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1: 8-K Current Report HTML 28K
2: EX-23 Consent of Experts or Counsel HTML 7K
3: EX-99.1 Miscellaneous Exhibit HTML 9K
4: EX-99.2 Miscellaneous Exhibit HTML 937K
5: EX-99.3 Miscellaneous Exhibit HTML 572K
6: EX-99.4 Miscellaneous Exhibit HTML 410K
7: EX-99.5 Miscellaneous Exhibit HTML 9K
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements of Dole Food
Company, Inc. and its consolidated subsidiaries
(“Dole” or the “Company”) include all
adjustments necessary, which are of a normal recurring nature,
to present fairly Dole’s financial position, results of
operations and cash flows. Dole operates under a 52/53-week
year. The quarters ended June 20, 2009 and June 14,2008 are twelve weeks in duration. For a summary of significant
accounting policies and additional information relating to
Dole’s financial statements, refer to the Notes to
Consolidated Financial Statements in Item 8 of Dole’s
Annual Report on
Form 10-K
(“Form 10-K”)
for the fiscal year ended January 3, 2009.
Interim results are subject to seasonal variations and are not
necessarily indicative of the results of operations for a full
year. Dole’s operations are sensitive to a number of
factors including weather-related phenomena and their effects on
industry volumes, prices, product quality and costs. Operations
are also sensitive to fluctuations in foreign currency exchange
rates in both sourcing and selling locations as well as economic
crises and security risks.
In March 2003, Dole completed a going-private merger transaction
(“going-private merger transaction”). The
privatization resulted from the acquisition by David H. Murdock,
Dole’s Chairman, of the approximately 76% of the shares of
common stock of Dole Food Company, Inc. that he and his
affiliates did not already own. As a result of the transaction,
Dole became wholly-owned by Mr. Murdock through DHM Holding
Company, Inc.
Certain amounts in the prior year financial statements and
related footnotes have been reclassified to conform to the 2009
presentation. Dole adopted Statement of Financial Accounting
Standards (“FAS”) No. 160, Noncontrolling
Interests in Consolidated Financial Statements
(“FAS 160”) during the first quarter of 2009
(see Note 2 for further information).
NOTE 2 —
RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
During June 2009, the Financial Accounting Standards Board
(“FASB”) issued FAS No. 168, FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles, a replacement of FASB
Statement No. 162 (“FAS 168”), which
establishes the FASB Accounting Standards Codification as the
single official source of authoritative US GAAP (other than
guidance issued by the SEC), superseding existing FASB, American
Institute of Certified Public Accountants, Emerging Issues Task
Force, and related literature. FAS 168 will become
effective during Dole’s third quarter of 2009. Dole expects
that the adoption of FAS 168 will not have an impact on its
results of operations or financial position.
During June 2009, the FASB issued FAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(“FAS 167”), which changes the
approach in determining the primary beneficiary of a variable
interest entity (“VIE”) and requires companies to more
frequently assess whether they must consolidate VIEs.
FAS 167 is effective for annual periods beginning after
November 15, 2009. Dole is evaluating the impact, if any,
the adoption of FAS 167 will have on its consolidated
financial statements.
During May 2009, the FASB issued FAS No. 165,
Subsequent Events (“FAS 165”), to
establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued.
FAS 165 requires the disclosure of the date through which
an entity has evaluated subsequent events and the basis for that
date. Dole adopted FAS 165 during its second fiscal quarter
and it had no impact on Dole’s results of operations or
financial position. In the preparation of the condensed
consolidated financial statements, Dole evaluated subsequent
events after the balance sheet date of June 20, 2009
through August 14, 2009.
During April 2009, the FASB issued FASB Staff Position
No. FAS 107-1
and APB
28-1,
Interim Financial Disclosures about Fair Value of Financial
Instruments (“FSP”), which amends FASB Statement
No. 107, Disclosures about Fair Value of Financial
Instruments, to require disclosures about the fair value of
financial
F-7
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
instruments for interim reporting periods as well as in annual
financial statements. Dole adopted the FSP during its second
fiscal quarter of 2009 and the disclosures required by the FSP
are included in Note 14 to the condensed consolidated
financial statements. The adoption had no impact on Dole’s
results of operations or financial position.
During March 2008, the FASB issued Statement of Financial
Accounting Standards No. 161, Disclosures About
Derivative Instruments and Hedging Activities — an
amendment of FASB Statement No. 133
(“FAS 161”). This new standard requires
enhanced disclosures for derivative instruments, including those
used in hedging activities. Dole adopted FAS 161 at the
beginning of its first fiscal quarter of 2009. The disclosures
required by FAS 161 are included in Note 13 to the
condensed consolidated financial statements and had no impact on
Dole’s results of operations or financial position.
During December 2007, the FASB issued
FAS 160. FAS 160 establishes accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. Dole
adopted the provisions of FAS 160 as of the beginning of
its 2009 fiscal year. FAS 160 is to be applied
prospectively as of the beginning of 2009 except for the
presentation and disclosure requirements which are to be applied
retrospectively. The condensed consolidated financial statements
now conform to the presentation required under FAS 160.
Other than the change in presentation of noncontrolling
interests, the adoption of FAS 160 had no impact on
Dole’s results of operations or financial position.
During December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (“FAS 141R”). FAS 141R
provides revised guidance for recognizing and measuring assets
acquired and liabilities assumed in a business combination.
FAS 141R will be applied prospectively to business
combinations with acquisition dates on or after January 1,2009. As a result of the adoption, changes to valuation
allowances and unrecognized tax benefits established in business
combinations will be recognized in earnings.
NOTE 3 —
OTHER INCOME (EXPENSE), NET
Included in other income (expense), net in Dole’s condensed
consolidated statements of operations for the quarters and half
years ended June 20, 2009 and June 14, 2008 are the
following items:
Refer to Note 13 — Derivative Financial
Instruments for further discussion regarding Dole’s cross
currency swap.
NOTE 4 —
DISCONTINUED OPERATIONS
During the second quarter of 2008, Dole approved and committed
to a formal plan to divest its fresh-cut flowers operations
(“Flowers transaction”). The first phase of the
Flowers transaction was completed during the first quarter of
2009 (refer to Note 12 — Assets Held-For-Sale).
