Annual Report — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K Annual Report 24 142K
2: EX-3.1 Articles of Incorporation/Organization or By-Laws 9 26K
3: EX-4.2 Instrument Defining the Rights of Security Holders 3 17K
4: EX-4.3 Instrument Defining the Rights of Security Holders 10 40K
5: EX-4.7 Instrument Defining the Rights of Security Holders 17 65K
6: EX-13 Annual or Quarterly Report to Security Holders 33± 155K
7: EX-21 Subsidiaries of the Registrant 4 15K
8: EX-23 Consent of Experts or Counsel 1 7K
9: EX-27 Financial Data Schedule (Pre-XBRL) 2 10K
EX-13 — Annual or Quarterly Report to Security Holders
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CONSOLIDATED STATEMENTS OF INCOME
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(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
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Revenue $ 4,424,160 $ 4,336,120 $ 3,840,303
Cost of products sold 3,785,745 3,692,277 3,256,345
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Gross margin 638,415 643,843 583,958
Selling, marketing and administrative expenses 433,509 399,800 369,675
Hurricane Mitch charge 100,000 - -
Citrus charge 20,000 - -
Dried Fruit restructuring charge - - 50,000
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Operating income 84,906 244,043 164,283
Interest income 9,312 7,776 8,412
Other income (expense) - net (7,996) 8,034 4,535
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Earnings before interest and taxes 86,222 259,853 177,230
Interest expense 68,943 64,589 68,699
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Income from operations before income taxes 17,279 195,264 108,531
Income taxes 5,200 35,100 19,500
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Net income $ 12,079 $ 160,164 $ 89,031
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Net income per common share
Basic $ 0.20 $ 2.67 $ 1.48
Diluted 0.20 2.65 1.47
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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CONSOLIDATED BALANCE SHEETS
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(IN THOUSANDS) 1998 1997
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Current assets
Cash and short-term investments $ 35,352 $ 31,202
Receivables - net 616,579 534,844
Inventories 475,524 468,692
Prepaid expenses 43,200 48,438
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Total current assets 1,170,655 1,083,176
Investments 71,923 69,248
Property, plant and equipment - net 1,102,285 1,024,247
Goodwill - net 277,962 65,942
Other assets 292,228 221,282
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Total assets $ 2,915,053 $ 2,463,895
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Current liabilities
Notes payable $ 29,637 $ 11,290
Current portion of long-term debt 6,451 2,326
Accounts payable 264,732 230,143
Accrued liabilities 504,058 432,680
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Total current liabilities 804,878 676,439
Long-term debt 1,116,422 754,849
Deferred income taxes and other long-term liabilities 314,527 328,293
Minority interests 57,394 37,842
Commitments and contingencies
Common shareholders' equity 621,832 666,472
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Total liabilities and equity $ 2,915,053 $ 2,463,895
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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CONSOLIDATED STATEMENTS OF CASH FLOW
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(IN THOUSANDS) 1998 1997 1996
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Operating activities
Income from operations $ 12,079 $ 160,164 $ 89,031
Adjustments to operations
Depreciation and amortization 122,058 112,081 111,073
Equity earnings, net of distributions (4,421) 373 (2,875)
Provision for deferred income taxes (33,288) 11,575 (1,741)
Hurricane Mitch charge, net 86,312 -- --
Citrus charge 20,000 -- --
Dried Fruit restructuring charge -- -- 50,000
Other (1,342) (23,005) (8,203)
Change in operating assets and liabilities,
net of effects from acquisitions
Receivables - net 39,027 (10,438) (89,176)
Inventories 2,463 72,066 27,222
Prepaid expenses and other assets (9,716) (1,167) (8,846)
Accounts payable and accrued liabilities (41,537) (7,487) (34,270)
Internal Revenue Service payment
related to prior years' audits (17,145) -- --
Other (17,392) (23,126) (37,262)
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Cash flow provided by operating activities 157,098 291,036 94,953
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Investing activities
Proceeds from sales of assets 19,291 38,700 58,855
Capital additions (150,207) (129,171) (109,686)
Purchases of investments and acquisitions,
net of cash acquired (332,100) (40,010) (58,775)
Hurricane Mitch insurance proceeds 22,500 -- --
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Cash flow used in investing activities (440,516) (130,481) (109,606)
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Financing activities
Short-term borrowings 39,508 28,414 19,694
Repayments of short-term debt (38,693) (40,887) (20,449)
Long-term borrowings 366,785 35,232 168,060
Repayments of long-term debt (25,692) (169,110) (163,799)
Cash dividends paid (24,027) (23,988) (24,020)
Issuance of common stock 11,773 6,644 11,232
Repurchase of common stock (42,086) -- (13,874)
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Cash flow provided by (used in) financing activities 287,568 (163,695) (23,156)
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Increase (decrease) in cash and short-term investments 4,150 (3,140) (37,809)
Cash and short term investments at beginning of year 31,202 34,342 72,151
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Cash and short term investments at end of year $ 35,352 $ 31,202 $ 34,342
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
Dole Food Company, Inc. and its consolidated subsidiaries ("the Company") are
engaged in the worldwide sourcing, processing, distributing and marketing of
high quality, branded food products including fresh fruits and vegetables, as
well as processed foods including packaged fruits, fruit juices and beverage
operations in Honduras. Additionally, the Company sources and markets a full
line of premium fresh-cut flowers.
Operations are conducted throughout North America, Latin America, Europe
(including eastern European countries) and Asia (primarily in Japan and the
Philippines).
The Company's principal products are produced on both Company-owned and
leased land and are also acquired through associated producer and independent
grower arrangements. The Company's products are primarily packed and processed
by the Company and sold to retail and institutional customers and other food
product and flower companies.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the
accounts of all significant majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
ANNUAL CLOSING DATE: The Company's fiscal year ends on the Saturday closest to
December 31. Fiscal year 1998 ended January 2, 1999 and included 52 weeks, while
fiscal years 1997 and 1996 included 53 weeks and 52 weeks, respectively.
CASH AND SHORT-TERM INVESTMENTS: Cash and short-term investments include cash
on hand and time deposits with original maturities of three months or less.
INVENTORIES: Inventories are valued at the lower of cost or market. Cost is
determined principally on a first-in, first-out basis. Specific identification
and average cost methods are also used for certain packing materials and
operating supplies.
RECURRING AGRICULTURAL COSTS: The costs of growing bananas and pineapples are
charged to operations as incurred. Growing costs related to other crops are
recognized when the crops are harvested and sold.
INVESTMENTS: Investments in affiliates and joint ventures with ownership of 20%
to 50% are generally recorded on the equity method. Other investments are
accounted for using the cost method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost,
less accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the assets. As
necessary, the Company reviews the recoverability of these assets, as well as
certain intangible assets including goodwill, based on analyses of undiscounted
expected future cash flows without interest charges (see Note 4).
GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill and other intangible assets,
generally representing the excess of the cost over the net asset value of
acquired businesses, are stated at cost and are amortized principally on a
straight-line basis over the estimated future periods to be benefited (not
exceeding 40 years).
FOREIGN EXCHANGE: For subsidiaries in which the functional currency is the
United States dollar, net foreign exchange transaction gains or losses are
included in determining net income. These resulted in net losses of $4.8
million, $5.0 million and $2.1 million for 1998, 1997 and 1996, respectively.
Net foreign exchange gains or losses resulting from the translation of assets
and liabilities of foreign subsidiaries whose local currency is the
functional currency are accumulated as a separate component of common
shareholders' equity.
INCOME TAXES: Deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates to the differences
between financial statement carrying amounts and the tax bases of assets and
liabilities. Income taxes which would be due upon the distribution of foreign
subsidiary earnings have not been provided where the undistributed earnings are
considered permanently invested.
EARNINGS PER COMMON SHARE: In accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share", basic earnings per common share are
calculated using the weighted-average number of common shares outstanding during
the period without consideration of the dilutive effect of stock options. The
basic weighted-average number of common shares outstanding was 60.0 million for
1998, 1997 and 1996. Diluted earnings per common share are calculated using the
weighted-average number of common shares outstanding during the period after
consideration of the dilutive effect of stock options. The diluted
weighted-average number of common shares and equivalents outstanding was 60.4
million for 1998, 1997 and 1996.
