment and direct transaction and other costs of $10.1. Included in this preliminary purchase price are

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

severance-related costs of $0.3. None of the severance-related costs were paid during the period ended July 30, 2006 and accordingly as of July 30, 2006, the Company had $0.3 of accrued severance-related costs related to the acquisition. The financial results of Milk-Bone are reported within the Pet Products reportable segment.

As of July 30, 2006, the Company had not completed the allocation of the purchase prices of the acquisitions. Accordingly, further changes to the fair values of the assets acquired (including, but not limited to goodwill, identifiable intangible assets and property, plant and equipment,) and liabilities assumed will be recorded as the purchase price allocations for the acquisitions are finalized in future quarters during fiscal 2007.

The Company expects the acquisitions of Meow Mix and Milk-Bone to provide its pet business with an improved competitive position, including an improved platform for developing innovative and successful products. Additionally, the Company expects the acquisitions will enhance the Company’s overall gross margins, building on its long-term strategy designed to fortify the Company’s position as a leading branded marketer of quality food and pet products in the U.S. retail market.

The results of operations for Meow Mix and Milk-Bone are included in the Pet Products reportable segment beginning May 19, 2006 and July 2, 2006, respectively. The following unaudited pro forma financial information presents the combined results of operations of the Company, including Meow Mix and Milk-Bone, as if the acquisitions had occurred as of the beginning of the periods presented. The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated financial results of operations that would have been reported had the business combinations been completed as of the beginning of the periods presented and should not be taken as indicative of the Company’s future consolidated results of operations:

Note 6. Inventories

The Company’s inventories consist of the following:

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

Note 7. Goodwill and Intangible Assets

The following table presents the Company’s goodwill and intangible assets:

During the three months ended July 30, 2006, goodwill increased by $986.2; total non-amortizing intangible assets increased by $250.0 and total amortizing intangible assets increased by $62.9. All of the increases in the Company’s goodwill and intangible assets resulted from the acquisitions (see Note 5). Further changes to goodwill and intangible assets will be recorded as the purchase price allocations for the acquisitions are finalized in future quarters during fiscal 2007.

As of July 30, 2006, the Company’s goodwill was comprised of $202.9 related to the Consumer Products reportable segment and $1,542.0 related to the Pet Products reportable segment. As of April 30, 2006, the Company’s goodwill was comprised of $202.9 related to the Consumer Products reportable segment and $555.8 related to the Pet Products reportable segment.

Amortization expense for the three months ended July 30, 2006 and July 31, 2005 was $1.7 and $0.9, respectively. The Company expects to recognize $5.2 of amortization expense during the remainder of fiscal 2007. The following table presents expected amortization of intangible assets as of July 30, 2006, for each of the five succeeding fiscal years:

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

Note 8. Assets Held For Sale

Included in prepaid expenses and other current assets are certain real properties, which were classified as assets held for sale. Assets held for sale totaled $13.8 and $10.0 as of July 30, 2006 and April 30, 2006, respectively. During the three months ended July 31, 2005, the Company sold $22.8 of assets held for sale and recognized a gain of $0.5 on the sale.

Note 9. Earnings Per Share

The following tables set forth the computation of basic and diluted earnings per share from continuing operations:

The computation of diluted earnings per share calculates the effect of dilutive securities on weighted average shares. Dilutive securities include stock options, restricted stock units and other deferred stock awards.

Options outstanding in the aggregate amounts of 6,472,945 and 7,484,644 were not included in the computation of diluted earnings per share for the three months ended July 30, 2006 and July 31, 2005, respectively, because their inclusion would be antidilutive.

Note 10. Debt

On May 19, 2006, the Company entered into an amendment of its senior credit facility (the “Second Amendment”). The Second Amendment, among other things, increased the existing Term Loan B facility commitments and revolving credit facility (the “Revolver”) commitments in order to provide funding for the Meow Mix and Milk-Bone acquisitions. On the effective date of the Second Amendment, DMC borrowed an additional $65.0 in Term B loans and $125.0 under its revolving credit facility to provide a portion of the funding

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

for the consummation on such date of the Meow Mix acquisition and the payment of related fees and expenses. On July 3, 2006, DMC borrowed an additional $580.0 in Term B loans and $13.0 under its revolving credit facility to provide the funding for the Milk-Bone acquisition and to fund transaction related expenses.

The Company’s debt consists of the following, as of the dates indicated:

The Company borrowed $337.4 from the Revolver during the three months ended July 30, 2006. A total of $97.5 was repaid during the three months ended July 30, 2006. As of July 30, 2006, the net availability under the Revolver, reflecting $47.8 of outstanding letters of credit, was $162.3. The blended interest rate on the Revolver was approximately 7.02% on July 30, 2006.

On August 15, 2006, the Company entered into a third amendment of its senior credit facility (as amended through August 15, 2006, the “Amended Senior Credit Facility”). On the effective date of the amendment, DMC borrowed an additional $100.0 in Term B loans, which proceeds (net of fees and expenses) were used to reduce the then-outstanding balance of the Revolver. The new Term B loans amortize on a pro rata basis with the existing Term B loans, and the other terms and conditions of the new Term B loans (including without limitation the applicable interest rate) are the same as the terms and conditions set forth in the Amended Senior Credit Facility applicable to the existing Term B loans.