In addition, during the fourth quarter of 2007, Dole approved
and committed to a formal plan to divest its citrus and
pistachio operations (“Citrus”) located in central
F-8
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
California. The operating results of Citrus were included in the
fresh fruit operating segment. The sale of Citrus was completed
during the third quarter of 2008. In evaluating the two
businesses, Dole concluded that they each met the definition of
a discontinued operation as defined in Statement of Financial
Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(“FAS 144”). Accordingly, the results of
operations of these businesses have been reclassified for all
periods presented. The operating results of fresh-cut flowers
and Citrus for the quarters and half years ended June 20,2009 and June 14, 2008 are reported in the following tables:
Income (loss) from discontinued operations, net of income taxes
$
387
$
1,654
$
(157
)
$
1,497
Gain on disposal of discontinued operations, net of income taxes
$
1,308
$
—
$
—
$
—
For all periods presented, noncontrolling interests were not
material.
NOTE 5 —
INCOME TAXES
Dole recorded $17 million of income tax expense on
$135.7 million of pretax income from continuing operations
for the half year ended June 20, 2009. Income tax expense
included interest expense of $1.2 million (net of
associated income tax benefits of approximately
$0.3 million) related to Dole’s unrecognized tax
benefits. An income tax benefit of $60.2 million was
recorded for the half year ended June 14, 2008 which
included $61.1 million for the favorable settlement of the
federal income tax audit for the years 1995 to 2001. Excluding
the impact of the favorable settlement, income tax expense was
$0.9 million, which included interest expense of
$2.1 million (net of associated income tax benefits of
approximately $0.7 million) related to Dole’s
unrecognized tax benefits. Dole’s effective tax rate varies
significantly from period to period due to the level, mix and
seasonality of earnings generated in its various U.S. and
foreign jurisdictions.
Under Accounting Principles Board Opinion No. 28,
Interim Financial Reporting (“APB 28”), and
FASB Interpretation No. 18, Accounting for Income Taxes
in Interim Periods (“FIN 18”), Dole is
required to adjust its
F-9
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
effective tax rate for each quarter to be consistent with the
estimated annual effective tax rate. Jurisdictions with a
projected loss where no tax benefit can be recognized are
excluded from the calculation of the estimated annual effective
tax rate. Applying the provisions of APB 28 and FIN 18
could result in a higher or lower effective tax rate during a
particular quarter, based upon the mix and timing of actual
earnings versus annual projections.
For the periods presented, Dole’s income tax provision
differs from the U.S. federal statutory rate applied to
Dole’s pretax income primarily due to operations in foreign
jurisdictions that are taxed at a rate lower than the
U.S. federal statutory rate offset by the accrual for
uncertain tax positions.
Dole recognizes accrued interest and penalties related to its
unrecognized tax benefits as a component of income taxes in the
condensed consolidated statements of operations. Accrued
interest and penalties before tax benefits were
$27.5 million and $26.9 million at June 20, 2009
and January 3, 2009, respectively, and are included as a
component of other long-term liabilities in the condensed
consolidated balance sheet. Dole Food Company, Inc. or one or
more of its subsidiaries file income tax returns in the
U.S. federal jurisdiction, and various states and foreign
jurisdictions. With few exceptions, Dole is no longer subject to
U.S. federal, state and local, or
non-U.S. income
tax examinations by tax authorities for years prior to 2001.
Income Tax Audits: Dole believes its tax
positions comply with the applicable tax laws and that it is
adequately provided for all tax related matters. Matters raised
upon audit may involve substantial amounts and could result in
material cash payments if resolved unfavorably; however,
management does not believe that any material payments will be
made related to these matters within the next twelve months.
Management considers it unlikely that the resolution of these
matters will have a material adverse effect on Dole’s
results of operations.
Internal Revenue Service Audit: Dole is
currently under examination by the Internal Revenue Service
(“IRS”) for the tax years
2002-2005
and it is anticipated that the examination will be completed by
the end of 2009.
Although the timing and ultimate resolution of any issues that
might arise from the ongoing IRS examination are highly
uncertain, at this time, Dole does not anticipate that total
unrecognized tax benefits will significantly change within the
next twelve months.
During May 2009, Dole acquired all of the assets of Distrifruit,
a distributor of fresh fruit located in Romania, in exchange for
trade receivables due from the seller. Dole acquired the assets
primarily to obtain control and gain access over
Distrifruit’s customer base in Romania. At the date of
acquisition, the total fair value of the assets acquired was
$10 million, consisting of $2.9 million of inventory
and property, plant and equipment, net and $7.1 million of
intangible assets. Dole expects to finalize its allocation of
the acquisition during the third quarter of 2009. The revenues
and earnings of Distrifruit from the acquisition date through
June 20, 2009 were not material. Distrifruit revenues and
earnings for the 2009 and 2008 fiscal years also were not
material for pro forma disclosure.
Amortization expense of intangible assets totaled
$0.9 million and $1 million for the quarters ended
June 20, 2009 and June 14, 2008, respectively, and
$1.7 million and $2 million for the half years ended
June 20, 2009 and June 14, 2008, respectively.
As of June 20, 2009, the estimated remaining amortization
expense associated with Dole’s intangible assets for the
remainder of 2009 and in each of the next four fiscal years is
as follows (in thousands):
Fiscal Year
Amount
2009
$
1,980
2010
$
3,677
2011
$
3,677
2012
$
3,677
2013
$
1,498
Dole performed its annual impairment review of goodwill and
indefinite-lived intangible assets pursuant to Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, during the second quarter of fiscal
2009. This review indicated no impairment to goodwill or any of
Dole’s indefinite-lived intangible assets.
F-11
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
NOTE 8 —
NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following
amounts:
Contracts and notes, at a weighted-average interest rate of 6%
in 2009 (6.1% in 2008) through 2014
9,219
9,221
Capital lease obligations
65,813
60,448
Notes payable
44,140
48,789
Unamortized debt discount
(24,311
)
(309
)
2,011,061
2,204,093
Current maturities
(435,036
)
(405,537
)
$
1,576,025
$
1,798,556
2010
Debt Maturity
During the second quarter of 2009, Dole reclassified to current
liabilities its $400 million 7.25% notes due June 2010
(“2010 Notes”). During the second quarter of 2009,
Dole’s Board of Directors authorized the repurchase of up
to $95 million of the 2010 Notes. Dole subsequently
repurchased $17 million and $20 million of the 2010
Notes during the second and third quarters of 2009, respectively.
Dole’s current plan is to offer senior secured notes during
the third quarter of 2009. Dole plans to use the net proceeds
from this offering, together with cash on hand
and/or
borrowings under the revolving credit facility, to redeem the
bulk of the outstanding 2010 notes. Dole intends to redeem or
repurchase any remaining 2010 notes during the third
and/or
fourth quarters of 2009 with cash on hand
and/or
borrowings under the revolving credit facility. A failure by
Dole to timely redeem, repurchase or repay the 2010 Notes at or
before maturity could lead to an event of default which would
have a material adverse effect on Dole’s business,
financial condition and results of operations.