FINANCIAL INSTRUMENTS: The Company's financial instruments are primarily
composed of short-term trade and grower receivables, notes receivable and notes
payable, as well as long-term grower receivables, notes receivable, notes
payable and debentures. For short-term instruments, the historical carrying
amount is a reasonable estimate of fair value. Fair values for long-term
financial instruments not readily marketable were estimated based upon
discounted future cash flows at prevailing market interest rates. Based on these
assumptions, management believes the fair market values of the Company's
financial instruments, other than certain debt instruments (see Note 7), are not
materially different from their recorded amounts as of January 2, 1999.
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The Company has historically not attempted to hedge fluctuations resulting
from foreign currency denominated transactions in both sourcing and selling
locations. However, the Company occasionally enters into forward contracts
related to specific foreign currency denominated purchase commitments and sales.
Such contracts are designated as hedges and meet the criteria for correlation
and risk mitigation. Accordingly, unrealized gains or losses on the fair value
of hedge instruments are deferred. Gains or losses on these contracts are
recognized when the underlying transactions settle and are recorded in the
income statement or as a component of the underlying asset or liability, as
appropriate. As of January 2, 1999, the Company had contracted to purchase
German marks to facilitate payment for two German-made refrigerated container
vessels (see Note 11) at a weighted-average exchange rate of DM 1.78 to $1.00
for a total notional value of $98.3 million. These fixed-rate contracts will be
settled during the fourth quarter of 1999, and as of January 2, 1999, their fair
value was approximately $105.8 million.
STOCK-BASED COMPENSATION: Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", defines a fair value
method of accounting for employee stock-based compensation cost but allows for
the continuation of the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"). In accordance with SFAS 123, the
Company has elected to continue to utilize the accounting method prescribed by
APB 25 and has adopted the disclosure requirements of SFAS 123 (see Note 9).
COMPREHENSIVE INCOME: Effective January 4, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". SFAS 130 established standards for the reporting of comprehensive
income and its components, which consist of net income and other comprehensive
income. Other comprehensive income is comprised of changes to shareholders'
equity, other than contributions from or distributions to shareholders, excluded
from the determination of net income under generally accepted accounting
principles. The Company's other comprehensive income is comprised of unrealized
foreign currency translation gains and losses and is presented in the Company's
changes in shareholders' equity (see Note 10). Adoption of SFAS 130 did not
impact the Company's net income or shareholders' equity for the years presented.
USE OF ESTIMATES: The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform
to the 1998 presentation.
NOTE 3 -- ACQUISITIONS
During the second half of 1998, the Company acquired and invested in operations
in Latin America, North America and Europe with an aggregate cash purchase
price, net of cash acquired, of approximately $332 million. The acquisitions
were comprised primarily of the purchases of Sunburst Farms, Inc., Four Farmers,
Inc., Finesse Farms, Colombian Carnations, Inc. and their affiliated companies
and 60% of the SABA Trading AB Scandinavian distribution business. Each
acquisition was accounted for as a purchase, and accordingly, the purchase price
was allocated to the net assets acquired based upon their estimated fair values
as of the date of acquisition. Preliminary allocations of purchase price
resulted in approximately $217 million of goodwill, which is being amortized
over 30 years. The fair values of assets acquired and liabilities assumed were
approximately $493 million and $161 million, respectively. Net income from
acquired operations included in the Company's results for 1998 was $1.7 million.
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisitions had taken place on December 29,
1996:
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(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997
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Revenues $ 4,954,428 $5,050,709
Net income 20,638 163,044
Net income per common share:
Basic $ 0.34 $ 2.72
Diluted 0.34 2.70
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These pro forma results of operations have been prepared for comparative
purposes only and may not be indicative of the results of operations had the
acquisitions occurred on the date indicated or of future results of operations
of the Company.
The Company acquired and invested in production and distribution
operations in Europe, Latin America and Asia with an aggregate purchase
price, net of cash acquired, of approximately $40 million in 1997 and $59
million in 1996. Each acquisition was accounted for as a purchase, and
accordingly, the purchase price was allocated to the net assets acquired
based upon their estimated fair values as of the date of acquisition. The
allocations of purchase price resulted in approximately $11 million and $4
million of goodwill in 1997 and 1996, respectively. The goodwill is being
amortized over a period of up to 40 years. The fair values of assets acquired
and liabilities assumed were approximately $79 million and $39 million,
respectively, in 1997 and approximately $107 million and $48 million,
respectively, in 1996. Results of acquired operations were not significant in
1997 or 1996.
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NOTE 4 -- SPECIAL CHARGES
During the fourth quarter of 1998, the Company recorded a $100 million charge,
net of insurance proceeds received, for losses sustained from Hurricane Mitch.
The charge has been classified as a separate caption in the Consolidated
Statements of Income. The hurricane impacted over 30,000 acres of agricultural
plantings and severely damaged the Company's general agricultural infrastructure
at both its Honduran banana and beverage operations. A majority of the charge is
for write-downs of fixed assets, grower and trade receivables, inventories and
certain deferred crop growing costs that were completely or partially destroyed
or impaired by the hurricane. The Company has started to rehabilitate selected
parts of the affected areas. In this regard, the Company spent $13.7 million on
rehabilitation and relief efforts during 1998. Future rehabilitation costs, net
of insurance recoveries, will continue to be reported on a separate line in the
Consolidated Statements of Income in future years.
Included in the charge is $61.8 million related to property, plant and
equipment which consists of $23.7 million of asset write-offs for property
destroyed by the hurricane and $38.1 million of assets impaired by the
hurricane. The Company reviewed the impaired assets to determine whether
expected future cash flows from them (undiscounted and without interest charges)
would result in the recovery of the carrying amount of such property. As a
result of this review, the Company determined that these assets were impaired in
accordance with generally accepted accounting principles, and accordingly, an
impairment loss was recognized. The Company also recorded $3.1 million of
accrued liabilities for lease settlements and committed relief efforts as of
January 2, 1999. The amounts recorded, utilized and to be utilized in each
asset, liability and expense category are as follows:
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1998 UTILIZED TO BE
(IN THOUSANDS) CHARGE 1998 UTILIZED
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Receivables $ 19,283 $ 19,283 $ -
Inventory 13,266 13,266 -
Investment 2,000 2,000 -
Property, plant and
equipment 61,750 61,750 -
Deferred costs 9,442 9,442 -
Accrued liabilities 3,071 - 3,071
Rehabilitation expenses 13,688 13,688 -
Insurance recoveries (22,500) (22,500) -
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Total Hurricane
Mitch charge $ 100,000 $ 96,929 $ 3,071
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From December 21 to December 24, 1998 freezing temperatures destroyed or
severely damaged citrus crops in California. The Company has ownership interests
in approximately 6,500 acres of citrus in the areas affected by the freeze. As a
result of the freeze and changes in industry economics, the Company recorded a
$20 million charge. Of the $20 million charge, $13.3 million related to
write-downs of deferred crop costs and property, plant and equipment as well as
reductions in grower receivable recovery estimates due to damages sustained
during the freeze. The remaining $6.7 million of the charge related to
reductions in grower receivable recovery estimates in other areas of the
Company's North American citrus operations due to the recognition of changes in
industry economics that impacted certain independent growers. The charge has
been classified as a separate caption in the Consolidated Statements of Income.
This loss was largely not covered by insurance.
Included in the charge is $3.1 million of property, plant and equipment
impaired by the freeze. The Company reviewed these assets to determine whether
expected future cash flows from them (undiscounted and without interest charges)
would result in the recovery of the carrying amount of such assets. As a result
of this review, the Company determined that these assets were impaired in
accordance with generally accepted accounting principles, and accordingly, an
impairment loss was recognized. Included in accrued liabilities is $0.2 million
related to the severance of 29 employees, as well as $0.6 million of incremental
freeze protection costs incurred in 1998. During 1999, crop costs to finish the
crop year and unutilized overhead in idled packing facilities will be charged to
cost of products sold as incurred. The amounts recorded, utilized and to be
utilized in each asset and liability category are as follows:
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1998 UTILIZED TO BE
(IN THOUSANDS) CHARGE 1998 UTILIZED
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Grower receivables -
freeze areas $ 6,177 $ 6,177 $ -
Grower receivables -
other areas 6,737 6,737 -
Crop costs inventory 3,171 3,171 -
Property, plant and
equipment 3,148 3,148 -
Accrued liabilities 767 - 767
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Total citrus charge $ 20,000 $ 19,233 $ 767
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In 1996, the Company implemented a formal plan to close its dried fruit facility
located in Fresno, California, which had suffered continued losses. During the
fourth quarter of 1996, a restructuring charge of $50.0 million was recorded
related to the closure of this facility. The principal component of the charge
was a provision for asset write-downs of $38.5 million. The closure of this
facility was essentially completed in the second quarter of 1997. During 1997,
$30.0 million for asset write-downs, $2.2 million for contract terminations and
$2.6 million for severance payments were charged against this provision.