Upon consummation of the Meow Mix acquisition, the Meow Mix entities acquired by Del Monte, in addition to the existing subsidiary guarantors, guaranteed DMC’s obligations under the 8 ⁵/8% senior subordinated notes and the 6 ³/4% senior subordinated notes and DMC’s obligations under the Amended Senior Credit Facility.

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

As of August 15, 2006, the date of the third amendment, the Company is scheduled to repay $14.4 of its long-term debt during the remainder of fiscal 2007. Scheduled maturities of long-term debt for each of the five succeeding fiscal years, as of August 15, 2006, the date of the third amendment, are as follows:

Agreements relating to the Company’s long-term debt, including the Amended Senior Credit Facility and the indentures governing the senior subordinated notes, contain covenants that restrict the ability of Del Monte Corporation and its subsidiaries, among other things, to incur or guarantee indebtedness, issue capital stock, pay dividends on and redeem capital stock, prepay certain indebtedness, enter into transactions with affiliates, make other restricted payments, including investments, incur liens, consummate asset sales and enter into consolidations or mergers. Certain of these covenants are also applicable to DMFC. Del Monte is required to meet a maximum leverage ratio and a minimum fixed charge coverage ratio under the Amended Senior Credit Facility. The Second Amendment increased the maximum permitted leverage ratio in effect through the term of the Amended Senior Credit Facility and decreased the minimum fixed charge coverage ratio in effect through the term of the Amended Senior Credit Facility. The maximum permitted leverage ratio decreases over time and the minimum fixed charge coverage ratio increases over time, as set forth in the Amended Senior Credit Facility. As of July 30, 2006, the Company believes that it is in compliance with all such financial covenants.

Note 11. Employee Severance Costs

On June 22, 2006, the Company announced a transformation plan, which was approved by the Strategic Committee of the Company’s Board of Directors on June 20, 2006, pursuant to authority granted to such Strategic Committee by the Company’s Board of Directors. The transformation plan is intended to further the Company’s progress against its strategic goal of becoming a more value-added, consumer packaged food company. The plan’s initiatives are focused on strengthening systems and processes, streamlining the organization and leveraging the scale efficiencies expected from the acquisitions of Meow Mix and Milk-Bone.

During the quarter ended July 30, 2006, the Company communicated to affected employees that their employment would be terminated as part of the transformation plan. Termination benefits and severance costs are expensed as part of selling, general and administrative expense. During the three months ended July 30, 2006, the Company incurred $7.4 of termination and severance costs related to the transformation plan of which $0.8 was paid during the period. The termination and severance costs related to the transformation plan are recorded as corporate expenses, as it is the Company’s policy to record such restructuring expenses as corporate expenses. As of July 30, 2006, the Company had $6.6 of accrued termination and severance costs related to the transformation plan.

On December 20, 2002, the Company acquired various businesses from H.J. Heinz Company (“Heinz”), including Heinz’s U.S. and Canadian pet food and pet snacks, North American tuna, U.S. retail private label soup and U.S. infant feeding businesses (the “Merger”). During the fiscal years ended May 1, 2005 and May 2, 2004, the Company communicated to affected employees that their employment would be terminated as part of the Merger-related integration of certain business functions. Termination benefits and severance costs are expensed

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

as part of selling, general and administrative expense. As of April 30, 2006 the Company had $0.5 of accrued Merger-related termination and severance costs. During the three months ended July 30, 2006, $0.3 of these costs were paid. The remaining termination and severance costs related to the Merger are not directly attributable to either of the Company’s reportable segments and therefore are recorded as corporate expenses. As of July 30, 2006, the Company had $0.2 of accrued termination and severance costs related to the Merger.

Note 12. Comprehensive Income

The following table reconciles net income to comprehensive income:

Note 13. Retirement Benefits

Defined Benefit Plans.

Del Monte sponsors three defined benefit pension plans and several unfunded defined benefit postretirement plans providing certain medical, dental and life insurance benefits to eligible retired, salaried, non-union hourly and union employees. The components of net periodic benefit cost of such plans, including discontinued operations, for the three months ended July 30, 2006 and July 31, 2005, respectively, are as follows:

The Company expects to make minimum cash contributions of approximately $0.8 to the defined benefit pension plans during the second quarter of fiscal 2007. The Company has not yet determined whether or not it will make any contributions in excess of the minimum required contributions.

In August 2006, the Pension Protection Act of 2006 (the “Act”) was signed into law. The Company is in the process of determining the impact of the provisions of the Act, which may include accelerated rates of funding to the Company’s defined benefit pension plans, on its financial position, results of operations and cash flows.

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DEL MONTE FOODS COMPANY AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

Note 14. Commitments and Contingencies

Legal Proceedings

Except as set forth below, there have been no material developments in the legal proceedings reported in the Company’s 2006 Annual Report:

The Company is a defendant in an action filed in the Superior Court in Middlesex, NJ, on May 15, 2006. The complaint alleges that four-packs of StarKist albacore tuna wrapped in shrink-wrap were mislabeled because the nutritional information on the shrink-wrap was different from the nutritional information on the individual cans. The complaint alleges several causes of action including consumer fraud, violations of the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act and unjust enrichment and seeks compensatory, punitive and treble damages. The complaint seeks certification of this matter as a class action. The Company has negotiated a tentative settlement with the plaintiff’s counsel, currently expected to be less than $0.1, and believes it has accrued adequate reserves to cover the settlement of this matter.