2009
Debt Refinancing
On March 18, 2009, Dole completed the sale and issuance of
$350 million aggregate principal amount of
13.875% Senior Secured Notes due March 2014 (“2014
Notes”) at a discount of $25 million. The 2014 Notes
were sold to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933
(“Securities Act”) and to persons outside the United
States in compliance with Regulation S under the Securities
Act. The sale was exempt from the registration requirements of
the Securities Act. Interest on the 2014 Notes will be paid
semiannually in arrears on March 15 and September 15 of each
year, beginning on September 15, 2009. The 2014 Notes have
the
F-12
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
benefit of a lien on certain U.S. assets of Dole that is
junior to the liens of Dole’s senior secured credit
facilities (revolving credit and term loan facilities), and are
senior obligations of Dole ranking equally with Dole’s
existing senior debt. Dole used the net proceeds from this
offering, together with cash on hand
and/or
borrowings under the revolving credit facility, to purchase all
of the tendered 8.625% notes due May 2009 (“2009
Notes”) and to irrevocably deposit with the trustee of the
2009 Notes funds that were used to repay the remaining
outstanding 2009 Notes at maturity on May 1, 2009.
In connection with these refinancing transactions, Dole amended
its senior secured credit facilities, which amendments, among
other things, permitted the issuance of new secured debt
securities, increased the interest rate on the term and
revolving credit facilities and added a leverage maintenance
covenant.
Debt
Issuance Costs
In connection with the issuance of the 2014 Notes and the
amendment of Dole’s senior secured credit facilities, Dole
incurred debt issuance costs of $17.8 million. Debt
issuance costs are capitalized and amortized into interest
expense over the term of the underlying debt.
Dole wrote off $5.2 million of deferred debt issuance costs
during the quarter ended March 28, 2009 resulting from the
amendment of its senior secured credit facilities. This
amendment was accounted for as an extinguishment of debt in
accordance with
EITF 96-19,
Debtor’s Accounting for a Modification or Exchange of
Debt Instruments. This write-off was recorded to other
income (expense), net in the condensed consolidated statement of
operations for the half year ended June 20, 2009.
Dole amortized deferred debt issuance costs of $1.4 million
and $2.3 million during the quarter and half year ended
June 20, 2009, respectively. Dole amortized deferred debt
issuance costs of $0.9 million and $1.9 million during
the quarter and half year ended June 14, 2008.
Term
Loans and Revolving Credit Facility
As of June 20, 2009, the term loan facilities consisted of
$175.3 million of Term Loan B and $653 million of Term
Loan C. The term loan facilities bear interest, at Dole’s
option, at a rate per annum equal to either (i) a base rate
plus 3.5% to 4%; or (ii) LIBOR (subject to a minimum of 3%)
plus 4.5% to 5%, in each case, based upon Dole’s senior
secured leverage ratio. The weighted average variable interest
rate at June 20, 2009 for Term Loan B and Term Loan C was
8.3%. The term loan facilities require quarterly principal
payments, plus a balloon payment due in 2013. Dole has an
interest rate swap to hedge future changes in interest rates and
a cross currency swap to effectively lower the U.S. dollar
fixed interest rate to a Japanese yen fixed interest rate on
Term Loan C. Refer to Note 13 — Derivative
Financial Instruments for additional information related to
these instruments.
As of June 20, 2009, the asset based revolving credit
facility (“ABL revolver”) borrowing base was
$320 million. There were no amounts outstanding under the
ABL revolver at June 20, 2009. The ABL revolver bears
interest, at Dole’s option, at a rate per annum equal to
either (i) a base rate plus 2% to 2.5%, or (ii) LIBOR
plus 3% to 3.5%, in each case, based upon Dole’s historical
borrowing availability under this facility. The ABL revolver
matures in April 2011. After taking into account approximately
$76.4 million of outstanding letters of credit issued under
the ABL revolver, Dole had approximately $243.6 million
available for borrowings as of June 20, 2009. In addition,
Dole had approximately $97 million of letters of credit and
bank guarantees outstanding under its $100 million
pre-funded letter of credit facility as of June 20, 2009.
Capital
Lease Obligations
At June 20, 2009 and January 3, 2009, included in
capital lease obligations were $64.1 million and
$58.5 million, respectively, of vessel financing related to
two vessel leases denominated in British pound sterling. The
increase in the capital lease obligation was due to the
strengthening of the British pound sterling against the
F-13
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
U.S. dollar during 2009, which resulted in Dole recognizing
$6.8 million of unrealized losses. These unrealized losses
were recorded as other income (expense), net in the condensed
consolidated statement of operations for the half year ended
June 20, 2009.
Covenants
Provisions under the indentures governing Dole’s senior
notes and debentures require Dole to comply with certain
covenants. These covenants include limitations on, among other
things, indebtedness, investments, loans to subsidiaries,
employees and third parties, the issuance of guarantees and the
payment of dividends. The ABL revolver contains a
“springing covenant,” but that covenant has never been
effective and would only become effective if the availability
under the ABL revolver were to fall below $35 million for
any eight consecutive business days, which it has never done
during the life of such facility. At June 20, 2009, Dole
had $243.6 million of availability under the ABL revolver.
In addition, as a result of the March 2009 amendment to
Dole’s senior secured term facilities, Dole is now subject
to a first priority senior secured leverage ratio that must be
at or below 3.25 to 1.00 as of the last day of the fiscal
quarters ending March 28, 2009 through October 10,2009 and steps down to 3.00 to 1.00 as of the last day of the
fiscal quarter ending January 2, 2010. At June 20,2009, the first priority senior secured leverage ratio was less
than 2.25 to 1.00.
A breach of a covenant or other provision in a debt instrument
governing Dole’s current or future indebtedness or pursuant
to certain debt instruments under which our parent and an
affiliate of its majority stockholder are borrowers, could
result in a default under that instrument and, due to
cross-default and cross-acceleration provisions, could result in
a default under Dole’s other debt instruments. Such debt
instruments of our parent, currently $115 million, and an
affiliate of its majority stockholder, currently
$90 million, mature on March 3, 2010 and
December 23, 2009, respectively. Upon the occurrence of an
event of default under the senior secured credit facilities or
other debt instrument, the lenders or holders of such other debt
instruments could elect to declare all amounts outstanding to be
immediately due and payable and terminate all commitments to
extend further credit. If Dole were unable to repay those
amounts, the lenders could proceed against the collateral
granted to them, if any, to secure the indebtedness. If the
lenders under Dole’s current indebtedness were to
accelerate the payment of the indebtedness, Dole cannot give
assurance that its assets or cash flow would be sufficient to
repay in full its outstanding indebtedness, in which event Dole
likely would seek reorganization or protection under bankruptcy
or other, similar laws.
Dividends
On June 22, 2009, Dole declared a dividend of
$15 million to its parent, DHM Holding Company, Inc. Dole
paid $7.5 million on June 23, 2009 and
$2.5 million on July 20, 2009, and expects to pay the
remaining $5.0 million prior to August 31, 2009. As a
result of this dividend, Dole does not at present have the
ability to declare future dividends, pursuant to the terms of
its senior notes indentures and senior secured credit facilities.
F-14
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
NOTE 9 —
EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost for Dole’s
U.S. and international pension plans and other
postretirement benefit (“OPRB”) plans were as follows:
Dole has three reportable operating segments: fresh fruit, fresh
vegetables and packaged foods. These reportable segments are
managed separately due to differences in their products,
production processes, distribution channels and customer bases.
F-15
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Management evaluates and monitors segment performance primarily
through, among other measures, earnings before interest expense
and income taxes (“EBIT”). EBIT is calculated by
adding interest expense and income taxes to income from
continuing operations. Management believes that segment EBIT
provides useful information for analyzing the underlying
business results as well as allowing investors a means to
evaluate the financial results of each segment in relation to
Dole as a whole. EBIT is not defined under accounting principles
generally accepted in the United States of America
(“GAAP”) and should not be considered in isolation or
as a substitute for net income or cash flow measures prepared in
accordance with GAAP or as a measure of Dole’s
profitability. Additionally, Dole’s computation of EBIT may
not be comparable to other similarly titled measures computed by
other companies, because not all companies calculate EBIT in the
same fashion.
Revenues from external customers and EBIT for the reportable
operating segments and corporate were as follows:
Dole’s equity earnings in unconsolidated subsidiaries,
which have been included in EBIT in the table above, relate
primarily to the fresh fruit operating segment.
F-16
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Total assets for the three reportable operating segments,
corporate and fresh-cut flowers were as follows:
Dole is a guarantor of indebtedness of some of its key fruit
suppliers and other entities integral to Dole’s operations.
At June 20, 2009, guarantees of $1.8 million consisted
primarily of amounts advanced under third-party bank agreements
to independent growers that supply Dole with product. Dole has
not historically experienced any significant losses associated
with these guarantees.
Dole issues letters of credit and bank guarantees through its
ABL revolver and its pre-funded letter of credit facilities,
and, in addition, separately through major banking institutions.
Dole also provides insurance-company-issued bonds. These letters
of credit, bank guarantees and insurance company bonds are
required by certain regulatory authorities, suppliers and other
operating agreements. As of June 20, 2009, total letters of
credit, bank guarantees and bonds outstanding under these
arrangements were $205.7 million, of which $97 million
was issued under its pre-funded letter of credit facility.
Dole also provides various guarantees, mostly to foreign banks,
in the course of it normal business operations to support the
borrowings, leases and other obligations of its subsidiaries.
Dole guaranteed $213.2 million of its subsidiaries’
obligations to their suppliers and other third parties as of
June 20, 2009.
Dole has change of control agreements with certain key
executives, under which severance payments and benefits would
become payable in the event of specified terminations of
employment in connection with a change of control (as defined)
of Dole.
Dole is involved from time to time in claims and legal actions
incidental to its operations, both as plaintiff and defendant.
Dole has established what management currently believes to be
adequate reserves for pending legal matters. These reserves are
established as part of an ongoing worldwide assessment of claims
and legal actions that takes into consideration such items as
changes in the pending case load (including resolved and new
matters), opinions of legal counsel, individual developments in
court proceedings, changes in the law, changes in business
focus, changes in the litigation environment, changes in
opponent strategy and tactics, new developments as a result of
ongoing discovery, and past experience in defending and settling
similar claims. In the opinion of management, after consultation
with outside counsel, the claims or actions to which Dole is a
party are not expected to have a material adverse effect,
individually or in the aggregate, on Dole’s financial
condition or results of operations.
DBCP Cases: A significant portion of
Dole’s legal exposure relates to lawsuits pending in the
United States and in several foreign countries, alleging injury
as a result of exposure to the agricultural chemical DBCP
(1,2-dibromo-3-chloropropane).
DBCP was manufactured by several chemical companies including
Dow and Shell and registered by the U.S. government for use
on food crops. Dole and other growers applied DBCP on banana
F-17
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
farms in Latin America and the Philippines and on pineapple
farms in Hawaii. Specific periods of use varied among the
different locations. Dole halted all purchases of DBCP,
including for use in foreign countries, when the U.S. EPA
cancelled the registration of DBCP for use in the United States
in 1979. That cancellation was based in part on a 1977 study by
a manufacturer which indicated an apparent link between male
sterility and exposure to DBCP among factory workers producing
the product, as well as early product testing done by the
manufacturers showing testicular effects on animals exposed to
DBCP. To date, there is no reliable evidence demonstrating that
field application of DBCP led to sterility among farm workers,
although that claim is made in the pending lawsuits. Nor is
there any reliable scientific evidence that DBCP causes any
other injuries in humans, although plaintiffs in the various
actions assert claims based on cancer, birth defects and other
general illnesses.
Currently there are 245 lawsuits, in various stages of
proceedings, alleging injury as a result of exposure to DBCP or
seeking enforcement of Nicaragua judgments. In addition, there
are 111 labor cases pending in Costa Rica under that
country’s national insurance program.
Thirty of the 245 lawsuits are currently pending in various
jurisdictions in the United States. On June 17, 2009, Los
Angeles Superior Court Judge Chaney formalized her
April 23, 2009 oral ruling by issuing written Findings of
Fact and Conclusions of Law, formally ordering dismissal with
prejudice of the two remaining lawsuits brought on behalf of
Nicaraguan plaintiffs who had falsely claimed they were sterile
as a result of exposure to DBCP on Dole-contracted Nicaraguan
banana farms, finding that the plaintiffs, and certain of their
attorneys, fabricated their claims, engaged in a long-running
conspiracy to commit a fraud on the court, used threats of
violence to frighten witnesses and suppress the truth, and
conspired with corrupt Nicaraguan judges, depriving Dole and the
other companies of due process. On June 9, 2009, the First
Circuit Court of Hawaii dismissed the Patrickson case, which had
involved ten plaintiffs from Honduras, Costa Rica, Ecuador and
Guatemala, finding that their DBCP claims were time-barred by
the statute of limitations. In seven cases pending in Los
Angeles involving 672 claimants from Ivory Coast, where Dole did
not operate when DBCP was in use, plaintiffs’ counsel, on
July 17, 2009, has filed a motion to withdraw as counsel of
record in response to a witness who has come forward alleging
fraud. The remaining cases are pending in Latin America and the
Philippines. Claimed damages in DBCP cases worldwide total
approximately $44.2 billion, with lawsuits in Nicaragua
representing approximately 88% of this amount. Typically in
these cases Dole is a joint defendant with the major DBCP
manufacturers. Except as described below, none of these lawsuits
has resulted in a verdict or judgment against Dole.
One case pending in Los Angeles Superior Court with 12
Nicaraguan plaintiffs initially resulted in verdicts which
totaled approximately $5 million in damages against Dole in
favor of six of the plaintiffs. As a result of the court’s
March 7, 2008 favorable rulings on Dole’s post-verdict
motions, including, importantly, the court’s decision
striking down punitive damages in the case on
U.S. Constitutional grounds, the damages against Dole were
reduced to $1.58 million in total compensatory awards to
four of the plaintiffs; and the court granted Dole’s motion
for a new trial as to the claims of one of the plaintiffs. On
July 7, 2009, the Second District Court Appeals issued an
order to show cause why this $1.58 million judgment should
not be vacated and judgment be entered in defendants’ favor
on the grounds that the judgment was procured through fraud.
Plaintiffs are to provide their response to the order to show
cause to the trial court within 30 days of the issuance of
the order. In that order, the Court of Appeals stated that the
trial court need not hold a hearing to decide whether the
judgment was procured by fraud, but instead can rely on the
record that was presented in support of Dole’s request to
have the case sent back to the trial court.
In Nicaragua, 196 cases are currently filed (of which 20 are
active) in various courts throughout the country, all but one of
which were brought pursuant to Law 364, an October 2000
Nicaraguan statute that contains substantive and procedural
provisions that Nicaragua’s Attorney General formally
opined are unconstitutional. In October 2003, the Supreme Court
of Nicaragua issued an advisory opinion, not connected with any
litigation, that Law 364 is constitutional. Thirty-two cases
have resulted in judgments in Nicaragua: $489.4 million
(nine cases consolidated with 468 claimants) on
December 11, 2002; $82.9 million (one case with 58
claimants) on February 25, 2004; $15.7 million (one
case with 20 claimants) on May 25, 2004; $4 million
(one case with four claimants) on May 25,
F-18
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
2004; $56.5 million (one case with 72 claimants) on
June 14, 2004; $64.8 million (one case with 86
claimants) on June 15, 2004; $27.7 million (one case
with 39 claimants) on March 17, 2005; $98.5 million
(one case with 150 claimants) on August 8, 2005;
$46.4 million (one case with 62 claimants) on
August 20, 2005; $809 million (six cases consolidated
with 1,248 claimants) on December 1, 2006;
$38.4 million (one case with 192 claimants) on
November 14, 2007; and $357.7 million (eight cases
with 417 claimants) on January 12, 2009, which Dole
recently learned of unofficially. Except for the latest one,
Dole has appealed all judgments, with Dole’s appeal of the
August 8, 2005 $98.5 million judgment and of the
December 1, 2006 $809 million judgment currently
pending before the Nicaragua Court of Appeal. Dole will appeal
the $357.7 million judgment once it has been served.
Of the 20 active cases currently pending in civil courts in
Nicaragua, all have been brought under Law 364 except for one.
In all of the active cases where the proceeding has reached the
appropriate stage (7 of 20 cases), Dole has sought to have the
cases returned to the United States. In three of the cases where
Dole has sought return to the United States, the courts have
denied Dole’s request and Dole has appealed that decision.
Dole’s requests remain pending in the other four cases.
The claimants’ attempted enforcement of the
December 11, 2002 judgment for $489.4 million in the
United States resulted in a dismissal with prejudice of that
action by the United States District Court for the Central
District of California on October 20, 2003. The claimants
have voluntarily dismissed their appeal of that decision, which
was pending before the United States Court of Appeals for the
Ninth Circuit. Defendants’ motion for sanctions against
Plaintiffs’ counsel is still pending before the Court of
Appeals in that case. A Special Master appointed by the Court of
Appeals has recommended that Plaintiffs’ counsel be ordered
to pay Defendants’ fees and costs up to $130,000 each to
Dole and the other two defendants; and following such
recommendation, the Court of Appeals has appointed a special
prosecutor.
There is one case pending in the U.S. District Court in
Miami, Florida seeking enforcement of the August 8, 2005
$98.5 million Nicaraguan judgment. Commencing on
September 1, 2009, there will be an evidentiary hearing to
consider Dole’s request that the Court deny enforcement of
this judgment, contending that Nicaragua’s judicial system
does not provide due process or an impartial judiciary, which
also lacks transparency and is corrupt. Miami District Court
Judge Paul C. Huck is already aware of the evidence of fraud
detailed in Judge Chaney’s June 17, 2009 written
Findings of Fact and Conclusions of Law.
Claimants have also sought to enforce the Nicaraguan judgments
in Colombia, Ecuador, and Venezuela. In Venezuela, the claimants
have attempted to enforce five of the Nicaraguan judgments in
that country’s Supreme Court: $489.4 million
(December 11, 2002); $82.9 million (February 25,2004); $15.7 million (May 25, 2004);
$56.5 million (June 14, 2004); and $64.8 million
(June 15, 2004). The Venezuela Supreme Court has ordered
the plaintiffs to properly serve the defendants, or have their
request for recognition of these Nicaragua judgments dismissed.
An action filed to enforce the $27.7 million Nicaraguan
judgment (March 17, 2005) in the Colombian Supreme
Court was dismissed. In Ecuador, the claimants attempted to
enforce the five Nicaraguan judgments issued between
February 25, 2004 through June 15, 2004 in the Ecuador
Supreme Court. The First, Second and Third Chambers of the
Ecuador Supreme Court issued rulings refusing to consider those
enforcement actions on the ground that the Supreme Court was not
a court of competent jurisdiction for enforcement of a foreign
judgment. The plaintiffs subsequently refiled those five
enforcement actions in the civil court in Guayaquil, Ecuador.
Two of these subsequently filed enforcement actions have been
dismissed by the 3rd Civil Court —
$15.7 million (May 25, 2004) — and the
12th Civil Court — $56.5 million
(June 14, 2004) — in Guayaquil; plaintiffs have
sought reconsideration of those dismissals. The remaining three
enforcement actions are still pending.
Dole believes that none of the Nicaraguan judgments will be
enforceable against any Dole entity in the U.S. or in any
other country, because Nicaragua’s Law 364 is
unconstitutional and violates international principles of due
process. Among other things, Law 364 is an improper
“special law” directed at particular parties; it
requires defendants to pay large, non-refundable deposits in
order to even participate in the litigation; it provides a
severely
F-19
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
truncated procedural process; it establishes an irrebuttable
presumption of causation that is contrary to the evidence and
scientific data; and it sets unreasonable minimum damages that
must be awarded in every case.
On October 23, 2006, Dole announced that Standard Fruit de
Honduras, S.A. reached an agreement with the Government of
Honduras and representatives of Honduran banana workers. This
agreement establishes a Worker Program that is intended by the
parties to resolve in a fair and equitable manner the claims of
male banana workers alleging sterility as a result of exposure
to DBCP. The Honduran Worker Program will not have a material
effect on Dole’s financial condition or results of
operations. The official start of the Honduran Worker Program
was announced on January 8, 2007. On August 15, 2007,
Shell Oil Company was included in the Worker Program.
As to all the DBCP matters, Dole has denied liability and
asserted substantial defenses. While Dole believes there is no
reliable scientific basis for alleged injuries from the
agricultural field application of DBCP, Dole continues to seek
reasonable resolution of pending litigation and claims in the
U.S. and Latin America. For example, as in Honduras, Dole
is committed to finding a prompt resolution to the DBCP claims
in Nicaragua, and is prepared to pursue a structured worker
program in Nicaragua with science- based criteria. Los Angeles
Superior Court Judge Chaney had previously appointed a mediator
to explore possible settlement of all DBCP cases currently
pending before the court. Although no assurance can be given
concerning the outcome of these cases, in the opinion of
management, after consultation with legal counsel and based on
past experience defending and settling DBCP claims, the pending
lawsuits are not expected to have a material adverse effect on
Dole’s financial condition or results of operations.
European Union Antitrust Inquiry: On
October 15, 2008, the European Commission (“EC”)
adopted a Decision against Dole Food Company, Inc. and Dole
Fresh Fruit Europe OHG and against other unrelated banana
companies, finding violations of the European competition
(antitrust) laws. The Decision imposes €45.6 million
in fines on Dole.
The Decision follows a Statement of Objections, issued by the EC
on July 25, 2007, and searches carried out by the EC in
June 2005 at certain banana importers and distributors,
including two of Dole’s offices. Dole received the Decision
on October 21, 2008 and appealed the Decision to the
European Court of First Instance in Luxembourg on
December 24, 2008.
Dole made an initial $10 million (€7.6 million)
provisional payment towards the €45.6 million fine on
January 22, 2009. As agreed with the European Commission
(DG Budget), Dole provided the required bank guaranty for the
remaining balance of the fine to the European Commission by the
deadline of April 30, 2009. The bank guaranty renews
annually during the appeals process (which may take several
years) and carries interest of 6.15% (accrued from
January 23, 2009). If the European Court of First Instance
fully agrees with Dole’s arguments presented in its appeal,
Dole will be entitled to the return of all monies paid, plus
interest.
On November 28 and 29, 2007, the EC conducted searches of Dole
offices in Italy and Spain, as well as of other companies’
offices located in these countries. Dole continues to cooperate
with the EC’s requests for information.
Although no assurances can be given, and although there could be
a material adverse effect on Dole, Dole believes that it has not
violated the European competition laws. No accrual for the
Decision has been made in the accompanying consolidated
financial statements, since Dole cannot determine at this time
the amount of probable loss, if any, incurred as a result of the
Decision.
Honduran Tax Case: In 2005, Dole received a
tax assessment from Honduras of approximately $137 million
(including the claimed tax, penalty, and interest through the
date of assessment) relating to the disposition of all of our
interest in Cervecería Hondureña, S.A. in 2001. Dole
believes the assessment is without merit and filed an appeal
with the Honduran tax authorities, which was denied. As a result
of the denial in the administrative process, in order to negate
the tax assessment, on August 5, 2005, Dole proceeded to
the next stage of the appellate process by filing a lawsuit
against the Honduran government in the Honduran Administrative
Tax Trial Court. The
F-20
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Honduran government sought dismissal of the lawsuit and
attachment of assets, which Dole challenged. The Honduran
Supreme Court affirmed the decision of the Honduran intermediate
appellate court that a statutory prerequisite to challenging the
tax assessment on the merits is the payment of the tax
assessment or the filing of a payment plan with the Honduran
courts; Dole has challenged the constitutionality of the statute
requiring such payment or payment plan. Although no assurance
can be given concerning the outcome of this case, in the opinion
of management, after consultation with legal counsel, the
pending lawsuits and tax-related matters are not expected to
have a material adverse effect on Dole’s financial
condition or results of operations.
NOTE 12 —
ASSETS HELD-FOR-SALE
Dole continuously reviews its assets in order to identify those
assets that do not meet Dole’s future strategic direction
or internal economic return criteria. As a result of this
review, Dole has identified and is in the process of selling
specific businesses and long-lived assets. In accordance with
FAS 144, Dole has reclassified these assets as
held-for-sale.
Total assets held-for-sale by segment were as follows:
Dole received total cash proceeds of approximately
$84 million on assets sold during the half year ended
June 20, 2009, which had been classified as held-for-sale.
The total realized gain recorded on assets classified as
held-for-sale was $18.1 million for the half year ended
June 20, 2009, which included $1.3 million related to
the fresh-cut flowers discontinued operation. Realized gains
related to continuing operations for the half year ended
June 20, 2009, of $16.8 million, are shown as a
separate component of operating income in the condensed
consolidated statement of operations.
Fresh
Fruit
During the second quarter of 2009, Dole reclassified one Chilean
farm and the assets and liabilities of an Italian port operation
to held-for-sale.
F-21
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Dole completed the sale of a portion of its Latin American
banana operations during January 2009. Net proceeds from the
sale totaled approximately $25.8 million. To date, Dole has
collected $18 million in cash ($2 million in 2008 and
$16 million in 2009) and has recorded a
$7.8 million receivable which will be collected through
January 2010. Dole also sold a wood box plant in Chile for
$0.6 million. Total realized gains recorded on these sales
approximated $6.7 million for the half year ended
June 20, 2009.