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During 1998, $1.3 million for asset write-downs, $0.3 million for contract
terminations and $0.3 million for sever ance payments were charged against this
provision. In total, 466 employees were terminated as a result of the closure of
this facility.
NOTE 5 -- CURRENT ASSETS AND LIABILITIES
Short-term investments of $0.6 million and $1.8 million as of January 2, 1999
and January 3, 1998, respectively, consisted principally of time deposits.
Outstanding checks, which are funded as presented for payment, totaled $33.5
million and $22.1 million as of January 2, 1999 and January 3, 1998,
respectively, and were included in accounts payable.
Details of certain current assets were as follows:
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(IN THOUSANDS) 1998 1997
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Receivables
Trade $ 494,587 $ 434,781
Notes and other 190,331 142,820
Affiliated operations 24,426 17,342
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709,344 594,943
Allowance for doubtful accounts (92,765) (60,099)
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$ 616,579 $ 534,844
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Inventories
Finished products $ 168,423 $ 149,933
Raw materials and work in progress 156,623 167,426
Crop growing costs 47,676 46,207
Operating supplies and other 102,802 105,126
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$ 475,524 $ 468,692
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Included in notes receivable is a $10 million note from Castle & Cooke, Inc.
which bears interest at the rate of 7% per annum and is due December 8, 2000.
Accrued liabilities as of January 2, 1999 and January 3, 1998 included $92.9
million and $86.4 million, respectively, of amounts due to growers.
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment were as follows:
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(IN THOUSANDS) 1998 1997
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Land and land improvements $ 448,151 $ 444,686
Buildings and improvements 314,460 264,494
Machinery and equipment 957,478 864,431
Construction in progress 101,130 84,954
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1,821,219 1,658,565
Accumulated depreciation (718,934) (634,318)
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$1,102,285 $1,024,247
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Depreciation expense for 1998, 1997 and 1996 totaled $103.4 million, $101.9
million and $102.5 million, respectively.
NOTE 7 -- DEBT
Notes payable consisted primarily of short-term borrowings required to fund
certain foreign operations and totaled $29.6 million with a weighted-average
interest rate of 13.0% as of January 2, 1999 and $11.3 million with a
weighted-average interest rate of 19.3% as of January 3, 1998.
Long-term debt consisted of:
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(IN THOUSANDS) 1998 1997
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Unsecured debt
Notes payable to banks at an
average interest rate of 5.5 %
(6.2% - 1997) $ 63,500 $ 14,600
6.75% notes due 2000 225,000 225,000
7% notes due 2003 300,000 300,000
6.375% notes due 2005 300,000 --
7.875% debentures due 2013 175,000 175,000
Various other notes due
1999 - 2004 at an average
interest rate of 5.8% (7.8% - 1997) 38,064 36,102
Secured debt
Mortgages, contracts and notes
due 1999 - 2012 at an average
interest rate of 6.4% (9.2% - 1997) 23,824 8,525
Unamortized debt discount and
issue costs (2,515) (2,052)
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1,122,873 757,175
Current maturities (6,451) (2,326)
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$ 1,116,422 $ 754,849
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The Company estimates the fair value of its fixed interest rate unsecured debt
based on current quoted market prices. The estimated fair value of unsecured
notes (face value $1,000 million in 1998 and $700 million in 1997) was
approximately $1,017 million at January 2, 1999 and $716 million at January 3,
1998.
In July 1998, the Company extended its 5-year $400 million revolving credit
facility (the "Facility") to 2003. At the Company's option, borrowings under the
Facility bear interest at a certain percentage over the agent's prime rate or
the London Interbank Offered Rate ("LIBOR"). Provisions under the Facility
require the Company to comply with certain financial covenants which include a
maximum permitted ratio of consolidated debt to net worth and a minimum required
fixed charge coverage ratio. At January 2, 1999 and January 3, 1998, there were
no borrowings outstanding under the Facility. The Company may also borrow under
uncommitted lines of credit at rates offered from time to time by various banks
that may not
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be lenders under the Facility. Net borrowings out standing under the uncommitted
lines of credit totaled $63.5 million and $14.6 million at January 2, 1999 and
January 3, 1998, respectively.
On October 6, 1998 the Company issued $300 million of unsecured notes in a
public offering for which it received cash proceeds of $297.2 million. The notes
bear interest at 6.375% and mature in 2005. Net proceeds from the sale of the
notes were used to repay amounts outstanding under the Facility and to fund
acquisitions during the fourth quarter of 1998.
Sinking fund requirements and maturities with respect to long-term debt as
of January 2, 1999 were as follows (in millions): 1999 - $6.5; 2000 - $240.6;
2001 - $13.4; 2002 - $5.1; 2003 - $368.4; and thereafter - $488.9.
Interest payments totaled $67.1 million, $66.2 million and $68.4 million,
during 1998, 1997 and 1996, respectively.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
The Company has qualified and non-qualified defined benefit pension plans
covering certain full-time employees. Benefits under these plans are generally
based on each employee's eligible compensation and years of service except for
certain hourly plans which are based on negotiated benefits. In addition to
providing pension benefits, the Company has other plans that provide certain
health care and life insurance benefits for eligible retired employees. Covered
employees may become eligible for such benefits if they fulfill established
requirements upon reaching retirement age.
For U.S. plans, the Company's policy is to fund the net periodic pension
cost plus a 15-year amortization of the unfunded liability. Most of the
Company's international pension plans and all of the Company's plans other than
pensions are unfunded.
The status of the defined benefit pension plans and other plans was as
follows:
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U.S. PENSION PLANS INTERNATIONAL PENSION PLANS OTHER PLANS
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(IN THOUSANDS) 1998 1997 1998 1997 1998 1997
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Change in projected benefit obligation
Benefit obligation at beginning of year $ 276,767 $ 248,676 $ 30,535 $ 30,776 $ 71,507 $ 73,176
Service cost 4,238 4,083 1,826 1,828 186 212
Interest cost 19,492 18,405 4,079 3,650 5,031 5,423
Participant contributions -- -- 28 41 -- --
Plan amendments 2,686 -- 195 -- -- --
Exchange rate changes -- -- 605 (9,497) -- --
Actuarial loss (gain) 20,621 26,825 (1,635) 5,559 (3,063) (1,182)
Curtailments and settlements -- -- -- (404) -- --
Benefits paid (21,716) (21,222) (1,693) (1,418) (5,737) (6,122)
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Benefit obligation at end of year $ 302,088 $ 276,767 $ 33,940 $ 30,535 $ 67,924 $ 71,507
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Change in plan assets
Fair value of plan assets at
beginning of year $ 281,944 $ 250,154 $ 1,737 $ 2,473 -- --
Actual return on plan assets 39,704 46,222 150 60 -- --
Company contributions 7,443 6,790 1,679 2,162 5,737 6,122
Participant contributions -- -- 28 41 -- --
Exchange rate changes -- -- 128 (831) -- --
Settlements -- -- -- (750) -- --
Benefits paid (21,716) (21,222) (1,693) (1,418) (5,737) (6,122)
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Fair value of plan assets at end of year $ 307,375 $ 281,944 $ 2,029 $ 1,737 -- --
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Funded status $ 5,287 $ 5,177 $ (31,911) $ (28,798) $ (67,924) $ (71,507)
Unrecognized net loss (gain) (419) (2,967) 1,172 2,588 (18,232) (15,968)
Unrecognized prior service cost (benefit) 4,539 2,099 3,589 3,815 (1,407) (1,740)
Unrecognized net transition
obligation (asset) (467) (650) 1,655 1,677 -- --
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Net amount recognized $ 8,940 $ 3,659 $ (25,495) $ (20,718) $ (87,563) $ (89,215)
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Amounts recognized in the
Consolidated Balance Sheets
Prepaid benefit cost $ 16,234 $ 9,410 -- -- -- --
Accrued benefit liability (11,045) (7,455) (25,897) (20,858) (87,563) (89,215)
Additional minimum liability 3,751 1,704 402 140 -- --
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Net amount recognized $ 8,940 $ 3,659 $ (25,495) $ (20,718) $ (87,563) $ (89,215)
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For U.S. plans, the projected benefit obligation was determined using assumed
discount rates of 7.0% in 1998 and 7.25% in 1997 and assumed rates of increase
in future compensation levels of 4.5% in 1998 and 1997. The expected long-term
rate of return on assets was 9.25% in 1998 and 1997. For international plans,
the projected benefit obligation was determined using assumed discount rates of
7.0% to 20.0% in 1998 and 7.25% to 20.0% in 1997 and assumed rates of increase
in future compensation levels of 4.5% to 17.5% in 1998 and 1997. The expected
long-term rate of return on assets for international plans was 9.25% to 20.0% in
1998 and 1997.