The Company filed a Notice of Arbitration with the American Arbitration Association (“AAA”) on February 15, 2006, which initiated arbitration proceedings against Pacer Global Logistics. The Company alleged that Pacer breached the Logistics Services Agreement entered into between the companies on April 4, 2005, effective as of March 4, 2005. The Company is seeking damages of $40.0. Pacer filed a Demand for Arbitration with AAA on March 9, 2006, as amended on April 4, 2006, in which Pacer asserted claims against the Company for breach of the Pacer Agreement. Pacer is seeking a declaration of its ability to terminate the Pacer Agreement and damages of $22.5. The Company has denied Pacer’s claims. The arbitration hearing is scheduled to commence December 11, 2006. The Company believes it has accrued adequate reserves to cover any material liability in this matter. Although the parties have been unable to negotiate a formal termination of the Pacer Agreement, the Company began using a different transportation services provider beginning on May 1, 2006.

The Company was a defendant in an action brought by the Public Media Center in the Superior Court in San Francisco, CA, on December 31, 2001. The plaintiff alleged violations of California Health & Safety Code sections 25249.5, et seq (commonly known as “Proposition 65”) and California’s unfair competition law for alleged failure to properly warn consumers of the presence of methylmercury in canned tuna. The plaintiff filed this suit against the three major producers of canned tuna in the U.S. The plaintiff sought civil penalties of two thousand five hundred dollars per day and a permanent injunction against the defendants from offering canned tuna for sale in California without providing clear and reasonable warnings of the presence of methylmercury. The Company disputed the plaintiff’s allegations. This case was consolidated with the California Attorney General case described below and trial began on October 18, 2005. The court issued a decision in favor of the Company on May 11, 2006. The plaintiff may appeal this ruling. Additionally, as noted below, on August 18, 2006, the Attorney General filed a Motion to Reopen Trial to Present New Evidence.

The Company was a defendant in an action brought by the California Attorney General in the Superior Court in San Francisco, CA, on June 21, 2004. The Attorney General alleged violations of California Health & Safety Code sections 25249.5, et seq (commonly known as “Proposition 65”) and California’s unfair competition law for alleged failure to properly warn consumers of the presence of methylmercury in canned tuna. The Attorney General filed this suit against the three major producers of canned tuna in the U.S., including Del Monte. The Attorney General sought civil penalties of two thousand five hundred dollars per day and a permanent injunction against the defendants from offering canned tuna for sale in California without providing clear and reasonable warnings of the presence of methylmercury. The Company disputed the Attorney General’s

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

For the three months ended July 30, 2006

(In millions, except share and per share data)

(Unaudited)

allegations. This case was consolidated with the Public Media Center case described above and trial began on October 18, 2005. The court issued a decision in favor of the Company on May 11, 2006. The Attorney General may appeal this ruling. Additionally, on August 18, 2006, the Attorney General filed a Motion to Reopen Trial to Present New Evidence.

Del Monte is also involved from time to time in various legal proceedings incidental to its business, including proceedings involving product liability claims, worker’s compensation and other employee claims, tort and other general liability claims, for which the Company carries insurance, as well as trademark, copyright, patent infringement and related litigation. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of these legal proceedings will have a material adverse effect on its financial position.

Note 15. Segment Information

The Company has the following reportable segments:

The Company’s chief operating decision-maker, its Chief Executive Officer, reviews financial information presented on a consolidated basis accompanied by disaggregated information on net sales and operating income, by operating segment, for purposes of making decisions and assessing financial performance. The chief operating decision-maker reviews assets of the Company on a consolidated basis only. The accounting policies of the individual operating segments are the same as those of the Company.

The following table presents financial information about the Company’s reportable segments:

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This discussion is intended to further the reader’s understanding of the consolidated financial condition and results of operations of our company. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and our annual report on Form 10-K for the year ended April 30, 2006 (the “2006 Annual Report”). These historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described in Item 1A. “Risk Factors” in our 2006 Annual Report and in Part II of this quarterly report on Form 10-Q.

Corporate Overview

Our Business. Del Monte Foods Company and its consolidated subsidiaries (“Del Monte” or the “Company”) is one of the country’s largest producers, distributors and marketers of premium quality, branded food and pet products for the U.S. retail market, with leading food brands such as Del Monte, StarKist, S&W, Contadina and College Inn, and food and snack brands for dogs and cats such as Meow Mix, Kibbles ’n Bits, 9Lives, Milk-Bone, Pup-Peroni, Meaty Bone, Snausages and Pounce. We acquired the Meow Mix and Milk-Bone brands during the three months ended July 30, 2006, in connection with the acquisitions discussed below.

For reporting purposes, our businesses are aggregated into two reportable segments: Consumer Products and Pet Products. The Consumer Products reportable segment includes the Del Monte Brands and StarKist Seafood operating segments, which manufacture, market and sell branded and private label shelf-stable products, including fruit, vegetable, tomato, broth and tuna products. The Pet Products reportable segment includes the Pet Products operating segment, which manufactures, markets and sells branded and private label dry and wet pet food and pet snacks.