Third
Quarter 2009 Sales
During the third quarter of 2009, Dole signed letters of intent
to sell some operating properties located in Latin America for
approximately $68 million. As of June 20, 2009, the
assets and liabilities of these operating properties have not
been included in assets or liabilities held-for-sale. The sale
of these operating properties are expected to close during the
third quarter of 2009.
Fresh
Vegetables
During the first quarter of 2009, Dole completed the sale of
1,100 acres of property located in California. Dole
received net cash proceeds of $44.5 million and recorded a
gain on the sale of $9.2 million, which is included in gain
on asset sales in the condensed consolidated statement of
operations for the half year ended June 20, 2009.
Packaged
Foods
During the first half of 2009, Dole sold approximately
160 acres of peach orchards located in California for
approximately $1.9 million and recorded a gain on the sale
of $0.9 million.
Fresh-Cut
Flowers — Discontinued Operation
During January 2009, the first phase of the Flowers transaction
was completed. Dole only retains some of the real estate of the
former flowers divisions to be sold in the subsequent phases of
the transaction. Net proceeds from the sale totaled
approximately $29.3 million. Of this amount,
$21 million was collected in cash and the remaining
$8.3 million was recorded as a receivable, which will be
repaid during January 2011. Dole recorded a gain on the sale of
$1.3 million, which is included as a component of gain on
disposal from discontinued operations, net of income taxes in
the condensed consolidated statement of operations for the half
year ended June 20, 2009.
NOTE 13 —
DERIVATIVE FINANCIAL INSTRUMENTS
Dole is exposed to foreign currency exchange rate fluctuations,
bunker fuel price fluctuations and interest rate changes in the
normal course of its business. As part of its risk management
strategy, Dole uses derivative instruments to hedge certain
foreign currency, bunker fuel and interest rate exposures.
Dole’s objective is to offset gains and losses resulting
from these exposures with losses and gains on the derivative
contracts used to hedge them, thereby reducing volatility of
earnings. Dole does not hold or issue derivative financial
instruments for trading or speculative purposes.
All of Dole’s derivative instruments, with the exception of
the interest rate swap, are not designated as effective hedges
of cash flows as defined by Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended
(“FAS 133”). The interest rate swap is
accounted for as a cash flow hedge under FAS 133 and
accordingly, unrealized gains or losses are recorded as a
component of accumulated other comprehensive income (loss)
(“AOCI”) in the condensed consolidated balance sheets.
Dole entered into an interest rate swap in 2006 to hedge future
changes in interest rates. This agreement effectively converted
$320 million of borrowings under Term Loan C, which was
variable-rate debt, to a fixed-rate basis through 2011. The
interest rate swap fixed the interest rate at 7.2%. The paying
and receiving rates under the interest rate swap were 5.5% and
1.1% as of June 20, 2009, with an outstanding notional
amount of $320 million.
F-22
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Dole executed a cross currency swap during 2006 to synthetically
convert $320 million of Term Loan C into Japanese yen
denominated debt in order to effectively lower the
U.S. dollar fixed interest rate of 7.2% to a Japanese yen
interest rate of 3.6%. Payments under the cross currency swap
were converted from U.S. dollars to Japanese yen at an
exchange rate of ¥111.9.
During the second quarter of 2009, Dole amended its cross
currency and interest rate swap agreements. The amendments
removed early termination provisions which would have allowed
the counterparty to settle the swaps at certain specified dates
prior to maturity. In addition, the rate at which payments under
the cross currency swap were converted from U.S. dollars to
Japanese yen increased to ¥114.9 from ¥111.9. In
connection with these amendments, Dole also entered into a
collateral arrangement which requires Dole to provide collateral
to its counterparties when the fair market value of the cross
currency and interest rate swap exceed a combined liability of
$35 million. The measurement date for the collateral
required at June 20, 2009 was June 16, 2009, and the
fair value of the swaps at the measurement date was a liability
of approximately $76 million. Dole provided cash collateral
of $6.1 million, which was recorded as restricted deposits
in the condensed consolidated balance sheet, and the remaining
$35 million of collateral was issued through letters of
credit.
At June 20, 2009, the exchange rate of the Japanese yen to
U.S. dollar was ¥96.5. The value of the cross currency
swap will fluctuate based on changes in the U.S. dollar to
Japanese yen exchange rate and market interest rates until
maturity in 2011, at which time it will settle in cash at the
then current exchange rate.
At June 20, 2009, the gross notional value and fair market
value of Dole’s derivative instruments were as follows:
Derivative Assets (Liabilities)
Average Strike
Notional
Balance Sheet
Fair Market
Price
Amount
Classification
Value
(In thousands)
Derivatives designated as hedging instruments:
Interest rate swap
$
320,000
Other long-term liabilities
$
(23,253
)
Derivatives not designated as hedging instruments:
Foreign currency hedges (Buy/Sell):
U.S. Dollar/Euro
EUR 1.44
48,354
Receivables, net
$
1,990
U.S. Dollar/Canadian Dollar
CAD 1.12
10,706
Receivables, net
104
Chilean Peso/U.S. Dollar
CLP 671
9,989
Receivables, net
2,588
U.S. Dollar/Japanese Yen
JPY 101.2
171,249
Accrued Liabilities
(2,801
)
Philippine Peso/U.S. Dollar
PHP 47.9
21,407
Accrued Liabilities
(452
)
Cross currency swap — interest
Receivables, net
1,815
Cross currency swap
320,000
Other long-term liabilities
(49,007
)
Bunker fuel hedges
$277
26,544
Receivables, net
2,765
(per metric ton)
(metric tons)
Total derivatives not designated as hedging instruments
(42,998
)
Total
$
(66,251
)
F-23
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Settlement of the foreign currency and bunker fuel hedges will
occur during 2009 and 2010.
The effect of the interest rate swap on the condensed
consolidated balance sheet and statement of operations for the
quarter and half year ended June 20, 2009 was as follows:
Gain
Recognized in
AOCI as of
Losses Reclassified into Income
June 20,
Income Statement
Quarter
Half Year
2009
Classification
Ended
Ended
(In thousands)
Derivatives designated as hedging instruments:
Interest rate swap
$
4,859
Interest expense
$
3,461
$
4,007
Unrecognized losses of $13 million related to the interest
rate swap are expected to be realized into earnings over the
next twelve months. These losses will be primarily offset by
gains related to the cross currency swap.