The accumulated plan benefit obligation ("APBO") for the Company's other
plans in 1998 was determined using an annual rate of increase in the per
capita cost of covered health care benefits of 8.5% in 1999 decreasing to
5.0% in 2006 and thereafter. The annual rate of increase assumed in the 1997
APBO was 9.0% in 1998 decreasing to 5.0% in 2006 and thereafter. An increase
in the assumed health care cost trend rate of one percentage point in each
year would have increased the Company's APBO as of January 2, 1999 by
approximately $5.6 million and would have increased the service and interest
cost components of postretirement benefit expense for 1998 by $0.5 million,
in aggregate. A decrease in the assumed health care cost trend rate by one
percentage point in each year would have decreased the Company's APBO as of
January 2, 1999 by approximately $5.5 million and would have decreased the
service and interest cost components of postretirement benefit expense for
1998 by $0.4 million, in aggregate. The weighted-average discount rate used
in determining the APBO was 7.0% for the U.S. and international plans in 1998
and 7.25% for the U.S. and international plans in 1997.
The Company's U.S. ERISA Excess Plan had an APBO of $11.0 million in 1998
and $7.5 million in 1997. Due to the nature of the plan, it remains unfunded.
The remainder of the Company's domestic pension plans were fully funded. The
APBO for the Company's unfunded international pension plans, in aggregate, was
$15.9 million in 1998 and $13.2 million in 1997.
The components of net periodic benefit cost for the U.S. and
international plans were as follows:
[Enlarge/Download Table]
PENSION PLANS OTHER PLANS
--------------------- -----------------------------------------------
(IN THOUSANDS) 1998 1997 1996 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost $ 6,064 $ 5,911 $ 9,143 $ 186 $ 212 $ 237
Interest cost 23,571 22,055 21,968 5,031 5,423 5,482
Expected return on plan assets (22,712) (21,312) (20,156) -- -- --
Amortization of:
Unrecognized net loss (gain) 500 200 486 (799) -- (156)
Unrecognized prior service cost (benefit) 681 688 673 (333) (333) (325)
Unrecognized net obligation (asset) (29) (41) 59 -- -- --
Curtailment (gain) -- -- -- -- (600) (577)
--------------------------------------------------------------------------------------------------------------------------------
$ 8,075 $ 7,501 $ 12,173 $ 4,085 $ 4,702 $ 4,661
--------------------------------------------------------------------------------------------------------------------------------
The Company recognized net curtailment losses of $1.3 million in 1996 for the
domestic plans and $2.4 million in 1997 for the international plans. These
losses were due to additional benefit payments resulting from reductions in
workforce.
The Company offers two 401(k) plans to salaried U.S. employees. Eligible
employees may defer a percentage of their annual compensation up to a maximum
allowable amount under federal income tax law to supplement their retirement
income. These plans provide for Company contributions based on a certain per
centage of each participant's contribution, subject to a maximum contribution by
the Company. Total Company contributions to these plans in 1998, 1997 and 1996
were $3.4 million, $3.2 million and $3.8 million, respectively.
The Company is also a party to various industry-wide collective bargaining
agreements which provide pension benefits. Total contributions to these plans
plus direct payments to pensioners in 1998, 1997 and 1996 were $0.6 million,
$0.8 million and $1.2 million, respectively.
In 1998, the Company adopted Statements of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". Such adoption did not impact the Company's financial position or
results of operations.
33
NOTE 9 -- STOCK OPTIONS AND AWARDS
Under the 1982 and 1991 Stock Option and Award Plans ("the Option Plans"), the
Company can grant incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock awards and performance share awards to
officers and key employees of the Company. Stock options vest over time or based
on stock price appreciation and may be exercised for up to 10 years from the
date of grant, as determined by the committee of the Company's Board of
Directors administering the Option Plans. No stock appreciation rights,
restricted stock awards or performance share awards were outstanding at January
2, 1999.
Under the 1995 Non-Employee Directors Stock Option Plan (the "Directors
Plan"), each active non-employee director will receive a grant of 1,500
non-qualified stock options (the "Options") on February 15th (or the first
trading day thereafter) of each year. The Options vest over three years and
expire 10 years after the date of the grant or upon early termination as defined
by the plan agreement.
Changes in outstanding stock options were as follows:
[Download Table]
WEIGHTED-
SHARES AVERAGE PRICE
-----------------------------------------------------------------------------
Outstanding, December 30, 1995 1,960,420 $ 29.23
Granted 711,000 38.52
Exercised (373,952) 30.04
Canceled (103,661) 33.39
-----------------------------------------------------------------------------
Outstanding, December 28, 1996 2,193,807 31.91
Granted 449,630 38.65
Exercised (249,365) 28.36
Canceled (25,288) 36.78
-----------------------------------------------------------------------------
Outstanding, January 3, 1998 2,368,784 33.51
Granted 595,682 52.31
Exercised (413,016) 29.56
Canceled (158,587) 39.09
-----------------------------------------------------------------------------
Outstanding, January 2, 1999 2,392,863 $ 38.50
-----------------------------------------------------------------------------
Exercisable, January 2, 1999 1,286,370 $ 32.34
-----------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
January 2, 1999:
[Enlarge/Download Table]
(SHARES IN THOUSANDS) OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------------------
NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF AT JANUARY 2, REMAINING EXERCISE AT JANUARY 2, EXERCISE
EXERCISE PRICES 1999 YEARS PRICE 1999 PRICE
---------------------------------------------------------------------------------------
$25.32 - $30.92 629 4.6 $ 27.30 629 $ 27.30
33.72 - 44.25 1,193 5.8 37.79 657 37.13
50.19 - 54.81 571 9.1 52.32 -- --
----------------------------------------------------------------------------------------
$25.32 - $54.81 2,393 6.3 $ 38.50 1,286 $ 32.34
---------------------------------------------------------------------------------------
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1998, 1997 and 1996:
[Download Table]
1998 1997 1996
---------------------------------------------------------------------------
Dividend yields 0.8% 1.0% 1.0%
Expected volatility 28.0% 29.0% 30.0%
Risk free interest rate 5.7% 6.5% 5.8%
Expected lives 10 years 9 years 9 years
Weighted-average
fair value $ 24.69 $ 17.29 $ 15.08
---------------------------------------------------------------------------
The Company accounts for stock-based compensation under APB 25, and accordingly,
no compensation costs have been recognized in the accompanying Consolidated
Statements of Income for 1998, 1997 or 1996. Had compensation costs been
determined under SFAS 123, pro forma net income and net income per share would
have been as follows:
[Download Table]
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
------------------------------------------------------------------------------
Net income $ 7,547 $156,779 $ 86,022
------------------------------------------------------------------------------
Net income per share - basic $ 0.13 $ 2.61 $ 1.43
Net income per share - diluted 0.12 2.59 1.42
------------------------------------------------------------------------------
Since SFAS 123 was only applied to options granted subsequent to December 31,
1994, the resulting pro forma compensation cost may not be representative of
that to be expected in future years.
NOTE 10 -- SHAREHOLDERS' EQUITY
Authorized capital at January 2, 1999 consisted of 80 million shares of no par
value common stock and 30 million shares of no par value preferred stock
issuable in series. At January 2, 1999, approximately 4.7 million shares and 0.1
million shares of common stock were reserved for issuance under the Option Plans
and the Directors Plan, respectively. There was no preferred stock outstanding.
The Company's current policy is to pay quarterly dividends on common shares
at an annual rate of 40 cents per share.
During 1996, the Company announced a program to repurchase up to 5% of its
outstanding common stock. During 1998, the Company increased the number of
shares authorized for repurchase to 4.5 million, which approximated 7.6% of its
common shares outstanding. As of January 2, 1999, the Company had repurchased
1,560,600 shares at a cost of approximately $56.0 million.