Key Performance Indicators

The following is a summary of some of our key performance indicators that we utilize to assess results of operations:

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Executive Overview

Our first quarter results include net sales of $674.1 million, which represent growth of 9.3% over the first quarter of fiscal 2006. The Meow Mix and Milk-Bone acquisitions, which were completed during the quarter and are discussed further below, drove growth of 10.2%. Pricing and volume growth from new products also contributed to our sales growth. Volume loss associated with price increases (or “elasticity”) and other factors impacting existing products as discussed in “Results of Operations—Net Sales” below, partially offset the growth in net sales. Our first quarter operating income was $40.9 million, which represented a decrease of $0.9 million or 2.2% compared to the first quarter of fiscal 2006.

During the first quarter of fiscal 2007, as in fiscal 2006, we continued to see inflationary cost escalation, which impacted our results of operations. These cost increases were reflective of the higher oil prices which have a pervasive impact on our costs, including transportation, steel and other packaging and raw product. Additionally, prolonged wet and cool weather in California resulted in increased raw product costs for tomatoes and peaches. During the first quarter of fiscal 2007, pricing actions, combined with our cost saving efforts, covered the majority of the inflationary and other cost increases. For the remainder of fiscal 2007, we expect that energy and transportation-related costs, as well as steel and other packaging, raw product , including fish and crop-based products, will continue to be higher than the prior year, driven by higher energy-affected cost inputs and higher transportation-related costs, as well as the factors affecting California-sourced raw product, higher labor costs and energy costs impacting our growers.

Operating income for the three months ended July 30, 2006, was also impacted by $2.4 million of integration expense associated with the acquisition of Meow Mix and Milk-Bone, as compared to no integration expense for the three months ended July 31, 2005. In addition, we incurred $9.2 million in expenses during the first quarter of fiscal 2007 related to the transformation plan described below. Additionally, during the three months ended July 31, 2006, we recognized a gain of $9.5 million on the sale of a perpetual license for S&W branded dry soaked beans and related products, as well as the sale of the rights to the S&W trademark in Australia and New Zealand. Operating margin decreased by 70 basis points to 6.1% for the first quarter of fiscal 2007 as a result of the factors noted above.

We incurred $30.5 million in interest expense in the first quarter of fiscal 2007 as compared to $21.2 million in the first quarter of fiscal 2006, driven by higher average debt levels as well as higher interest rates. We expect that our interest expense for the remainder of fiscal 2007 will continue to be higher than in fiscal 2006 as a result of the higher debt levels related to the Meow Mix and Milk-Bone acquisitions and higher interest rates.

On May 19, 2006, we completed the acquisition of Meow Mix Holdings, Inc. and its subsidiaries (“Meow Mix”), the maker of Meow Mix brand cat food and Alley Cat brand cat food. The preliminary total purchase price of $720.0 million as of July 30, 2006 consisted of a $705.6 million cash payment, an obligation to pay an additional $3.2 million and direct transaction and other costs of $11.2 million. Included in this preliminary purchase price are severance-related costs of $3.9 million. We funded the Meow Mix acquisition with proceeds from the divestiture of the Soup and Infant Feeding Businesses, as well as with cash from operations and additional debt. The $3.2 million post-close working capital adjustment was paid in the second quarter. The financial results of Meow Mix are reported within the Pet Products reportable segment.

Effective July 2, 2006, we completed the acquisition of certain pet product assets, including the Milk-Bone brand (“Milk-Bone”), from Kraft Foods Global, Inc. The preliminary total purchase price as of July 30, 2006 of approximately $590.3 million, subject to a post-closing inventory adjustment, consisted of a $580.2 million cash payment and direct transaction and other costs of $10.1 million. Included in this preliminary purchase price are severance-related costs of $0.3 million. We funded the Milk-Bone acquisition with additional debt. The financial results of Milk-Bone are reported within our Pet Products reportable segment.

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We expect the acquisitions of Meow Mix and Milk-Bone to provide our pet business with an improved competitive position, including an improved platform for developing innovative and successful products. Additionally, we expect the acquisitions will enhance our overall gross margins, building on our long-term strategy designed to fortify our position as a leading branded marketer of quality food and pet products in the U.S. retail market.

On June 22, 2006, we announced a transformation plan to further our progress against our strategic goal of becoming a more value-added, consumer packaged food company. The plan’s initiatives, which are focused on strengthening systems and processes, streamlining the organization and leveraging the scale efficiencies expected from the recent pet acquisitions noted above, are anticipated to improve our competitiveness and enhance our overall performance.

As part of our plan, we are focusing on the following initiatives:

We expect to incur costs associated with these initiatives over the next two years of approximately $110 million in pre-tax costs, including $60 million in anticipated capital expenditures and $10 million of non-cash expenses. We expect to begin generating savings in fiscal 2007, and capture approximately $40 million of pre-tax savings in fiscal 2008 and approximately $50 million in fiscal 2009.

Critical Accounting Policies and Estimates

Our discussion and analysis of the financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we reevaluate our estimates, including those related to trade promotions, retirement benefits, goodwill and intangibles, and retained-insurance liabilities. Estimates in the assumptions used in the valuation of our stock option expense are updated periodically and reflect conditions that existed at the time of each new issuance of stock options. We base estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. For all of these estimates, we caution that future events rarely develop exactly as forecasted, and therefore, these estimates routinely require adjustment.