Net unrealized gains (losses) and realized gains (losses) on
derivatives not designated as hedging instruments for the
quarters and half years ended June 20, 2009 and
June 14, 2008 were as follows:
Quarter Ended
Unrealized Gains
Realized Gains
(Losses)
(Losses)
Income Statement
June 20,
June 14,
June 20,
June 14,
Classification
2009
2008
2009
2008
(In thousands)
Derivatives not designated as hedging instruments:
Dole’s financial instruments primarily comprise short-term
trade and grower receivables, trade payables, notes receivable
and notes payable, as well as long-term grower receivables,
capital lease obligations, term loans, a
F-24
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
revolving credit facility, and notes and debentures. For
short-term instruments, the carrying amount approximates fair
value because of the short maturity of these instruments. For
the other long-term financial instruments, excluding Dole’s
secured and unsecured notes and debentures, and term loans, the
carrying amount approximates the fair value since they bear
interest at variable rates or fixed rates which approximate
market.
Dole adopted FAS No. 157, Fair Value Measurements
(“FAS 157”) as of December 30, 2007 for
financial assets and liabilities measured on a recurring basis.
Dole adopted FAS 157 for all nonfinancial assets and
liabilities at the beginning of fiscal year 2009. FAS 157
establishes a fair value hierarchy that prioritizes observable
and unobservable inputs to valuation techniques used to measure
fair value. These levels, in order of highest to lowest priority
are described below:
Level 1: Quoted prices (unadjusted) in active markets that
are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not
quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by
market data.
The fair values of Dole’s derivative instruments are
determined using Level 2 inputs, which are defined as
“significant other observable inputs.” The fair values
of the foreign currency exchange contracts, bunker fuel
contracts, interest rate swap and cross currency swap were
estimated using internal discounted cash flow calculations based
upon forward foreign currency exchange rates, bunker fuel
futures, interest-rate yield curves or quotes obtained from
brokers for contracts with similar terms less any credit
valuation adjustments. Dole recorded a credit valuation
adjustment at June 20, 2009 which reduced the derivative
liability balances. The credit valuation adjustment was
$3.2 million and $16.3 million at June 20, 2009
and January 3, 2009, respectively. The net change in the
credit valuation adjustment resulted in a loss of
$13.1 million during the half year ended June 20,2009. Of this loss, $1.6 million was recorded as interest
expense and $11.5 million was recorded as other income
(expense), net. For the quarter ended June 20, 2009, the
net change in the credit valuation adjustment resulted in a loss
of $5.6 million. Of this loss, $1 million was recorded
as interest expense and $4.6 million was recorded as other
income (expense), net.
F-25
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
The following table provides a summary of the fair values of
assets and liabilities under the FAS 157 hierarchy:
Nonfinancial
Items Measured at Fair Value on a Nonrecurring
Basis
Nonfinancial assets such as goodwill and indefinite-lived
intangible assets are measured at fair value when there is an
indicator of impairment and recorded at fair value only when an
impairment is recognized. Dole performed a goodwill and
indefinite-lived intangible asset impairment analysis during the
second quarter of 2009 and determined that its goodwill and
indefinite-lived intangible assets were not impaired at
June 20, 2009.
The goodwill and indefinite-lived intangible asset impairment
analysis was performed using a combination of discounted cash
flow models and market multiples. As discussed in Note 7,
the fair value of the Distrifruit business was also determined
based on a discounted cash flow model. The discounted cash flow
models used estimates and assumptions including pricing and
volume data, anticipated growth rates, profitability levels, tax
rates and discount rates.
Credit
Risk
The counterparties to the foreign currency and bunker fuel
forward contracts and the interest rate and cross currency swaps
consist of a number of major international financial
institutions. Dole has established counterparty guidelines and
regularly monitors its positions and the financial strength of
these institutions. While counterparties to hedging contracts
expose Dole to credit-related losses in the event of a
counterparty’s non-performance, the risk would be limited
to the unrealized gains on such affected contracts. Dole does
not anticipate any such losses.
Fair
Value of Debt
Dole estimates the fair value of its secured and unsecured notes
and debentures based on current quoted market prices. The term
loans are traded between institutional investors on the
secondary loan market, and the fair values of
F-26
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
the term loans are based on the last available trading price.
The carrying value and estimated fair values of Dole’s debt
is summarized below:
In connection with the issuance of the 2011 Notes in March 2003
and the 2010 Notes in May 2003, all of Dole’s wholly-owned
domestic subsidiaries (“Guarantors”) have fully and
unconditionally guaranteed, on a joint and several basis,
Dole’s obligations under the indentures related to such
Notes and to Dole’s 2013 Debentures and 2014 Notes (the
“Guarantees”). Each Guarantee is subordinated in right
of payment to the Guarantors’ existing and future senior
debt, including obligations under the senior secured credit
facilities, and will rank pari passu with all senior
subordinated indebtedness of the applicable Guarantor.
The accompanying guarantor consolidating financial information
is presented on the equity method of accounting for all periods
presented. Under this method, investments in subsidiaries are
recorded at cost and adjusted for Dole’s share in the
subsidiaries’ cumulative results of operations, capital
contributions and distributions and other changes in equity.
Elimination entries relate to the elimination of investments in
subsidiaries and associated intercompany balances and
transactions as well as cash overdraft and income tax
reclassifications.
The following are condensed consolidating statements of
operations of Dole for the quarters and half years ended
June 20, 2009 and June 14, 2008; condensed
consolidating balance sheets as of June 20, 2009 and
January 3, 2009; and condensed consolidating statements of
cash flows for the half years ended June 20, 2009 and
June 14, 2008.
F-27
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended June 20, 2009
Dole Food
Non
Company, Inc.
Guarantors
Guarantors
Eliminations
Total
(In thousands)
Revenues, net
$
16,445
$
741,287
$
1,304,894
$
(347,904
)
$
1,714,722
Cost of products sold
(13,852
)
(669,486
)
(1,154,323
)
345,055
(1,492,606
)
Gross margin
2,593
71,801
150,571
(2,849
)
222,116
Selling, marketing and general and administrative expenses
(13,115
)
(44,950
)
(58,728
)
2,849
(113,944
)
Gain on asset sales
—
159
—
—
159
Operating income (loss)
(10,522
)
27,010
91,843
—
108,331
Equity in subsidiary income
50,400
32,275
—
(82,675
)
—
Other income (expense), net
137
—
(33,183
)
—
(33,046
)
Interest income
279
35
1,186
—
1,500
Interest expense
(31,132
)
(25
)
(19,085
)
—
(50,242
)
Income from continuing operations before income taxes and equity
earnings