34
Comprehensive income and changes in shareholders' equity were as follows:
[Enlarge/Download Table]
COMMON ADDITIONAL
SHARES COMMON PAID-IN RETAINEDIVE
(IN THOUSANDS, EXCEPT SHARE DATA) OUTSTANDING STOCK CAPITAL EARNINGS
-----------------------------------------------------------------------------------------
Balance, December 30, 1995 59,854,739 $ 320,497 $ 170,266 $ 58,269
Net income - - - 89,031
Cash dividends declared
($.40 per share) - - - (24,020)
Translation adjustments - - - -
Issuance of common stock 373,952 374 10,858 -
Repurchase of common stock (395,400) (395) (13,479) -
-----------------------------------------------------------------------------------------
Comprehensive income -- 1996 - - - -
Balance, December 28, 1996 59,833,291 320,476 167,645 123,280
Net income - - - 160,164
Cash dividends declared
($.40 per share) - - - (23,988)
Translation adjustments - - - -
Issuance of common stock 231,156 231 6,413 -
-----------------------------------------------------------------------------------------
Comprehensive income -- 1997 - - - -
Balance, January 3, 1998 60,064,447 320,707 174,058 259,456
Net income - - - 12,079
Cash dividends declared
($.40 per share) - - - (24,027)
Translation adjustments - - - -
Issuance of common stock 394,652 395 11,378 -
Repurchase of common stock (1,165,200) (1,165) (40,921) -
-----------------------------------------------------------------------------------------
Comprehensive income -- 1998 - - - -
Balance, January 2, 1999 59,293,899 $ 319,937 $ 144,515 $ 247,508
-----------------------------------------------------------------------------------------
ACCUMULATED OTHER TOTAL COMMON
COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
(IN THOUSANDS, EXCEPT SHARE DATA) LOSS EQUITY INCOME
-------------------------------------------------------------------------------------------------
Balance, December 30, 1995 $ (40,597) $ 508,435
Net income - 89,031 $ 89,031
Cash dividends declared
($.40 per share) - (24,020) -
Translation adjustments (21,244) (21,244) (21,244)
Issuance of common stock - 11,232 -
Repurchase of common stock - (13,874) -
-------------------------------------------------------------------------------------------------
Comprehensive income -- 1996 - - 67,787
---------------
Balance, December 28, 1996 (61,841) 549,560
Net income - 160,164 160,164
Cash dividends declared
($.40 per share) - (23,988) -
Translation adjustments (25,908) (25,908) (25,908)
Issuance of common stock - 6,644 -
-------------------------------------------------------------------------------------------------
Comprehensive income -- 1997 - - 134,256
---------------
Balance, January 3, 1998 (87,749) 666,472
Net income - 12,079 12,079
Cash dividends declared
($.40 per share) - (24,027) -
Translation adjustments (2,379) (2,379) (2,379)
Issuance of common stock - 11,773 -
Repurchase of common stock - (42,086) -
-------------------------------------------------------------------------------------------------
Comprehensive income -- 1998 -- - $ 9,700
---------------
Balance, January 2, 1999 $ (90,128) $ 621,832
-----------------------------------------------------------------------------
NOTE 11 -- CONTINGENCIES
At January 2, 1999, the Company was guarantor of approximately $76 million of
indebtedness of certain key fruit suppliers and other entities integral to the
Company's operations.
The Company has ordered two refrigerated container vessels from HDW in Kiel,
Germany, which are scheduled for delivery in late 1999. The cost per ship is
approximately DM 100 million.
The Company is involved from time to time in various claims and legal
actions incident to its operations, both as plaintiff and defendant. In the
opinion of management, after consultation with legal counsel, none of such
claims is expected to have a material adverse effect on the Company's financial
position or results of operations.
NOTE 12 -- LEASE COMMITMENTS
The Company has obligations under non-cancelable operating leases, primarily for
ship charters and containers, and certain equipment and office facilities. Lease
terms are for less than the economic life of the property. Certain agricultural
land leases provide for increases in minimum rentals based on production. Lease
payments under a significant portion of the Company's operating leases are based
on variable interest rates. Total rental expense was $150.7 million, $182.2
million and $158.7 million (net of sublease income of $8.7 million, $10.6
million and $12.4 million) for 1998, 1997 and 1996, respectively.
At January 2, 1999, the Company's aggregate minimum rental commitments,
before sublease income, were as follows (in millions): 1999 - $131.1; 2000 -
$103.1; 2001 - $114.7; 2002 - $158.3; 2003 - $28.4; and thereafter - $197.1.
Total future sublease income is $25.1 million.
NOTE 13 -- INCOME TAXES
Income tax expense (benefit) was as follows:
[Download Table]
(IN THOUSANDS) 1998 1997 1996
-------------------------------------------------------------------------------
Current
Federal, state and local $ 19,427 $ 2,810 1,882
Foreign 19,061 20,715 19,359
-------------------------------------------------------------------------------
38,488 23,525 21,241
-------------------------------------------------------------------------------
Deferred
Federal, state and local (29,407) 12,285 (444)
Foreign (3,881) (710) (1,297)
-------------------------------------------------------------------------------
(33,288) 11,575 (1,741)
-------------------------------------------------------------------------------
$ 5,200 $ 35,100 $ 19,500
-------------------------------------------------------------------------------
Pretax earnings attributable to foreign operations were $44 million, $170
million and $173 million for 1998, 1997 and 1996, respectively. Undistributed
earnings of foreign subsidiaries, which have been or are intended to be
permanently invested, aggregated $1.3 billion at January 2, 1999.
35
The Company's reported income tax expense varied from the expense calculated
using the U.S. federal statutory tax rate for the following reasons:
[Enlarge/Download Table]
(IN THOUSANDS) 1998 1997 1996
--------------------------------------------------------------------------------------------------
Expense computed at
U.S. federal statutory
income tax rate $ 6,048 $ 68,341 $ 37,986
Foreign income taxed
at different rates (28,097) (36,437) (21,656)
Dividends from
subsidiaries 486 456 618
State and local income
tax, net of federal
income tax benefit 762 602 1,100
Interest on prior
years taxes (3,752) -- --
Hurricane losses taxed
at different rates 9,886 -- --
Valuation allowance on
foreign hurricane losses 18,742 -- --
Other 1,125 2,138 1,452
--------------------------------------------------------------------------------------------------
Reported income
tax expense $ 5,200 $ 35,100 $ 19,500
--------------------------------------------------------------------------------------------------
Total income tax payments (net of refunds) for 1998, 1997 and 1996 were $36.7
million, $17.3 million and ($1.6) million, respectively
Deferred tax assets (liabilities) were comprised of the following:
[Enlarge/Download Table]
(IN THOUSANDS) 1998 1997 1996
--------------------------------------------------------------------------------------------------
Operating reserves $ 44,591 $ 24,892 $ 45,246
Accelerated depreciation (16,538) (25,290) (21,717)
Inventory valuation
methods 4,699 3,024 3,670
Effect of differences
between book values
assigned in prior
acquisitions and
historical tax values (34,032) (33,100) (36,941)
Postretirement benefits 34,098 34,278 33,946
Current year acquisitions (114) -- (6,560)
Tax credit carryforward 1,263 1,263 4,987
Net operating loss
carryforward 100,221 86,670 77,685
Reserves for
hurricane losses 22,847 -- --
Valuation allowance on
foreign hurricane losses (18,742) -- --
Other, net (25,178) (11,729) (12,117)
--------------------------------------------------------------------------------------------------
$ 113,115 $ 80,008 $ 88,199
--------------------------------------------------------------------------------------------------
In connection with the fourth quarter losses related to Hurricane Mitch, a
valuation allowance in the amount of $18.7 million has been recognized to offset
the deferred tax assets related to these losses.
The Company has recorded deferred tax assets of $100.2 million reflecting
the benefit of approximately $269 million in federal and state net operating
loss carryovers which will, if unused, begin to expire in 2009.
The tax credit carryforward amount of $1.3 million is comprised of general
business credits which begin to expire in 2008.
Total deferred tax assets and deferred tax liabilities were as follows:
[Download Table]
(IN THOUSANDS) 1998 1997 1996
---------------------------------------------------------------------
Deferred tax assets $ 238,212 $ 226,028 $ 253,831
Deferred tax liabilities (125,097) (146,020) (165,632)
---------------------------------------------------------------------
$ 113,115 $ 80,008 $ 88,199
---------------------------------------------------------------------
The Company remains contingently liable with respect to certain tax credits sold
to Norfolk and Southern Railway ("Norfolk") with recourse by Flexi-Van
Corporation ("Flexi-Van"), the Company's former transportation equipment leasing
business. Litigation with the Internal Revenue Service involving these credits
concluded during the year. Litigation and settlement negotiations involving
Flexi-Van and Norfolk (and the Company due to its contingent liability) are
ongoing. Flexi-Van, which separated from the Company in 1987 and was
subsequently acquired by David H. Murdock, has indemnified the Company against
obligations that might result from the resolution of the matter.
NOTE 14 -- BUSINESS SEGMENTS
In accordance with Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related Information",
the Company has three reportable segments: Fresh Fruit, Fresh Vegetables, and
Processed Foods. The Fresh Fruit segment contains several operating segments
that produce and market fresh fruit to wholesale, retail and institutional
customers worldwide. The Fresh Vegetables segment contains three operating
segments that produce and market commodity and fresh packaged vegetables to
wholesale, retail and institutional customers primarily in North America, Europe
and Asia. Both the Fresh Fruit and Fresh Vegetable segments sell produce grown
by a combination of Company-owned and independent farms. The Processed Foods
segment contains several operating segments that produce and market packaged
foods including fruits, beverages and snack foods. The reportable segments are
managed separately due to varying products, production processes, distribution
channels and customer bases.
The Company has other operating segments which include fresh-cut flower
businesses acquired during 1998 and certain diversified operations.
36
Accounting policies for the three reportable segments and other operating
segments are the same as those described in the summary of significant
accounting policies. Company management evaluates and monitors segment
performance primarily through earnings before interest and taxes (EBIT). The
results of operations and financial position of the three reportable
segments, other operating segments, and Corporate and other were as follows:
[Download Table]
(IN THOUSANDS) 1998 1997 1996
---------------------------------------------------------------
Revenue
Fresh Fruit $ 2,692,147 $2,583,277 $2,238,257
Fresh Vegetables 790,149 756,176 653,730
Processed Foods 834,966 962,127 915,335
Other operating
segments 106,898 34,540 32,981
---------------------------------------------------------------
$ 4,424,160 $4,336,120 $3,840,303
---------------------------------------------------------------
EBIT
Fresh Fruit $ 110,505 $ 149,997 $ 172,205
Fresh Vegetables 49,418 40,196 30,300
Processed Foods 89,462 89,805 52,226
Other operating
segments 2,788 912 136
---------------------------------------------------------------
Total operating
segments 252,173 280,910 254,867
Corporate and other (45,951) (21,057) (27,637)
Special charges (120,000) - (50,000)
---------------------------------------------------------------
$ 86,222 $ 259,853 $ 177,230
---------------------------------------------------------------
Assets
Fresh Fruit $ 1,516,551 $1,459,204 $1,383,064
Fresh Vegetables 361,544 335,827 302,698
Processed Foods 591,188 532,629 658,977
Other operating
segments 286,578 15,470 10,652
---------------------------------------------------------------
Total operating
segments 2,755,861 2,343,130 2,355,391
Corporate and other 159,192 120,765 131,416
---------------------------------------------------------------
$ 2,915,053 $2,463,895 $2,486,807
---------------------------------------------------------------
Depreciation and
amortization
Fresh Fruit $ 75,993 $ 77,634 $ 76,944
Fresh Vegetables 12,788 9,145 10,061
Processed Foods 21,864 20,727 22,164
Other operating
segments 7,969 164 188
Corporate and other 3,444 4,411 1,716
---------------------------------------------------------------
$ 122,058 $ 112,081 $ 111,073
---------------------------------------------------------------
Capital additions
Fresh Fruit $ 79,746 $ 63,052 $ 52,211
Fresh Vegetables 20,724 35,647 8,118
Processed Foods 47,078 25,672 36,651
Other operating
segments 2,222 - 100
Corporate and other 437 4,800 12,606
---------------------------------------------------------------
$ 150,207 $ 129,171 $ 109,686
---------------------------------------------------------------
NOTE: CORPORATE AND OTHER EBIT IN 1997 AND 1996 INCLUDES CERTAIN GAINS ON THE
DISPOSITION OF INVESTMENTS AND ASSETS.
The Company's revenue from external customers and net property, plant and
equipment by geographic area were as follows:
[Download Table]
(IN THOUSANDS) 1998 1997 1996
-----------------------------------------------------------------
Revenue
United States $ 1,886,237 $1,943,057 $1,741,741
Japan 585,658 595,131 551,073
Germany 318,787 306,418 238,575
Honduras 275,050 240,390 216,375
France 232,429 197,580 150,607
Other international 1,125,999 1,053,544 941,932
-----------------------------------------------------------------
$ 4,424,160 $4,336,120 $3,840,303
-----------------------------------------------------------------
Property, plant and
equipment -- net
United States $ 408,385 $ 396,254 $ 397,141
Honduras 109,650 145,404 125,320
Costa Rica 96,293 78,592 58,178
Colombia 89,279 29,531 28,037
Oceangoing assets 82,213 94,947 104,756
Philippines 67,061 66,071 61,561
Other international 249,404 213,448 249,142
-----------------------------------------------------------------
$ 1,102,285 $1,024,247 $1,024,135
-----------------------------------------------------------------
NOTE 15 -- SUBSEQUENT EVENT
In February 1999, the Company increased the number of common shares authorized
under its repurchase program to 8.3 million, which approximated 14% of its
common shares outstanding. In January and February 1999, the Company repurchased
2,271,000 common shares, in aggregate, at a weighted-average price of $29.72 per
share.
37
NOTE 16 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents summarized quarterly results:
[Enlarge/Download Table]
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER YEAR
-------------------------------------------------------------------------------------------------------------------------------
1998
Revenue $ 1,011,984 $ 1,163,986 $ 1,209,794 $ 1,038,396 $ 4,424,160
Gross margin 139,021 208,198 174,482 116,714 638,415
Net income (loss) 22,761 82,095 15,562 (108,339) 12,079
-------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share-- diluted $ 0.37 $ 1.35 $ 0.26 $ (1.82) $ 0.20
-------------------------------------------------------------------------------------------------------------------------------
1997
Revenue $ 964,992 $ 1,107,804 $ 1,178,301 $ 1,085,023 $ 4,336,120
Gross margin 151,738 191,006 156,157 144,942 643,843
Net income 42,043 70,429 24,443 23,249 160,164
-------------------------------------------------------------------------------------------------------------------------------
Net income per common share - diluted $ 0.70 $ 1.17 $ 0.40 $ 0.38 $ 2.65
-------------------------------------------------------------------------------------------------------------------------------
The net loss for the fourth quarter of 1998 includes pre-tax charges of $100
million, net of insurance proceeds, and $20 million related to Hurricane Mitch
and the Company's North American citrus operations, respectively. The cumulative
total of net income (loss) per common share reported in each quarter of 1998
differs from the full-year amount. The difference is due to the timing and
significance of the special charges recorded in the fourth quarter combined with
the repurchase of approximately 1.2 million common shares at the end of the
third quarter. All quarters have twelve weeks, except the fourth quarter of 1997
which has thirteen weeks and the third quarters of both years which have sixteen
weeks.
NOTE 17 -- COMMON STOCK DATA (UNAUDITED)
The following table shows the market price range of the Company's common stock
for each quarter in 1998 and 1997:
[Download Table]
HIGH LOW
-------------------------------------------------------------------------
1998
First Quarter $ 57 1/8 $ 43 1/2
Second Quarter 49 1/8 43 15/16
Third Quarter 52 7/16 32 3/8
Fourth Quarter 35 28 5/16
-------------------------------------------------------------------------
Year $ 57 1/8 $ 28 5/16
-------------------------------------------------------------------------
1997
First Quarter $ 40 1/4 $ 33 3/8
Second Quarter 43 3/8 37 3/4
Third Quarter 46 15/16 39 1/16
Fourth Quarter 49 5/8 43 9/16
-------------------------------------------------------------------------
Year $ 49 5/8 $ 33 3/8
-------------------------------------------------------------------------
38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Dole Food Company, Inc.:
We have audited the accompanying consolidated balance sheets of Dole Food
Company, Inc., (a Hawaii corporation) and subsidiaries as of January 2, 1999 and
January 3, 1998, and the related consolidated statements of income and cash flow
for the years ended January 2, 1999, January 3, 1998, and December 28, 1996.
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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dole Food Company,
Inc. and subsidiaries as of January 2, 1999 and January 3, 1998 and the results
of its operations and its cash flow for the years ended January 2, 1999, January
3, 1998, and December 28, 1996, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Los Angeles, California
February 5, 1999
39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL POSITION
OVERVIEW
In 1998, the Company's results were negatively impacted by the effects of the El
Nino weather pattern, Hurricane Mitch and the California citrus freeze.