Management has discussed the selection of critical accounting policies and estimates with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed our disclosure relating to critical accounting policies and estimates in this quarterly report on Form 10-Q. Our significant accounting policies are more fully described in Note 2 to our Consolidated Financial Statements included in our 2006 Annual Report.

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The following is a summary of the more significant judgments and estimates used in the preparation of our consolidated financial statements:

Trade Promotions

Trade promotions are an important component of the sales and marketing of our products, and are critical to the support of our business. Trade promotion costs include amounts paid to encourage retailers to offer temporary price reductions for the sale of our products to consumers, to advertise our products in their circulars, to obtain favorable display positions in their stores, and to obtain shelf space. We accrue for trade promotions, primarily at the time products are sold to customers, by reducing sales and recording a corresponding accrued liability. The amount we accrue is based on an estimate of the level of performance of the trade promotion, which is dependent upon factors such as historical trends with similar promotions, expectations regarding customer and consumer participation, and sales and payment trends with similar previously offered programs. Our original estimated costs of trade promotions are reasonably likely to change in the future as a result of changes in trends with regard to customer and consumer participation, particularly for new programs and for programs related to the introduction of new products. We perform monthly evaluations of our outstanding trade promotions; making adjustments, where appropriate, to reflect changes in our estimates. The ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by our customers for amounts they consider due to them. Final determination of the permissible trade promotion amounts due to a customer may take up to eighteen months from the product shipment date. Our evaluations during the three months ended July 30, 2006 and July 31, 2005, resulted in no significant adjustments to our estimates relating to trade promotion liability.

Retirement Benefits

We sponsor non-contributory defined benefit pension plans (“DB plans”), defined contribution plans, multi-employer plans and certain other unfunded retirement benefit plans for our eligible employees. The amount of DB plans benefits eligible retirees receive is based on their earnings and age. Retirees may also be eligible for medical, dental and life insurance benefits (“other benefits”) if they meet certain age and service requirements at retirement. Generally, other benefit costs are subject to plan maximums, such that the Company and retiree both share in the cost of these benefits.

Our Assumptions. We utilize independent third-party actuaries to calculate the expense and liabilities related to the DB plans benefits and other benefits. DB plans benefits or other benefits which are expected to be paid are expensed over the employees’ expected service period. The actuaries measure our annual DB plans benefits and other benefits expense by relying on certain assumptions made by us. Such assumptions include:

These assumptions reflect our historical experience and our best judgment regarding future expectations. The assumptions, the plan assets and the plan obligations are used to measure our annual DB plans benefits expense and other benefits expense.

Since the DB plans benefits and other benefits liabilities are measured on a discounted basis, the discount rate is a significant assumption. The discount rate was determined based on an analysis of interest rates for high-quality, long-term corporate debt at each measurement date. The discount rate used to determine DB plans and other benefits projected benefit obligation as of the balance sheet date is the rate in effect at the measurement date. The same rate is also used to determine DB plans and other benefits expense for the following fiscal year. The long-term rate of return for DB plans’ assets is based on our historical experience, our DB plans’ investment guidelines and our expectations for long-term rates of return. Our DB plans’ investment guidelines are established based upon an evaluation of market conditions, tolerance for risk, and cash requirements for benefit payments.

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During the three months ended July 30, 2006, we recognized DB plans benefits expense of $3.1 million and a reduction of other benefits expense of $0.1 million. Our remaining fiscal 2007 DB plans benefits expense is currently estimated to be approximately $9.2 million. We expect to recognize an additional $0.2 million reduction to other benefits expense in fiscal 2007. Our actual future DB plans benefits and other benefits expense amounts may vary depending upon various factors, including the accuracy of our original assumptions and future assumptions.

Goodwill and Intangibles

Del Monte produces, distributes and markets products under many different brand names. Although each of our brand names has value, in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” only those that have been purchased have a carrying value on our balance sheet. During an acquisition, the purchase price is allocated to identifiable assets and liabilities, including brand names and other intangibles, based on estimated fair value, with any remaining purchase price recorded as goodwill.

We have evaluated our capitalized brand names and determined that some have useful lives that range from 15 to 40 years (“Amortizing Brands”) and others have indefinite useful lives (“Non-Amortizing Brands”). Non-Amortizing Brands typically have significant market share and a history of strong earnings and cash flow, which we expect to continue into the foreseeable future.

Amortizing Brands are amortized over their estimated useful lives. We review the asset groups containing Amortizing Brands (including related tangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable in accordance with FASB Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset or asset group is expected to generate. If an asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Non-Amortizing Brands and goodwill are not amortized, but are instead tested for impairment at least annually. Non-Amortizing Brands are considered impaired if the carrying value exceeds the estimated fair value. Goodwill is considered impaired if the book value of the reporting unit containing the goodwill exceeds its estimated fair value. If estimated fair value is less than the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.

The estimated fair value of our Non-Amortizing Brands is determined using the relief from royalty method, which is based upon the rent or royalty we would pay for the use of a brand name if we did not own it. For goodwill, the estimated fair value of a reporting unit is determined using the income approach, which is based on the cash flows that the unit is expected to generate over its remaining life, and the market approach, which is based on market multiples of similar businesses. Annually, we engage third-party valuation experts to assist in this process.

We have engaged third-party valuation experts to assist in the valuation of identifiable intangible assets, consisting of brands and customer relationships, acquired in connection with the Meow Mix and Milk-Bone acquisitions discussed above.

Considerable management judgment is necessary in estimating future cash flows, market interest rates, discount factors and other factors affecting the valuation of goodwill and intangibles, including the operating and macroeconomic factors that may affect them. We use historical financial information, internal plans and projections, and industry information in making such estimates.

We did not recognize any impairment charges for our Amortizing Brands, Non-Amortizing Brands or goodwill during the three months ended July 30, 2006 and July 31, 2005. While we currently believe the fair value of all of our intangible assets exceeds carrying value, materially different assumptions regarding future performance and discount rates could result in impairment losses.

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Stock Option Expense

We believe an effective way to align the interests of certain employees with those of our stockholders is through employee stock-based incentives. We typically issue two types of employee stock-based incentives: stock options and restricted stock incentives (“Restricted Shares”).

Stock options are stock incentives in which employees benefit to the extent our stock price exceeds the strike price of the stock option before expiration. A stock option is the right to purchase a share of our common stock at a predetermined exercise price. For the stock options that we grant, the employee’s exercise price is typically equivalent to our stock price on the date of the grant (as defined in our stock incentive plans). Typically, these employees vest in stock options in equal annual installments over a four or five year period and such options generally have a ten-year term until expiration.

Restricted Shares are stock incentives in which employees receive the rights to own shares of our common stock and do not require the employee to pay an exercise price. Restricted Shares include restricted stock units, performance shares and performance accelerated restricted stock units. Restricted stock units vest over a period of time. Performance shares vest at predetermined points in time if certain corporate performance goals are achieved or are forfeited if such goals are not met. Performance accelerated shares vest at a point in time, which may accelerate if certain stock performance measures are achieved.

Fair Value Method of Accounting. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces FASB Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). The accounting required by SFAS 123R is similar to that of SFAS 123; however, the choice between recognizing the fair value of stock options in the income statement or disclosing the pro forma income statement effect of the fair value of stock options in the notes to the financial statements allowed under SFAS 123 has been eliminated in SFAS 123R. We adopted the provisions of SFAS 123R as of May 1, 2006 and have elected to use the modified prospective transition method of adoption.

Prior to May 1, 2006, we followed the fair value recognition provisions of SFAS 123, to account for our stock-based compensation effective at the beginning of fiscal 2004. We elected the prospective method of transition as permitted by FASB Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” Effective April 28, 2003, future employee stock option grants and other stock-based compensation were expensed over the vesting period, based on the fair value at the time the stock-based compensation was granted.

Our Assumptions. Under the fair value method of accounting for stock-based compensation, we measure stock option expense at the date of grant using the Black-Scholes valuation model. This model estimates the fair value of the options based on a number of assumptions, such as interest rates, employee exercises, the current price and expected volatility of our common stock and expected dividends, if any. The expected life is a significant assumption as it determines the period for which the risk-free interest rate, volatility and dividend yield must be applied. The expected life is the average length of time in which we expect our employees to exercise their options. The risk-free interest rate is based on the expected U.S. Treasury rate over the expected life. Expected stock volatility reflects movements in our stock price over a historical period that matches the expected life of the options. In the first quarter of fiscal 2007, we changed the dividend yield assumption from 0.9% to 1.4% based on our recent history of paying quarterly dividends beginning in the third quarter of fiscal 2006 and our expectation that the Board of Directors will continue to declare quarterly dividends at the same rate for the expected life of options granted.

Retained-Insurance Liabilities

Our business exposes us to the risk of liabilities arising out of our operations. For example, liabilities may arise out of claims of employees, customers or other third parties for personal injury or property damage

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occurring in the course of our operations. We manage these risks through various insurance contracts from third-party insurance carriers. We, however, retain an insurance risk for the deductible portion of each claim. For example, the deductible under our loss-sensitive worker’s compensation insurance policy is up to $0.5 million per claim. An independent, third-party actuary is engaged to estimate the ultimate costs of these retained insurance risks. Actuarial determination of our estimated retained-insurance liability is based upon the following factors:

Our estimate of retained-insurance liabilities is subject to change as new events or circumstances develop which might materially impact the ultimate cost to settle these losses. During the three months ended July 30, 2006 and July 31, 2005, we experienced no significant adjustments to our estimates.

Results of Operations

The following discussion provides a summary of operating results for the three months ended July 30, 2006, compared to the results for the three months ended July 31, 2005.

Net sales.

Net sales for the three months ended July 30, 2006 were $674.1 million, an increase of $57.5 million, or 9.3%, compared to $616.6 million for the three months ended July 31, 2005.