Additionally, economic turmoil in Asia, Eastern Europe and Latin America
undermined the financial condition of emerging markets and impacted the fruit
business worldwide. Also in 1998, the Company expanded its product offering to
include fresh-cut flowers, increased its productive capacity in the growing
pre-cut salad category and extended its European distribution network into
Scandinavia.
During 1998, the Company's fruit operations were impacted by the following
weather-related events:
- The El Nino weather pattern reduced industry banana volumes from
Ecuador by 18%, impacted production operations in California and
reduced banana volumes from the Philippines and pineapple volumes from
the Philippines and Thailand. Production volumes from these areas are
anticipated to begin returning to normal during 1999.
- Hurricane Mitch impacted over 30,000 acres of agricultural plantings
and caused severe damage to the Company's general agricultural
infrastructure at both its Honduran banana and beverage operations.
During the fourth quarter of 1998, the Company recorded a $100 million
charge, net of insurance proceeds received, for losses sustained from
Hurricane Mitch. Production in the impacted areas is not expected to
fully recover in 1999. However, due to price sensitivity in worldwide
banana markets, the impact on future operating results is not
currently determinable. The Company has started to rehabilitate
selected parts of the affected areas and will incur additional
rehabilitation expenses in the future. The Company also continues to
pursue recovery under various insurance policies for losses sustained.
Future rehabilitation costs and insurance recoveries will be reported
on a separate line in the Consolidated Statements of Income.
- Following severe freezing temperatures in California's San Joaquin
Valley from December 21 to December 24, 1998, the Company recorded a
$20 million charge in its citrus operations. The charge primarily
related to write-downs of deferred crop costs, property, plant and
equipment and grower receivables in the freeze areas. The charge also
included write-downs of grower receivables in other locations due to
the recognition of changes in industry economics. In addition to the
charge taken in 1998, the Company currently estimates that the freeze
damage will negatively impact its 1999 operating results by
approximately $10 million to $15 million.
The Company has substantial sales outside of the United States which had been
expanding rapidly as personal incomes in developing countries rose. The
economic crises in Asia, the collapse of the Russian economy and economic
slowdowns in Latin America have affected the international fruit business and
slowed its growth.
During 1998, the Company entered the fresh-cut flower business in North
America, which is relatively fragmented, and continued expanding its European
fresh produce distribution network. Acquisitions during the second half of 1998
added approximately $150 million to 1998 revenue, and the Company anticipates
they will add an additional $550 million to 1999 revenue when included for the
full year. These businesses added approximately $2 million to net income in
1998. In 1999, category growth, efficiencies in production and distribution
methodologies, and improved marketing leverage are expected to further
strengthen the performance of these businesses.
EUROPEAN UNION QUOTA: The European Union ("E.U.") banana regulations, which
impose quotas and tariffs on bananas, remained in full effect in 1998 and
continue in effect with some modifications as of the date of these financial
statements. The World Trade Organization ("WTO") issued a ruling during 1997,
on the complaint made by the United States, Ecuador, Guatemala, Honduras,
Panama and Mexico, that the European banana trade regime violated basic
General Agreement on Tariffs and Trade ("GATT") principles. The WTO found
certain aspects of the regime discriminatory and asked the E.U. to modify the
regime to eliminate these discriminatory aspects. In June 1998, E.U. farm
ministers responded with certain modifications to the regime. The United
States does not consider the changes sufficient to regulate banana sales
consistent with the WTO ruling and has imposed tariffs on a variety of E.U.
goods. Trade negotiations and discussions continue between the E.U., the
United States and the individual banana exporting countries. These trade
negotiations could lead to further changes in the regulations governing
banana exports to the E.U. The net impact of these changing regulations on
the Company's future results of operations is not determinable at this time.
FOREIGN CURRENCIES: The Company distributes its products in more than 90
countries throughout the world. Its international sales are usually transacted
in U.S. dollars and major European and Asian currencies. Certain costs are
incurred in currencies different from those that are received from the sale of
products. While results of operations may be affected by fluctuations in
currency exchange rates in both the sourcing and selling locations, the Company
has historically followed a policy, with certain exceptions, of not attempting
to hedge these exposures. Additionally, the 1999 adoption of the Euro currency
by the E.U. is not expected to materially impact the Company's results of
operations or financial position.
NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities".
The Company is assessing the impact of accounting for derivative instruments
in accordance with SFAS 133. The Company's derivative transactions are
currently limited to hedging certain foreign currency denominated purchase
commitments. The Company will adopt the statement during the first quarter of
2000. Such adoption is not expected to have a material impact on the
Company's financial condition or results of operations.
YEAR 2000: The Company has assessed the effect of Year 2000 issues on its
information technology, including computer hardware, software and embedded
chip technology. Remediation has been completed at the majority of the
Company's operating units with most of the remaining operating units
currently undergoing tests of remediated systems and software. The Company
has now identified certain specific upgrade projects
40
and personal computer replacements that will be completed during the first half
of 1999. Remediation efforts related to companies acquired during 1998 and
Honduran operating units impacted by Hurricane Mitch are scheduled to be
completed by June 1999. All other remediation work has been completed as of the
December 1998 target date. The Company is also in the process of confirming Year
2000 compliance with key vendors and service providers, including suppliers of
embedded chip technology. Once completed, the Company will develop a contingency
plan related to its key vendors and service providers. Based on work performed
to date, the Company believes that the total cost to remediate will not be
material to its results of operations, liquidity or capital resources.
The preceding discussion contains forward-looking statements regarding the
Company's timetable for solving its Year 2000 issues, costs to remediate and the
ultimate impact on its finances, which involve a number of risks and
uncertainties. The potential risks and uncertainties that could cause actual
results to differ materially include: the continuing availability of key
information technology personnel and consultants, the ability of third parties
to complete their own Year 2000 remediation on time, unforeseen responses by the
public to the perceived situation and, if necessary, the ability of the Company
to identify and implement contingency plans.
1998 COMPARED WITH 1997
REVENUE: Revenue increased 2% to $4,424.2 million in 1998 from $4,336.1 million
in 1997. The inclusion of the newly acquired flower businesses and SABA Trading
AB toward the end of the year increased revenue by 4% in 1998. Revenue from
existing businesses was up slightly after considering a 2% reduction due to the
closure of the Company's California dried fruit facility in the second quarter
of 1997 and the inclusion of an additional week in fiscal year 1997. While the
fresh-cut salad and Honduran beverage businesses had strong growth rates,
processed pineapple suffered from El Nino induced product shortages, and the
North American citrus and deciduous fruit businesses had reduced volumes and
product quality due to El Nino. Revenues from bananas increased as higher sales
in the Company's European distribution businesses, including sales from
businesses acquired late in 1997, served to offset decreased import volumes due
largely to the closure of the Russian market.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES: Selling, marketing and
administrative expenses were $433.5 million or 9.8% of revenue in 1998 compared
to $399.8 million or 9.2% of revenue in 1997. The increase resulted from growth
in businesses with higher operating cost percentages such as the Honduran
beverage, fresh-cut salad and European distribution businesses. At the same
time, the banana import business experienced higher receivable write-offs
related to the collapse of the Russian market, higher promotional costs as a
result of market supply conditions and lower total revenues.
OPERATING INCOME: Operating income decreased from $244.0 million in 1997 to
$204.9 million before special charges in 1998. The decrease was largely driven
by lower earnings in the banana import business as a result of the Company's
inability to pass on higher El Nino related costs in the form of higher prices.
This was partially offset by improved European distribution earnings. The
Company's North American citrus and deciduous operations also had significant
declines due to El Nino related cost issues compared to very strong results in
1997. Operating results improved in the Honduran beverage, processed pineapple,
fresh-cut salad and European distribution categories, as well as through the
addition of the acquired flower businesses and SABA Trading AB.
INTEREST EXPENSE, NET: Interest expense, net of interest income, increased to
$59.6 million in 1998 from $56.8 million in 1997 due to increased debt levels in
the second half of the year to fund acquisitions.
OTHER INCOME (EXPENSE), NET: Other income (expense) - net consists primarily of
minority interest expense and gains and losses on sales of property. In 1997,
other income included larger gains from sales of investments and fixed assets.
INCOME TAXES: The Company's effective tax rate increased in 1998 from 18% to
30% primarily due to the Hurricane Mitch charge, which was not fully tax
benefitted.
1997 COMPARED WITH 1996
REVENUE: Revenue increased 13% to $4,336.1 million in 1997 from $3,840.3 million
in 1996. The increase in revenue is primarily attributable to higher worldwide
banana volumes; increased volumes in fresh-cut salads and favorable pricing for
the fresh vegetable business; continued growth at the Honduran beverage
operation; newly acquired businesses; and an additional week in fiscal year
1997. The Company was able to grow revenue in spite of adverse currency
movements in 1997.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES: Selling, marketing and
administrative expenses were $399.8 million or 9.2% of revenue in 1997 compared
to $369.7 million or 9.6% of revenue in 1996. The increased expense is due to
higher sales activity in existing product lines and the acquisition of new
businesses, partially offset by the closure of the Company's California dried
fruit facility.
RESTRUCTURING CHARGE: In 1996, the Company implemented a formal plan to close
its dried fruit facility located in Fresno, California which had suffered
continued losses. During the fourth quarter of 1996, a restructuring charge of
$50.0 million was recorded related to the closure of this facility. Principal
components of the charge were provisions for asset write-downs, contract
terminations and severance payments. The closure of this facility was completed
in the second quarter of 1997.
OPERATING INCOME: Operating income improved to $244.0 million in 1997 from
$214.3 million before the restructuring charge in 1996. Higher earnings in 1997
were the result of increased volumes of fresh-cut salads, favorable pricing in
the fresh vegetables business and growth in the banana business. In addition,
the processed pineapple and Honduran beverage businesses posted higher results
in 1997, and the closure of the dried fruit facility in the second quarter
reduced losses.
INTEREST EXPENSE, NET: Interest expense, net of interest income, decreased to
$56.8 million in 1997 from $60.3 million in 1996, due to lower average debt
levels.
41
OTHER INCOME (EXPENSE): Other income for 1997 increased $3.5 million from 1996
primarily due to the gain on sales of certain investments and fixed assets.
INCOME TAXES: The Company's effective income tax rate was 18% in 1997 and
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations and capital expenditures were financed primarily by
funds generated internally during 1998. The Company pursued an aggressive growth
strategy of acquisitions in the fresh-cut flower industry and in its European
product distribution network. In addition, the Company repurchased 1,165,200 of
its common shares for $42.1 million. The acquisitions and stock repurchases were
substantially funded by debt. The Hurricane Mitch and citrus fourth quarter
special charges decreased equity. This resulted in a year-to-year increase in
the net debt to net debt and equity percentage from 53% to 64%. During 1997, the
Company used its cash flow from operations to reduce this ratio from 62% in 1996
to 53% in 1997. Cash and short-term investments increased from $31.2 million at
January 3, 1998 to $35.4 million at January 2, 1999.
Operating activities generated cash flow of $157.1 million in 1998 compared
to $291.0 million in 1997. The decrease is primarily due to lower net earnings,
a payment to the Internal Revenue Service related to prior years' audits and the
1997 closure of the Company's California dried fruit facility. The Company is
currently pursuing a refund of the payment to the Internal Revenue Service.
During 1997, the Company experienced a decrease in its working capital
requirements as a result of the closure of its California dried fruit facility.
The liquidation of inventory and other operating and fixed assets related to
this closed facility provided approximately $70 million of cash flow in 1997.
Capital expenditures for the acquisition and improvement of productive
assets increased to $150.2 million in 1998 from $129.2 million in 1997 and were
funded largely by operating cash flow. The Company expects the capital
expenditure level to continue growing next year due to the Hurricane Mitch
rehabilitation effort and acquisitions during 1998.
The Company acquired a series of businesses in the fresh-cut flower industry
during 1998 to form a new flower division. In addition, the Company acquired 60%
of Saba Trading AB, a Scandinavian distributor of fresh fruits, vegetables and
flowers, to complement its growing distribution network in Europe. The aggregate
cash purchase price of these businesses and smaller acquisitions in 1998 was
approximately $332 million.
The Company is scheduled to take delivery of two new refrigerated container
vessels in late 1999. The vessels are being manufactured by HDW in Kiel,
Germany, and the cost per ship is approximately DM 100 million. In order to
facilitate payment for these ships, the Company has contracted to purchase
German marks at a weighted-average exchange rate of DM 1.78 to $1.00 for a total
notional value of $98.3 million. These fixed rate contracts will be settled in
the fourth quarter of 1999, and their fair value was approximately $105.8
million as of January 2, 1999.
In January 1998, the Company announced plans to move to a new headquarters
facility in Westlake Village, California. Construction of the complex is
anticipated to be completed in late 1999, at which time the Company plans to
occupy these leased facilities.
The Company has in place a $400 million 5-year revolving credit facility
(the "Facility") which matures in 2003. Provisions under the Facility require
the Company to comply with certain financial covenants which include a maximum
permitted ratio of consolidated debt to net worth and a minimum required fixed
charge coverage ratio. At January 2, 1999, no borrowings were outstanding under
the Facility. The Company may also borrow under uncommitted lines of credit at
rates offered from time to time by various banks that may not be lenders under
the Facility. Net borrowings outstanding under the uncommitted lines of credit
totaled $63.5 million at January 2, 1999.
On October 6, 1998, the Company issued $300 million of 7-year 6.375%
unsecured notes in a public offering for which it received cash proceeds of
$297.2 million. The Company used a portion of the cash proceeds for acquisitions
during the fourth quarter and the remainder to repay amounts outstanding under
the Facility. Such credit facility borrowings were primarily incurred to fund
business acquisitions made earlier in the year.
In December 1998, the Board of Directors authorized an increase in the
Company's stock repurchase program to 4.5 million shares. In February 1999, the
Board of Directors increased this authorization to 8.3 million shares. During
1998, the Company repurchased 1,165,200 of its common shares at a cost of $42.1
million. During January and February 1999, the Company repurchased an additional
2,271,000 of its common shares for $67.6 million. Approximately 4.5 million
shares remain authorized for repurchase under the Company's stock repurchase
program after these transactions.
The Company paid four quarterly dividends of 10 cents per share on its
common stock totaling $24.0 million in 1998.
The Company believes that cash from operations and its cash position and
revolving credit facility will enable it to meet its capital expenditure, debt
maturity, common stock repurchase, dividend payment and other funding
requirements.
This Annual Report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The potential
risks and uncertainties that could cause the Company's actual results to differ
materially from those expressed or implied herein include weather related
phenomena; market responses to industry volume pressures; economic crises in
developing countries; quotas, tariffs and other governmental actions; changes in
currency exchange rates; product supply and pricing; and computer conversion and
Year 2000 issues.
42
RESULTS OF OPERATIONS AND SELECTED FINANCIAL DATA
[Enlarge/Download Table]
(IN MILLIONS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
------------------------------------------------------------------------------------------------------------------------------
Revenue $ 4,424 $ 4,336 $ 3,840 $ 3,804 $ 3,499
Cost of products sold 3,786 3,692 3,256 3,218 2,966
------------------------------------------------------------------------------------------------------------------------------
Gross margin 638 644 584 586 533
Selling, marketing, and administrative expenses 433 400 370 393 395
Hurricane Mitch charge 100 -- -- -- --
Citrus charge 20 -- -- -- --
Dried Fruit restructuring charge -- -- 50 -- --
------------------------------------------------------------------------------------------------------------------------------
Operating income 85 244 164 193 138
Interest expense - net (60) (57) (60) (74) (67)
Net gain on assets sold or held for disposal -- -- -- 62 --
Other income (expense) - net (8) 8 5 (5) (3)
------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 17 195 109 176 68
Income taxes (5) (35) (20) (56) (10)
------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 12 160 89 120 58
Net income (loss) from discontinued operations -- -- -- (97) 10
------------------------------------------------------------------------------------------------------------------------------
Net income $ 12 $ 160 $ 89 $ 23 $ 68
------------------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per common share
Continuing operations $ 0.20 $ 2.65 $ 1.47 $ 2.00 $ 0.98
Discontinued operations -- -- -- (1.61) 0.16
------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.20 $ 2.65 $ 1.47 $ 0.39 $ 1.14
------------------------------------------------------------------------------------------------------------------------------
Other statistics
Working capital $ 366 $ 407 $ 464 $ 480 $ 495
Total assets 2,915 2,464 2,487 2,442 3,685
Long-term debt 1,116 755 904 896 1,555
Total debt 1,153 768 926 920 1,609
Common shareholders' equity 622 666 550 508 1,081
Annual cash dividends per common share 0.40 0.40 0.40 0.40 0.40
Capital additions for continuing operations 150 129 110 90 212
Depreciation and amortization from
continuing operations 122 112 111 113 120
------------------------------------------------------------------------------------------------------------------------------
43
Dates Referenced Herein and Documents Incorporated by Reference
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