Net sales in our Consumer Products reportable segment were $420.6 million for the three months ended July 30, 2006, a decrease of $1.6 million or 0.4% compared to the three months ended July 31, 2005. Volume declines, primarily from price elasticity and the effect of the fourth quarter fiscal 2006 buying in advance of the current quarter price increases, were almost fully offset by increased pricing. The Del Monte Brands operating segment had sales of $289.6 million for the quarter, an increase of $2.5 million, or 0.9%, compared to the same period a year ago. We benefited from price increases and increased volume in new products, partially offset by the effect of price elasticity and other decreased volume, primarily resulting from the fourth quarter 2006 buying in advance of the current quarter price increases and the loss of some lower-margin vegetable distribution. The

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StarKist Seafood operating segment had sales of $131.0 million for the quarter, a decrease of $4.1 million, or 3.0%, compared to the same period a year ago. Net sales for the StarKist Seafood operating segment decreased due to expected sales volume decreases of chunk light and albacore halves driven by our strategic decision to increase pricing and reduce overall promotional activity for such products. This decrease was partially offset by increases due to pricing.

Net sales in our Pet Products reportable segment were $253.5 million for the three months ended July 30, 2006, an increase of $59.1 million or 30.4% compared to $194.4 million for the three months ended July 31, 2005. The increase was driven by $62.7 million in sales from the acquisitions. New products in dry dog food and pet snacks also benefited net sales. These increases were partially offset by lower pet food volume in existing products, driven primarily by competitive merchandising impacting dry dog food.

Cost of products sold. Cost of products sold for the three months ended July 30, 2006 was $509.7 million, an increase of $43.0 million, or 9.2%, compared to $466.7 million for the three months ended July 31, 2005. The increase was due to increased sales volume resulting from the acquisitions and new products, as well as continued cost increases. Our cost increases were primarily due to higher ingredient, commodity and raw product costs, including fish and crop-based products, as well as higher steel and other packaging costs, and higher transportation-related costs driven by fuel costs.

Gross margin. Our gross margin percentage for the three months ended July 30, 2006 increased 0.1 points to 24.4%, compared to 24.3% for the three months ended July 31, 2005. Net pricing benefited gross margin by 1.2 margin points, acquisitions benefited gross margin by 1.2 points, and product mix benefited gross margin by 0.2 points. These benefits were almost entirely offset by a 2.5 margin point reduction related to the higher costs noted above.

Selling, general and administrative expense. Selling, general and administrative (“SG&A”) expense for the three months ended July 30, 2006 was $123.5 million, an increase of $15.4 million, or 14.2%, compared to SG&A of $108.1 million for the three months ended July 31, 2005. Our increase in SG&A expense was primarily driven by transformation-related expenses of $9.2 million, incremental SG&A costs associated with operating the acquired businesses, a $2.8 million increase in customer delivery costs driven by higher fuel prices and $2.2 million of integration costs, partially offset by the gain of $9.5 million on the sale of the S&W bean license and the sale of the S&W brand in Australia and New Zealand.

Operating income.

Operating income for the three months ended July 30, 2006 was $40.9 million, a decrease of $0.9 million, or 2.2%, compared to operating income of $41.8 million for the three months ended July 31, 2005.

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Our Consumer Products reportable segment operating income decreased by $4.2 million, or 14.0%, to $25.8 million for the three months ended July 30, 2006 from $30.0 million for the three months ended July 31, 2005. Higher inflationary costs related to transportation-related costs driven by fuel costs, as well as steel and other packaging and raw product costs including fish and crop-based products, drove the decrease in operating income for the three months ended July 30, 2006, partially offset by pricing.

Our Pet Products reportable segment operating income increased by $13.8 million, or 60.5%, to $36.6 million for the three months ended July 30, 2006 from $22.8 million for the three months ended July 31, 2005. This increase was driven primarily by the acquisitions, partially offset by $2.4 million in integration costs.

Our corporate expenses increased by $10.5 million during the three months ended July 30, 2006 compared to the prior year period. This increase resulted primarily from transformation-related expenses of $9.2 million.

Interest expense. Interest expense for the three months ended July 30, 2006 was $30.5 million, reflecting an increase of $9.3 million compared to interest expense of $21.2 million for the three months ended July 31, 2005. This increase was driven by higher average debt levels as a result of the Meow Mix and Milk-Bone acquisitions, as well as increased interest rates. We expect that our interest expense will continue to be higher in fiscal 2007 than in fiscal 2006 as a result of higher debt levels and higher interest rates.

Provision for Income Taxes. The effective tax rate for the three months ended July 30, 2006 was 26.7%, compared to 37.9% for the three months ended July 31, 2005. The effective tax rate for the three month period ending July 30, 2006 was lower than in the corresponding period in fiscal 2006 primarily due to the reversal of a portion of the valuation allowance related to foreign net operating loss carryforwards now expected to be utilized.

Income (Loss) from Discontinued Operations. The loss from discontinued operations of $1.2 million for the three months ended July 30, 2006 represents a pre-tax loss of $1.9 million, of which $0.8 million related to a reduction in the sales price of the Soup and Infant Feeding Businesses for working capital adjustments and $1.1 million primarily related to changes in estimates related to the Soup and Infant Feeding Businesses. The income from discontinued operations of $3.4 million for the three months ended July 31, 2005 primarily represents the results of operations of the Soup and Infant Feeding Businesses that were sold in the fourth quarter of fiscal 2006.

Liquidity and Capital Resources

We have cash requirements that vary based primarily on the timing of our inventory production for fruit, vegetable and tomato items. Inventory production relating to these items typically peaks during the first and second fiscal quarters. Our most significant cash needs relate to this seasonal inventory production, as well as to continuing cash requirements related to the production of our other products. In addition, our cash is used for the repayment, including interest and fees, of our primary debt obligations (i.e. our revolver and term loans under our senior credit facility, senior subordinated notes and, if necessary, letters of credit), expenditures for capital assets, lease payments for some of our equipment and properties, expenditures related to our transformation plan, payment of dividends, and other general business purposes. Although we expect to continue to pay dividends, the declaration and payment of future dividends, if any, is subject to determination by our Board of Directors each quarter and is limited by our senior credit facility and indentures. Additionally during the first quarter of fiscal 2007, we used additional debt, including debt under our revolving credit facility, and cash to fund acquisitions as described below. We may from time to time consider other uses for our cash flow from operations and other sources of cash. Such uses may include, but are not limited to, acquisitions or future transformation or restructuring plans. Our primary sources of cash are typically funds we receive as payment for the products we produce and sell and from our revolving credit facility.

We believe that cash flow from operations and availability under our revolving credit facility will provide adequate funds for our working capital needs, planned capital expenditures and debt service obligations for at

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least the next 12 months. We anticipate peak use of our revolving credit facility for the upcoming fiscal year to occur in September or October 2006, based on seasonal liquidity needs. Such peak usage, which includes outstanding letters of credit, is anticipated to be substantially higher in fiscal 2007 than fiscal 2006.

Amended Senior Credit Facility

On May 19, 2006, we entered into an amendment of our senior credit facility (the “Second Amendment”). The Second Amendment, among other things, increased the existing Term Loan B facility commitments and revolving credit facility (the “Revolver”) commitments in order to provide funding for the Meow Mix and Milk-Bone acquisitions. On the effective date of the Second Amendment, we borrowed an additional $65.0 million in Term B loans and $125.0 million under our revolving credit facility to provide a portion of the funding for the consummation on such date of the Meow Mix acquisition and the payment of related fees and expenses. On July 3, 2006, we borrowed an additional $580.0 million in Term B loans and $13.0 million under our revolving credit facility to provide the funding for the Milk-Bone acquisition and to fund transaction-related expenses.

Our debt consists of the following, as of the dates indicated:

We borrowed $337.4 million from the Revolver during the three months ended July 30, 2006. A total of $97.5 million was repaid during the three months ended July 30, 2006. As of July 30, 2006, the net availability under the Revolver, reflecting $47.8 million of outstanding letters of credit, was $162.3 million. The interest rate on the Revolver was approximately 7.02% on July 30, 2006.

On August 15, 2006, we entered into a third amendment of our senior credit facility (as amended through August 15, 2006, the “Amended Senior Credit Facility”). On the effective date of the amendment, we borrowed an additional $100.0 million in Term B loans, which proceeds (net of fees and expenses) were used to reduce the then-outstanding balance of the Revolver. The new Term B loans amortize on a pro rata basis with the existing Term B loans, and the other terms and conditions of the new Term B loans (including without limitation the applicable interest rate) are the same as the terms and conditions set forth in the Amended Senior Credit Facility applicable to the existing Term B loans.

Upon consummation of the Meow Mix acquisition, the Meow Mix entities we acquired guaranteed our obligations under the 8 ⁵/8% senior subordinated notes and the 6 ³/4% senior subordinated notes and our obligations under the Amended Senior Credit Facility.

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As of August 15, 2006, the date of the third amendment, we are scheduled to repay $14.4 million of our long-term debt during the remainder of fiscal 2007. Scheduled maturities of long-term debt for each of the five succeeding fiscal years, as of August 15, 2006, the date of the third amendment, are as follows (in millions):

Restrictive and Financial Covenants

Agreements relating to our long-term debt, including the Amended Senior Credit Facility and the indentures governing the senior subordinated notes, contain covenants that restrict Del Monte Corporation’s ability, among other things, to incur or guarantee indebtedness, issue capital stock, pay dividends on and redeem capital stock, prepay certain indebtedness, enter into transactions with affiliates, make other restricted payments, including investments, incur liens, consummate asset sales and enter into consolidations or mergers. Del Monte Corporation, the primary obligor on our debt obligations, is a direct, wholly-owned subsidiary of Del Monte Foods Company. Certain of these covenants are also applicable to Del Monte Foods Company. We are required to meet a maximum leverage ratio and a minimum fixed charge coverage ratio under the Amended Senior Credit Facility. The Second Amendment increased the maximum permitted leverage ratio in effect through the term of the Amended Senior Credit Facility and decreased the minimum fixed charge coverage ratio in effect through the term of the Amended Senior Credit Facility. The maximum permitted leverage ratio decreases over time and the minimum fixed charge coverage ratio increases over time, as set forth in the Amended Senior Credit Facility. As of July 30, 2006, we believe that we are in compliance with all such financial covenants.

Compliance with these covenants is monitored periodically in order to assess the likelihood of continued compliance. Our ability to continue to comply with these covenants may be affected by events beyond our control. If we are unable to comply with the covenants under the senior credit facility or any of the indentures governing our senior subordinated notes, there would be a default, which if not waived, could result in the acceleration of a significant portion of our indebtedness.

Contractual and Other Cash Obligations

The following table summarizes our contractual and other cash obligations at July 30, 2006: