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The number of shares of Common Stock outstanding as of
February 29, 2008 was 1,000.
Dole Food Company, Inc. was founded in Hawaii in 1851 and was
incorporated under the laws of Hawaii in 1894. Dole
reincorporated as a Delaware corporation in July 2001. Unless
the context otherwise requires, Dole Food Company, Inc. and its
consolidated subsidiaries are referred to in this report as the
“Company,”“Dole” and “we.”
Dole’s principal executive offices are located at One Dole
Drive, Westlake Village, California91362, telephone
(818) 879-6600.
During fiscal year 2007, we had, on average, approximately
45,000 full-time permanent employees and
42,000 full-time seasonal or temporary employees,
worldwide. Dole is the world’s largest producer and
marketer of high-quality fresh fruit and fresh vegetables. Dole
markets a growing line of packaged and frozen fruits and is a
produce industry leader in nutrition education and research.
Dole is also one of the largest producers of fresh-cut flowers
in Latin America. Our website address is www.dole.com. Since we
have only one stockholder and since our debt securities are not
listed or traded on any exchange, we do not make available free
of charge, on or through our website, electronically or through
paper copies our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
or any amendments to those reports.
Dole’s operations are described below. For detailed
financial information with respect to Dole’s business and
its operations, see Dole’s Consolidated Financial
Statements and the related Notes to Consolidated Financial
Statements, which are included in this report.
Overview
We are the world’s largest producer of fresh fruit and
fresh vegetables and we market a growing line of value-added
products. We are one of the world’s largest producers of
bananas and pineapples, a leading marketer of table grapes
worldwide and an industry leader in packaged fruit products,
ready-to-eat salads and vegetables. Dole is also one of the
largest producers of fresh-cut flowers in Latin America. Our
most significant products hold the number 1 or number 2
positions in their respective markets. For the fiscal year 2007,
we generated revenues of nearly $7 billion.
We provide wholesale, retail and institutional customers around
the world with high quality food products that bear the
DOLE®
trademarks. The DOLE brand was introduced in 1933 and we believe
it is one of the most recognized for fresh and packaged produce
in the United States as evidenced by Dole’s 57% unaided
consumer brand awareness — almost three times that of
Dole’s nearest competitor, according to a major global
research company (TNS NFO). We utilize product quality,
nutrition education, food safety, brand recognition, competitive
pricing, customer service and consumer marketing programs to
enhance our position within the food industry. Consumer and
institutional recognition of the DOLE trademarks and related
brands and the association of these brands with high quality
food products contribute significantly to our leading positions
in the markets that we serve.
Dole sources or sells over 200 products in more than 90
countries. Our fully-integrated operations include sourcing,
growing, processing, distributing and marketing our products.
Our products are produced both directly on Dole-owned or leased
land and through associated producer and independent grower
arrangements under which we provide varying degrees of farming,
harvesting, packing, storing, shipping, stevedoring and
marketing services.
Industry
The worldwide fresh produce industry enjoys consistent
underlying demand and favorable growth dynamics. In recent
years, the market for fresh produce has increased faster than
the rate of population growth, supported by ongoing trends
including greater consumer demand for healthy, fresh and
convenient foods, increased retailer square footage devoted to
produce, and greater emphasis on fresh produce as a
differentiating factor in attracting customers. According to the
Food and Agriculture Organization, worldwide produce production
grew 3.6% per annum from 814 million metric tons in 1990 to
an estimated 1.4 billion in 2005.
Health-conscious consumers are driving much of the growth in
demand for fresh produce. Over the past several decades, the
benefits of natural, preservative-free foods have become an
increasingly significant element of the public dialogue on
health and nutrition. As a result, consumption of fresh fruit
and vegetables has markedly increased. According to the
U.S. Department of Agriculture, Americans consumed 40 more
pounds of fresh fruit
and vegetables per capita in 2005 than they did in 1987.
Consumers are also consuming more organic foods. Specifically,
organic produce sales grew 11% to $5.4 billion in 2006,
according to the Organic Trade Association and represented 5.5%
of total retail produce sales in the U.S.
Food manufacturers have responded to consumer demand for
convenient, ready-to-eat products with new product introductions
and packaging innovations in segments such as fresh-cut fruit
and vegetables and ready-to-eat salads, contributing to industry
growth.
The North American packaged fruit industry is experiencing
stable growth, driven by consumer demand for healthy snacking
options. FRUIT
BOWLS®
in plastic cups, introduced by Dole in 1998, and other
innovative packaging items have steadily displaced the canned
alternative. These new products have spurred overall growth in
the packaged fruit category, while the consumption of
traditional canned fruit has declined as consumers opt for fresh
products and more innovative packaging.
Retail consolidation and the growing importance of food to mass
merchandisers are major factors affecting the food manufacturing
and fresh produce industries. As food retailers have grown and
expanded, they have sought to increase profitability through
value-added product offerings and in-store services. The higher
margins of the fresh produce category are also attractive to
retailers. As a result, some retailers are reducing their dry
goods sections of the store, in favor of expanding fresh and
chilled items, offering new product and merchandising
opportunities for packaged fruit. Fully integrated produce
companies, such as Dole, are well positioned to meet the needs
of large retailers through the delivery of consistent,
high-quality produce, reliable service, competitive pricing and
innovative products. In addition, these companies including Dole
have sought to strengthen relationships with leading retailers
through value-added services such as banana ripening and
distribution, category management, branding initiatives and
establishment of long-term supply agreements.
Competitive
Strengths
Our competitive strengths have contributed to our strong
historical operating performance and should enable us to
capitalize on future growth opportunities:
•
Market Share Leader. Our most significant
products hold the number 1 or number 2 positions in their
respective markets. We maintain number 1 market share positions
in North American bananas, North American iceberg lettuce,
celery, cauliflower, and packaged fruit products, including our
line of plastic fruit cups called FRUIT BOWLS, FRUIT BOWLS in
Gel, fruit parfaits and fruit in plastic jars.
•
Refrigerated Supply Chain Management. One of
Dole’s strongest core competencies is our ability to
produce, transport and deliver high-quality perishable products
around the world. Dole quality starts right on the farm and that
quality is preserved and protected in its farm-to-customer
refrigerated supply chain. Dole’s worldwide network of cold
storage — at the farm, on trucks, in containers, on
ships and in our distribution centers in the world’s market
places — provides a closed-loop cold storage supply
chain that enables the worldwide transport of perishable
products and is the key to Dole quality and shelf life.
•
Strong Global Brand. Consumer and
institutional recognition of the DOLE trademark and related
brands and the association of these brands with high quality
food products contribute significantly to our leading positions
in the markets that we serve. By implementing a global marketing
program, we have made the distinctive red “DOLE”
letters and sunburst a familiar symbol of freshness and quality
recognized around the world. We actively continue to leverage
the DOLE brand through product extensions and new product
introductions.
•
Low-Cost Production Capabilities. We believe
we are one of the lowest cost producers of many of our major
product lines, including bananas, North American fresh
vegetables and packaged fruit products. Over the last several
years we have undertaken various initiatives to achieve this
low-cost position, including leveraging our global logistics
infrastructure more efficiently. We intend to maintain these
low-cost positions through a continued focus on operating
efficiency.
•
State-of-the-Art Infrastructure. We have made
significant investments in our production, processing,
transportation and distribution infrastructure with the goal of
efficiently delivering the highest quality and
freshest product to our customers. We own or lease over 60
processing, ripening and distribution centers, and operate one
of the largest dedicated refrigerated containerized shipping
fleets, with 25 ships and approximately 15,000 refrigerated
containers. The investments in our infrastructure allow for
continued growth in the near term. In addition, our
market-leading logistics and distribution capabilities allow us
to act as a preferred fresh and packaged food provider to
leading global supermarkets and mass merchandisers.
•
Diversity of Sourcing Locations. We currently
source our fresh fruits, vegetables and fresh-cut flowers from
75 countries and distribute products in more than 90 countries.
We are not dependent on any one country for the sourcing of our
products. The largest concentration of production is in Ecuador,
where we sourced approximately 32% of our Latin bananas in 2007.
The diversity of our production sources reduces our risk from
exposure to natural disasters and political disruptions in any
one particular country.
•
Experienced Management Team. Our management
team has a demonstrated history of delivering strong operating
results through disciplined execution. The current management
team has been instrumental in our continued transformation from
a production driven company into a sales and marketing driven
one.
Business
Strategy
Key elements of our strategy include:
•
Leveraging our Strong Brand and Market Leadership
Position. Our most significant products hold
number 1 or number 2 market positions in their respective
markets. We intend to maintain those positions and continue to
expand our leadership in new product areas as well as with new
customers. We have a history of leveraging our strong brand to
successfully enter, and in many cases become the largest player
in value-added food categories. We intend to continue to
evaluate and strategically introduce other branded products in
the value-added sectors of our business.
•
Grower Network. In addition to owning and
operating our own model farms, Dole has also developed a unique
worldwide network of over 9,000 farmers who proudly produce to
our standards. Dole not only provides technical agronomic
assistance to these growers but also provides organizational
assistance to small farmers around the world, allowing them to
combine their efforts in a cooperative manner to achieve the
economies of scale necessary to compete in the world markets.
•
Focusing on Value-Added Products. We have
shifted our product mix toward value-added food categories and
away from commodity fruits and vegetables. For example, we have
achieved major success in our ready-to-eat salad lines and, most
recently, FRUIT BOWLS, FRUIT BOWLS in Gel and fruit parfaits.
These value-added food categories are growing at a faster rate
than our traditional commodity businesses and most are
generating strong margins. Overall, we have significantly
increased our percentage of revenue from value-added products.
This shift has been most pronounced in our fresh vegetables and
packaged foods businesses, where value-added products now
account for approximately 51% and 59% of those businesses’
respective revenues. We plan to continue to address the growing
demand for convenient and innovative products by investing in
our higher margin, value-added food businesses.
•
Dole Nutrition Institute. Dole also seeks to
play a leading role in nutrition education by promoting the
health benefits of a plant-based diet. Given the importance of
fruit and vegetable consumption in maintaining a healthy weight,
nutrition education is key to addressing the global obesity
epidemic. Every day new scientific research reveals ways in
which fruits and vegetables help prevent and even reverse
disease. Dole is committed to leading the way in expanding the
knowledge, growing the foods, and marketing the products that
will enable people to lead healthier, more vital lives.
•
Corporate Social Responsibility. Dole’s
approach to corporate social responsibility (“CSR”)
includes sustainable agricultural practices, community service,
employee wellness, provision of social services and worker
safety. Dole’s practices demonstrate how the world’s
largest provider of fruits and vegetables leads the industry in
respect for the environment, worker education and charitable
giving, among other aspects of corporate responsibility.
Further Improving Operating Efficiency and Cash
Flow. We intend to continue to focus on profit
improvement initiatives and maximizing cash flow by:
•
Analyzing our current customer base and focusing on profitable
relationships with strategically important customers;
•
Leveraging our purchasing power to reduce our costs of raw
materials;
•
Focusing capital investments to improve productivity; and
•
Selling unproductive assets.
Business
Segments
We have four business segments: fresh fruit, fresh vegetables,
packaged foods and fresh-cut flowers. The fresh fruit segment
contains several operating divisions that produce and market
fresh fruit to wholesale, retail and institutional customers
worldwide. The fresh vegetables segment contains two operating
divisions that produce and market commodity and fresh-cut
vegetables to wholesale, retail and institutional customers,
primarily in North America, Europe and Asia. The packaged
foods segment contains several operating divisions that produce
and market packaged foods including fruit, juices and snack
foods. Our fresh-cut flowers segment sources, imports and
markets fresh-cut flowers, grown mainly in Colombia, primarily
to wholesale florists and retail grocers in the United States.
For financial information on the four business segments, see
Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, and
Note 14 — Business Segments of Item 8,
Financial Statements and Supplementary Data, in this
Form 10-K.
Fresh
Fruit
Our fresh fruit business segment has four primary operating
divisions: bananas, European Ripening and Distribution, fresh
pineapples and Dole Chile. We believe that we are the industry
leader in growing, sourcing, shipping and distributing
consistently high-quality fresh fruit. The fresh fruit business
segment represented approximately 68% of 2007 consolidated total
revenues.
Bananas
We are one of the world’s largest producers of bananas,
growing and selling more than 158 million boxes of bananas
annually. We sell most of our bananas under the DOLE brand. We
primarily sell bananas to customers in North America, Europe and
Asia. We are the number 1 brand of bananas in both North America
(an approximate 36% market share) and Japan (an approximate 31%
market share) and the number 2 brand in Europe (an approximate
12% market share). In Latin America, we source our bananas
primarily in Honduras, Costa Rica, Ecuador, Colombia, Guatemala
and Peru, growing on approximately 35,600 acres of
company-owned farms and approximately 87,700 acres of
independent producers’ farms. We ship our Latin American
bananas to North America and Europe in our refrigerated and
containerized shipping fleet. In Asia, we source our bananas
primarily in the Philippines. Bananas accounted for
approximately 38% of our fresh fruit business segment revenues
in 2007.
Consistent with our strategy to focus on value-added products,
we have continued to expand our focus on higher margin, niche
bananas. While the traditional “green” bananas still
comprise the majority of our banana sales, we have successfully
introduced niche bananas (e.g., organic). We have also improved
the profitability of our banana business by focusing on
profitable customer relationships and markets.
While bananas are sold year round, there is a seasonal aspect to
the banana business. Banana prices and volumes are typically
higher in the first and second calendar quarters before the
increased competition from summer fruits. Approximately 90% of
our total retail volume in North America is under contract. The
contracts are typically one year in duration and help to
insulate us from fluctuations in the banana spot market. Our
principal competitors in the international banana business are
Chiquita Brands International, Inc. and Fresh Del Monte Produce
Inc.
Our European Ripening & Distribution business
distributes DOLE and non-DOLE branded fresh produce in Europe.
This business operates 36 sales and distribution centers in
twelve countries, predominantly in Western Europe. This is a
value-added business for us since European retailers generally
do not self-distribute or self-ripen. This business assists us
in firmly establishing our European customer relationships. In
2007, European Ripening and Distribution accounted for
approximately 42% of our fresh fruit business segment’s
revenues.
Fresh
Pineapples
We are the number 2 global producer of fresh pineapples, growing
and selling more than 34 million boxes annually. We source
our pineapples primarily from company operated farms and
independent growers in Latin America, Hawaii, the Philippines
and Thailand. We produce and sell several different varieties
including the sweet yellow pineapple. We introduced the sweet
yellow pineapple in 1999 under the DOLE PREMIUM
SELECT®
label. We now market a substantial portion of this fruit under
the DOLE TROPICAL
GOLD®
label. Varieties of pineapple other than the sweet pineapples
are also used in our packaged products. Our primary competitor
in fresh pineapples is Fresh Del Monte Produce Inc. Pineapples
accounted for approximately 8% of our fresh fruit business
segment’s revenues in 2007.
Dole
Chile
We began our Chilean operations in 1982 and we are one of the
largest exporters of Chilean fruit. We export grapes, apples,
pears, stone fruit (e.g., peaches and plums) and kiwifruit from
approximately 3,200 Company owned or Company leased acres and
11,000 contracted acres. The weather and geographic features of
Chile are similar to those of the Western United States, with
opposite seasons. Accordingly, Chile’s harvest is
counter-seasonal to that in the northern hemisphere, offsetting
the seasonality in our other fresh fruit. We primarily export
Chilean fruit to North America, Latin America and Europe. Our
Dole Chile business division accounted for approximately 6% of
our fresh fruit business segment’s revenues in 2007.
Fresh
Vegetables
Our fresh vegetables business segment operates through two
divisions: commodity vegetables and value-added. We source fresh
vegetables from company-owned and contracted farms. To satisfy
the increasing demand for our
value-added
products, we have continued to expand production and
distribution capabilities of our fresh vegetables segment. A
fourth salad plant, in Bessemer City, North Carolina, became
operational in January 2007. The North Carolina plant is
servicing east coast markets. Under our arrangements with
independent growers, we purchase fresh produce at the time of
harvest and are generally responsible for harvesting, packing
and shipping the product to our central cooling and distribution
facilities. We pursue a balanced growth strategy between our
commodity and value-added divisions. In 2007, the value-added
division accounted for 51% of our revenues for this segment. The
fresh vegetables business segment accounted for approximately
15% of 2007 consolidated total revenues.
Commodity
Vegetables
We source, harvest, cool, distribute and market more than 20
different types of fresh and fresh-cut vegetables, including
iceberg lettuce, red and green leaf lettuce, romaine lettuce,
butter lettuce, celery, cauliflower, broccoli, carrots, brussels
sprouts, green onions, asparagus, snow peas and artichokes. We
sell our commodity vegetables products primarily in North
America, Asia and, to a lesser extent, Western Europe. In North
America, we are the largest supplier of iceberg lettuce, celery
and cauliflower. Our primary competitors in this category
include: Tanimura & Antle, Duda, Salyer American and
Ocean Mist. In October 2004, we acquired Coastal Berry Company,
LLC, subsequently renamed as Dole Berry Company, LLC, in order
to diversify our commodity products division. Dole is now the
third largest producer of strawberries in North America.
Our value-added vegetable products include ready-to-eat salads
and packaged fresh-cut vegetables. Our unit market share of the
ready-to-eat salads category reported by Information Resources,
Inc. (“IRI”) was approximately 32.9% for the 12-week
period ended December 29, 2007. Our value-added products
typically have more stable prices than commodity vegetables,
thereby helping to reduce our exposure to commodity price
fluctuations. New product development continues to drive growth
in this area. Our primary competitors in ready-to-eat salads
include Chiquita Brands International, Inc., which markets Fresh
Express, Ready Pac Produce, Inc. and Taylor Fresh Foods, Inc.
Packaged
Foods
Our packaged foods segment produces canned pineapple, canned
pineapple juice, fruit juice concentrate, fruit in plastic cups,
jars and pouches and fruit parfaits. Most of our significant
packaged food products hold the number 1 branded market position
in North America. We remain the market leader in the plastic
fruit cup category with seven of the top ten items in category.
Fruit for our packaged food products is sourced primarily in the
Philippines, Thailand, the United States and China and packed
primarily in four Asian canneries, two in Thailand and two in
the Philippines. We have continued to focus on expanding our
product range beyond our traditional canned fruit and juice
products. Non-canned products accounted for approximately 59% of
the segment’s 2007 revenues.
Our FRUIT BOWLS products were introduced in 1998 and continue to
exceed our volume and share expectations. The trend towards
convenience and healthy snacking has generated explosive growth
in the plastic fruit cup category — which now
significantly exceeds the applesauce cup and shelf-stable
gelatin cup categories. In fact, Dole now produces more plastic
cups than traditional cans. Our FRUIT BOWLS products had a 48%
market share in the United States during 2007 as reported by
IRI. In 2003, Dole introduced fruit in a 24.5 oz. plastic jar.
This growing business achieved a 45% market share in the United
States during 2007 as reported by IRI. To keep up with demand,
we have made substantial investments in our Asian canneries,
significantly increasing our FRUIT BOWLS capacity in the past
four years. These investments should ensure our position as an
industry innovator and low-cost producer.
In the frozen fruit category, Dole is now the number 1 brand in
North America and is positioned for continued growth as the
innovation leader. New product introductions include our new
WILDLY
NUTRITIOUStm
fruit blends, which offer targeted health benefits, as well as
our Sliced Strawberries, which drive consumer convenience. The
brand is also in the process of transitioning into a new
consumer-friendly easy-open standup bag.
Effective as of January 1, 2006, Dole Packaged Frozen
Foods, Inc. was converted to a limited liability company, the
assets and liabilities of the Dole Packaged Foods division were
contributed to Dole Packaged Frozen Foods, Inc., and the
combined entity was renamed Dole Packaged Foods, LLC.
With a broader line of convenience-oriented products, we are
expanding distribution in non-grocery channels, particularly for
our fruit cup and frozen businesses. These alternative channels
are growing faster than the traditional grocery channel and the
cost of gaining new distribution in them is lower.
Our packaged foods segment accounted for approximately 15% of
2007 consolidated revenues.
Fresh-Cut
Flowers
We entered the fresh-cut flowers business in 1998 and are one of
the largest producers of fresh-cut flowers in Latin America with
over 90% of our Latin American flowers shipped into North
America. Our products include over 500 varieties of fresh-cut
flowers such as roses, carnations and alstroemeria. The
fresh-cut flowers business fits our core competencies including
expertise in perishable products, strong relationships with and
knowledge of the grocery channel, the ability to manage
production in the southern hemisphere, and sophisticated
logistics capabilities.
We are the only flower importer with guaranteed daily deliveries
by air. Immediately after harvesting, our flowers are flown to
our Miami facility where temperatures are maintained within
one-half degree of required levels
in all warehouse and production operations. Maintaining the
refrigerated supply chain enables us to deliver the freshest and
healthiest flowers to the market.
Dole focuses on optimizing our refrigerated supply chain to
provide our customers industry-leading service in the
procurement of flowers. Current management emphasis is on
maintaining the highest levels of quality, increasing customer
service, rationalizing operating costs and automating processes.
Our fresh-cut flowers segment accounted for approximately 2% of
2007 consolidated revenues.
At December 29, 2007, certain assets related to the
fresh-cut flowers business had been reclassified as assets
held-for-sale. The Company is currently assessing the fresh-cut
flowers business and is evaluating various alternatives which
would improve operating results in this business and for the
Company.
Global
Logistics
We have significant food sourcing and related operations in
Cameroon, Chile, China, Colombia, Costa Rica, Ecuador, Honduras,
Ivory Coast, the Philippines, South Africa, Spain, Thailand and
the United States. Significant volumes of Dole’s fresh
fruit and packaged products are marketed in Canada, Western
Europe, Japan and the United States, with lesser volumes
marketed in Australia, China, Hong Kong, New Zealand, South
Korea, and other countries in Asia, Europe and Central and South
America.
The produce that we distribute internationally is transported
primarily by 25 owned or leased ocean-going vessels. We ship our
tropical fruit in owned or chartered refrigerated vessels. All
of our tropical fruit shipments into the North American and core
European markets are delivered using pallets or containers. This
increases efficiency and minimizes damage to the product from
handling. Most of the vessels are equipped with controlled
atmosphere technology, to ensure product quality.
“Backhauling” services, transporting our own and
third-party cargo primarily from North America and Europe
to Latin America, reduce net transportation costs. We use
vessels that are both owned or operated under long-term leases,
as well as vessels chartered under contracts that typically last
one year. Our
fresh-cut
flowers are primarily transported via chartered flights.
Customers
Our top 10 customers in 2007 accounted for approximately 30% of
total revenues. No one customer accounted for more than 7% of
total 2007 revenues. Our customer base is highly diversified,
both geographically and in terms of product mix. Each of our
segments’ largest customers accounted for less than 22% of
that segment’s revenues. Our largest customers are leading
global and regional mass merchandisers and supermarkets in North
America, Europe and Asia.
Sales and
Marketing
We sell and distribute our fruit and vegetable products through
a network of fresh produce operations in North America,
Europe, Asia and Latin America. Some of these operations involve
the sourcing, distribution and marketing of fresh fruits and
vegetables while others involve only distribution and marketing.
We have regional sales organizations dedicated to servicing
major retail and wholesale customers. We also use the services
of brokers in certain regions, primarily for sales of packaged
foods and ready-to-eat salads. Retail customers include large
chain stores with which Dole enters into product and service
contracts, typically for a one or two-year term. Wholesale
customers include large distributors in North America, Europe
and Asia. We use consumer advertising, marketing and trade
spending, to promote new items, bolster our exceptional brand
awareness, and promote nutrition knowledge.
Competition
The global fresh and packaged produce markets are intensely
competitive, and generally have a small number of global
producers, filled out with independent growers, packers and
middlemen. Our large, international competitors are Chiquita,
Fresh Del Monte Produce and Del Monte Foods. In some product
lines, we compete with smaller national producers. In fresh
vegetables, a limited number of grower shippers in the United
States and Mexico supply a significant portion of the United
States market, with numerous smaller independent distributors
also competing. We also face competition from grower
cooperatives and foreign government sponsored producers.
Competition in the various markets in which we operate is
affected by reliability of supply, product quality, brand
recognition and perception, price and the ability to satisfy
changing customer preferences through innovative product
offerings.
Employees
During fiscal year 2007, we had on average approximately
45,000 full-time permanent employees and
42,000 full-time seasonal or temporary employees,
worldwide. Approximately 33% of our employees work under
collective bargaining agreements, some of which expire in 2008,
subject to automatic renewals unless a notice of non-extension
is given by the union or us. We have not received any notice yet
that a union intends not to extend a collective bargaining
agreement. We believe our relations with our employees are
generally good.
Trademark
Licenses
In connection with the sale of the majority of our juice
business to Tropicana Products, Inc. in May of 1995, we received
cash payments up front and granted to Tropicana a license,
requiring no additional future royalty payments, to use certain
DOLE trademarks on certain beverage products. We continue to
market DOLE canned pineapple juice and pineapple juice blend
beverages. We have a number of additional license arrangements
worldwide, none of which is material to Dole and its
subsidiaries, taken as a whole.
Research
and Development
Our research and development programs concentrate on sustaining
the productivity of our agricultural lands, food safety,
nutrition science, product quality, value-added product
development and packaging design. Agricultural research is
directed toward sustaining and improving product yields and
product quality by examining and improving agricultural
practices in all phases of production (such as development of
specifically adapted plant varieties, land preparation,
fertilization, cultural practices, pest and disease control,
post-harvesting, handling, packing and shipping procedures), and
includes
on-site
technical services and the implementation and monitoring of
recommended agricultural practices. Research efforts are also
directed towards integrated pest management and biological pest
control. We developed specialized machinery for various phases
of agricultural production and packaging that reduces labor
costs, increases efficiency and improves product quality. We
conduct agricultural research at field facilities primarily in
California, Hawaii, Latin America and Asia. We also sponsor
research related to environmental improvements and the
protection of worker and community health. The aggregate amounts
we spent on research and development in each of the last three
years have not been material in any of such years.
Food
Safety
Dole is undertaking strong measures to improve food safety. We
spearheaded the industry-wide Leafy Greens Marketing Agreement
in California and the pending Agreement in Arizona. We developed
and adopted enhanced Good Agricultural Practices, which include
raw material testing in the fields, expanded buffer zones and
increased water testing. We also use radio-frequency
identification (RFID) tags to track leafy greens as they move
from fields to trucks and through processing.
Dole salad plants are sanitized and inspected daily. We wash our
leafy greens three times in chilled, purified water that
includes anti-bacterial chlorine exposure before thorough
rinsing.
Our approach to food safety also includes teaching consumers
about how nutrition can help fortify the body against bacterial
infection.
Environmental
and Regulatory Matters
Our agricultural operations are subject to a broad range of
evolving environmental laws and regulations in each country in
which we operate. In the United States, these laws and
regulations include the Food Quality Protection
Act of 1996, the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Federal Insecticide,
Fungicide and Rodenticide Act and the Comprehensive
Environmental Response, Compensation and Liability Act.
Compliance with these foreign and domestic laws and related
regulations is an ongoing process that is not currently expected
to have a material effect on our capital expenditures, earnings
or competitive position. Environmental concerns are, however,
inherent in most major agricultural operations, including those
conducted by us, and there can be no assurance that the cost of
compliance with environmental laws and regulations will not be
material. Moreover, it is possible that future developments,
such as increasingly strict environmental laws and enforcement
policies thereunder, and further restrictions on the use of
agricultural chemicals, could result in increased compliance
costs.
Our food operations are also subject to regulations enforced by,
among others, the U.S. Food and Drug Administration and
state, local and foreign counterparts and to inspection by the
U.S. Department of Agriculture and other federal, state,
local and foreign environmental, health and safety authorities.
The U.S. Food and Drug Administration enforces statutory
standards regarding the labeling and safety of food products,
establishes ingredients and manufacturing procedures for certain
foods, establishes standards of identity for foods and
determines the safety of food substances in the United States.
Similar functions are performed by state, local and foreign
governmental entities with respect to food products produced or
distributed in their respective jurisdictions.
In the United States, portions of our fresh fruit and vegetable
farm properties are irrigated by surface water supplied by local
government agencies using facilities financed by federal or
state agencies, as well as from underground sources. Water
received through federal facilities is subject to acreage
limitations under the 1982 Reclamation Reform Act. Worldwide,
the quantity and quality of water supplies varies depending on
weather conditions and government regulations. We believe that
under normal conditions these water supplies are adequate for
current production needs.
Legal
Proceedings
See Item 3, Legal Proceedings, in this
Form 10-K.
Trade
Issues
Our foreign operations are subject to risks of expropriation,
civil disturbances, political unrest, increases in taxes and
other restrictive governmental policies, such as import quotas.
Loss of one or more of our foreign operations could have a
material adverse effect on our operating results. We strive to
maintain good working relationships in each country in which we
operate. Because our operations are a significant factor in the
economies of certain countries, our activities are subject to
intense public and governmental scrutiny and may be affected by
changes in the status of the host economies, the makeup of the
government or public opinion in a particular country.
The European Union (“EU”) maintains banana regulations
that impose tariffs on bananas. On January 1, 2006, the EU
implemented a “tariff only” import regime for bananas.
The 2001 EC/US Understanding on Bananas required the EU to
implement a tariff only banana import system on or before
January 1, 2006, and the EU’s banana regime change was
therefore expected by that date.
Banana imports from Latin America are subject to a tariff of 176
euro per metric ton for entry into the EU market. Under the
EU’s previous banana regime, banana imports from Latin
America were subject to a tariff of 75 euro per metric ton
and were also subject to import license requirements and volume
quotas. License requirements and volume quotas had the effect of
limiting access to the EU banana market.
Although all Latin bananas are subject to a tariff of 176 euro
per metric ton, up to 775,000 metric tons of bananas from
African, Caribbean, and Pacific (“ACP”) countries may
be imported to the EU duty-free. This preferential treatment of
a zero tariff on up to 775,000 tons of ACP banana imports, as
well as the 176 euro per metric ton tariff applied to Latin
banana imports, has been challenged by Panama, Honduras,
Nicaragua, and Colombia in consultation proceedings at the World
Trade Organization (“WTO”). In addition, both Ecuador
and the United States formally requested the WTO Dispute
Settlement Body (“DSB”) to appoint panels to review
the
matter. In preliminary rulings on December 10, 2007 and
February 6, 2008, the DSB has ruled against the EU and in
favor of Ecuador and the United States, respectively. The DSB
issued a final ruling maintaining the preliminary findings in
favor of the United States on February 29, 2008. This final
ruling is expected to be made public in March, after which the
EU will have 60 days to decide whether to appeal the
ruling. The final decision with respect to Ecuador’s case
is also not yet publicly available.
The current tariff applied to Latin banana imports may be
lowered and the ACP preference of a zero tariff may be affected
depending on the final outcome of these WTO proceedings. The
Company encourages efforts to lower the tariff through
negotiations with the EU.
Exports of our products to certain countries or regions are
subject to various restrictions that may be increased or reduced
in response to international economic, currency and political
factors, thus affecting our ability to compete in these markets.
We distribute our products in more than 90 countries throughout
the world. Our international sales are usually transacted in
U.S. dollars and major European and Asian currencies, while
certain costs are incurred in currencies different from those
that are received from the sale of products. Results of
operations may be affected by fluctuations in currency exchange
rates in both the sourcing and selling locations.
Seasonality
Our sales volumes remain relatively stable throughout the year.
We experience seasonal earnings characteristics, predominantly
in the fresh fruit segment, because fresh fruit prices
traditionally are lower in the second half of the year, when
summer fruits are in the markets. Our packaged foods and
fresh-cut flowers segments experience peak demand during certain
well-known holidays and observances; the impact is less than in
the fresh fruit segment.
Item 1A.
Risk
Factors
RISK
FACTORS
In addition to the risk factors described elsewhere in this
Form 10-K,
you should consider the following risk factors. The risks and
uncertainties described below are not the only ones facing our
company. Additional risks and uncertainties not presently known
or that we currently believe to be less significant may also
adversely affect us.
Adverse
weather conditions and crop disease can impose costs on our
business.
Fresh produce, including produce used in canning and other
packaged food operations, is vulnerable to adverse weather
conditions, including windstorms, floods, drought and
temperature extremes, which are quite common but difficult to
predict. Unfavorable growing conditions can reduce both crop
size and crop quality. In extreme cases, entire harvests may be
lost in some geographic areas. These factors can increase costs,
decrease revenues and lead to additional charges to earnings,
which may have a material adverse effect on our business,
results of operations and financial condition.
Fresh produce is also vulnerable to crop disease and to pests,
which may vary in severity and effect, depending on the stage of
production at the time of infection or infestation, the type of
treatment applied and climatic conditions. For example, black
sigatoka is a fungal disease that affects banana cultivation in
most areas where they are grown commercially. The costs to
control this disease and other infestations vary depending on
the severity of the damage and the extent of the plantings
affected. These infestations can increase costs, decrease
revenues and lead to additional charges to earnings, which may
have a material adverse effect on our business, results of
operations and financial condition.
Our
business is highly competitive and we cannot assure you that we
will maintain our current market share.
Many companies compete in our different businesses. However,
only a few well-established companies operate on both a national
and a regional basis with one or several branded product lines.
We face strong competition from these and other companies in all
our product lines.
Important factors with respect to our competitors include the
following:
•
Some of our competitors may have greater operating flexibility
and, in certain cases, this may permit them to respond better to
changes in the industry or to introduce new products and
packaging more quickly and with greater marketing support.
•
Several of our packaged food product lines are sensitive to
competition from national or regional brands, and many of our
product lines compete with imports, private label products and
fresh alternatives.
•
We cannot predict the pricing or promotional actions of our
competitors or whether those actions will have a negative effect
on us.
There can be no assurance that we will continue to compete
effectively with our present and future competitors, and our
ability to compete could be materially adversely affected by our
leveraged position. See “Business —
Competition.”
Our
earnings are sensitive to fluctuations in market prices and
demand for our products.
Excess supplies often cause severe price competition in our
industry. Growing conditions in various parts of the world,
particularly weather conditions such as windstorms, floods,
droughts and freezes, as well as diseases and pests, are primary
factors affecting market prices because of their influence on
the supply and quality of product.
Fresh produce is highly perishable and generally must be brought
to market and sold soon after harvest. Some items, such as
lettuce, must be sold more quickly, while other items can be
held in cold storage for longer periods of time. The selling
price received for each type of produce depends on all of these
factors, including the availability and quality of the produce
item in the market, and the availability and quality of
competing types of produce.
In addition, general public perceptions regarding the quality,
safety or health risks associated with particular food products
could reduce demand and prices for some of our products. To the
extent that consumer preferences evolve away from products that
we produce for health or other reasons, and we are unable to
modify our products or to develop products that satisfy new
consumer preferences, there will be a decreased demand for our
products. However, even if market prices are unfavorable,
produce items which are ready to be, or have been, harvested
must be brought to market promptly. A decrease in the selling
price received for our products due to the factors described
above could have a material adverse effect on our business,
results of operations and financial condition.
Our
earnings are subject to seasonal variability.
Our earnings may be affected by seasonal factors, including:
•
the seasonality of our supplies and consumer demand;
•
the ability to process products during critical harvest
periods; and
•
the timing and effects of ripening and perishability.
Although banana production tends to be relatively stable
throughout the year, banana pricing is seasonal because bananas
compete against other fresh fruit that generally comes to market
beginning in the summer. As a result, banana prices are
typically higher during the first half of the year. Our fresh
vegetables segment experiences some seasonality as reflected by
higher earnings in the first half of the year. Also, there is a
seasonal aspect to our fresh-cut flower business, with peak
demand generally around Valentine’s Day and Mother’s
Day.
Currency
exchange fluctuations may impact the results of our
operations.
We distribute our products in more than 90 countries throughout
the world. Our international sales are usually transacted in
U.S. dollars, and European and Asian currencies. Our
results of operations are affected by fluctuations in currency
exchange rates in both sourcing and selling locations. Although
we enter into foreign currency exchange forward contracts from
time to time to reduce our risk related to currency exchange
fluctuation, our results of operations might still be impacted
by foreign currency exchange rates, primarily the
yen-to-U.S. dollar and euro-to-U.S. dollar exchange
rates. For instance, we currently estimate that a 10%
strengthening of the U.S. dollar relative to the Japanese
yen, euro and Swedish krona would lower operating income by
approximately $60 million excluding the impact of foreign
currency exchange hedges. Because we do not hedge against all of
our foreign currency exposure, our business will continue to be
susceptible to foreign currency fluctuations.
We face
risks related to our former use of the pesticide DBCP.
We formerly used dibromochloropropane, or DBCP, a nematocide
that was used on a variety of crops throughout the world. The
registration for DBCP with the U.S. government was
cancelled in 1979 based in part on an apparent link to male
sterility among chemical factory workers who produced DBCP.
There are a number of pending lawsuits in the United States and
other countries against the manufacturers of DBCP and the
growers, including us, who used it in the past. The cost to
defend or settle these lawsuits, and the costs to pay any
judgments or settlements resulting from these lawsuits, or other
lawsuits which might be brought, could have a material adverse
effect on our business, financial condition or results of
operations. See Item 3, Legal Proceedings, in this
Form 10-K.
Our
substantial indebtedness could adversely affect our operations,
including our ability to perform our obligations under the notes
and our other debt obligations.
We have a substantial amount of indebtedness. As of
December 29, 2007, we had approximately $1.14 billion
in senior secured indebtedness and other structurally senior
indebtedness, $1.11 billion in senior unsecured
indebtedness, including outstanding senior notes and debentures,
$81 million in unsecured notes payable and approximately
$86 million in capital leases.
The Company has $350 million of unsecured senior notes
maturing May 1, 2009. The Company is currently evaluating
its available options to refinance the notes.
Our substantial indebtedness could have important consequences.
For example, it could:
•
make it more difficult for us to satisfy our obligations;
•
require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, which would
reduce the availability of our cash flow to fund future working
capital, capital expenditures, acquisitions and other general
corporate purposes;
•
expose us to the risk of increased interest rates, as certain of
our borrowings are at variable rates of interest;
•
require us to sell assets (beyond those assets currently
classified as “assets held-for-sale”) to reduce
indebtedness or influence our decisions about whether to do so;
•
increase our vulnerability to general adverse economic and
industry conditions;
•
limit our flexibility in planning for, or reacting to, changes
in our business and the industries in which we operate;
•
restrict us from making strategic acquisitions or pursuing
business opportunities;
•
place us at a competitive disadvantage compared to our
competitors that have relatively less indebtedness; and
•
limit, along with the restrictive covenants in our credit
facilities and senior notes indentures, among other things, our
ability to borrow additional funds. Failing to comply with those
covenants could result in an event
of default which, if not cured or waived, could have a material
adverse effect on our business, financial condition and results
of operations.
The
financing arrangements for the going-private merger transactions
may increase our exposure to tax liability.
A portion of our senior secured credit facility has been
incurred by our foreign subsidiaries and was used to fund the
going-private merger transactions. Although we believe, based in
part upon the advice of our tax advisors, that our intended tax
treatment of such transactions is appropriate, it is possible
that the Internal Revenue Service could seek to characterize the
going-private merger transactions in a manner that could result
in the immediate recognition of taxable income by us. Any such
immediate recognition of taxable income would result in a
material tax liability, which could have a material adverse
effect on our business, results of operations and financial
condition.
Restrictive
covenants in our debt instruments restrict or prohibit our
ability to engage in or enter into a variety of transactions,
which could adversely affect us.
The indentures governing our senior notes due 2009, our senior
notes due 2010, our senior notes due 2011, our debentures due
2013 and our senior secured credit facilities contain various
restrictive covenants that limit our discretion in operating our
business. In particular, these agreements limit our ability to,
among other things:
•
incur additional indebtedness;
•
make restricted payments (including paying dividends on,
redeeming or repurchasing our capital stock);
merge, consolidate or transfer substantially all of our
assets; and
•
transfer and sell assets.
These covenants could have a material adverse effect on our
business by limiting our ability to take advantage of financing,
merger and acquisition or other corporate opportunities and to
fund our operations. Any future debt could also contain
financial and other covenants more restrictive than those
imposed under the indentures governing our senior notes due
2009, our senior notes due 2010, our senior notes due 2011, our
debentures due 2013 and our senior secured credit facilities.
A breach of a covenant or other provision in any debt instrument
governing our current or future indebtedness could result in a
default under that instrument and, due to cross-default and
cross-acceleration provisions, could result in a default under
our other debt instruments. Upon the occurrence of an event of
default under the senior secured credit facility or any other
debt instrument, the lenders could elect to declare all amounts
outstanding to be immediately due and payable and terminate all
commitments to extend further credit. If we 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 our current or future indebtedness accelerate the
payment of the indebtedness, we cannot assure you that our
assets or cash flow would be sufficient to repay in full our
outstanding indebtedness.
We face
other risks in connection with our international
operations.
Our operations are heavily dependent upon products grown,
purchased and sold internationally. In addition, our operations
are a significant factor in the economies of many of the
countries in which we operate, increasing our visibility and
susceptibility to regulatory changes. These activities are
subject to risks that are inherent in operating in foreign
countries, including the following:
•
foreign countries could change laws and regulations or impose
currency restrictions and other restraints;
in some countries, there is a risk that the government may
expropriate assets;
•
some countries impose burdensome tariffs and quotas;
•
political changes and economic crises may lead to changes in the
business environment in which we operate;
•
international conflict, including terrorist acts, could
significantly impact our business, financial condition and
results of operations;
•
in some countries, our operations are dependent on leases and
other agreements; and
•
economic downturns, political instability and war or civil
disturbances may disrupt production and distribution logistics
or limit sales in individual markets.
Banana imports from Latin America are subject to import license
requirements and a tariff of 176 euro per metric ton for entry
into the EU market. Under the EU’s previous banana regime,
banana imports from Latin America were subject to a tariff
of 75 euro per metric ton and were also subject to both import
license requirements and volume quotas. These license
requirements and volume quotas had the effect of limiting access
to the EU banana market. The increase in the applicable tariff
and the elimination of the volume restrictions applicable to
Latin American bananas may increase volatility in the market,
which could materially adversely affect our business, results of
operations or financial condition. See Item 7,
Management’s Discussion and Analysis of Financial Condition
and Results of Operation — Other Matters.
In 2005, the Company 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 the Company’s interest in
Cervecería Hondureña, S.A in 2001. The Company has
been contesting the tax assessment. See Item 3, Legal
Proceedings.
Terrorism
and the uncertainty of war may have a material adverse effect on
our operating results.
Terrorist attacks, such as the attacks that occurred in New York
and Washington, D.C. on September 11, 2001, the
subsequent response by the United States in Afghanistan, Iraq
and other locations, and other acts of violence or war in the
United States or abroad may affect the markets in which we
operate and our operations and profitability. From time to time
in the past, our operations or personnel have been the targets
of terrorist or criminal attacks, and the risk of such attacks
impacts our operations and results in increased security costs.
Further terrorist attacks against the United States or operators
of United States-owned businesses outside the United States may
occur, or hostilities could develop based on the current
international situation. The potential near-term and long-term
effect these attacks may have on our business operations, our
customers, the markets for our products, the United States
economy and the economies of other places we source or sell our
products is uncertain. The consequences of any terrorist
attacks, or any armed conflicts, are unpredictable, and we may
not be able to foresee events that could have an adverse effect
on our markets or our business.
Our
worldwide operations and products are highly regulated in the
areas of food safety and protection of human health and the
environment.
Our worldwide operations are subject to a broad range of
foreign, federal, state and local environmental, health and
safety laws and regulations, including laws and regulations
governing the use and disposal of pesticides and other
chemicals. These regulations directly affect day-to-day
operations, and violations of these laws and regulations can
result in substantial fines or penalties. There can be no
assurance that these fines or penalties would not have a
material adverse effect on our business, results of operations
and financial condition. To maintain compliance with all of the
laws and regulations that apply to our operations, we have been
and may be required in the future to modify our operations,
purchase new equipment or make capital improvements. Actions by
regulators may require operational modifications or capital
improvements at various locations. Further, we may recall a
product (voluntarily or otherwise) if we or the regulators
believe it presents a potential risk. In addition, we have been
and in the future may become subject to private lawsuits
alleging that our operations caused personal injury or property
damage.
We are
subject to the risk of product liability claims.
The sale of food products for human consumption involves the
risk of injury to consumers. Such injuries may result from
tampering by unauthorized third parties, product contamination
or spoilage, including the presence of foreign objects,
substances, chemicals, other agents, or residues introduced
during the growing, storage, handling or transportation phases.
We have from time to time been involved in product liability
lawsuits, none of which were material to our business. While we
are subject to governmental inspection and regulations and
believe our facilities comply in all material respects with all
applicable laws and regulations, we cannot be sure that
consumption of our products will not cause a health-related
illness in the future or that we will not be subject to claims
or lawsuits relating to such matters. Even if a product
liability claim is unsuccessful or is not fully pursued, the
negative publicity surrounding any assertion that our products
caused illness or injury could adversely affect our reputation
with existing and potential customers and our corporate and
brand image. Moreover, claims or liabilities of this sort might
not be covered by our insurance or by any rights of indemnity or
contribution that we may have against others. We maintain
product liability insurance in an amount that we believe is
adequate. However, we cannot be sure that we will not incur
claims or liabilities for which we are not insured or that
exceed the amount of our insurance coverage.
We are
subject to transportation risks.
An extended interruption in our ability to ship our products
could have a material adverse effect on our business, financial
condition and results of operations. Similarly, any extended
disruption in the distribution of our products could have a
material adverse effect on our business, financial condition and
results of operations. While we believe we are adequately
insured and would attempt to transport our products by
alternative means if we were to experience an interruption due
to strike, natural disaster or otherwise, we cannot be sure that
we would be able to do so or be successful in doing so in a
timely and cost-effective manner.
The use
of herbicides and other hazardous substances in our operations
may lead to environmental damage and result in increased costs
to us.
We use herbicides and other hazardous substances in the
operation of our business. We may have to pay for the costs or
damages associated with the improper application, accidental
release or the use or misuse of such substances. Our insurance
may not be adequate to cover such costs or damages or may not
continue to be available at a price or under terms that are
satisfactory to us. In such cases, payment of such costs or
damages could have a material adverse effect on our business,
results of operations and financial condition.
Events or
rumors relating to the DOLE brand could significantly impact our
business.
Consumer and institutional recognition of the DOLE trademarks
and related brands and the association of these brands with high
quality and safe food products are an integral part of our
business. The occurrence of any events or rumors that cause
consumers
and/or
institutions to no longer associate these brands with high
quality and safe food products may materially adversely affect
the value of the DOLE brand name and demand for our products. We
have licensed the DOLE brand name to several affiliated and
unaffiliated companies for use in the United States and abroad.
Acts or omissions by these companies over which we have no
control may also have such adverse effects.
A portion
of our workforce is unionized and labor disruptions could
decrease our profitability.
As of December 29, 2007, approximately 4,800 of our
employees in the United States worked under various collective
bargaining agreements. Some of our collective bargaining
agreements will expire in fiscal 2008, although each agreement
is subject to automatic renewal unless we or the union party to
the agreement provides notice otherwise. Our other collective
bargaining agreements will expire in later years. While we
believe that our relations with our employees are good, we
cannot assure you that we will be able to negotiate these or
other collective bargaining agreements on the same or more
favorable terms as the current agreements, or at all, and
without production interruptions, including labor stoppages. A
prolonged labor dispute, which could include a work
stoppage, could have a material adverse effect on the portion of
our business affected by the dispute, which could impact our
business, results of operations and financial condition.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
(Cautionary Statements Under the Private Securities Litigation
Reform Act of 1995)
Some of the information included in this
Form 10-K
and other materials filed or to be filed by us with the
Commission contains or may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts and may include the words
“may,”“will,”“could,”“should,”“would,”“believe,”“expect,”“anticipate,”“estimate,”“intend,”“plan” or
other words or expressions of similar meaning. We have based
these forward-looking statements on our current expectations
about future events. The forward-looking statements include
statements that reflect management’s beliefs, plans,
objectives, goals, expectations, anticipations and intentions
with respect to our financial condition, results of operations,
future performance and business, including statements relating
to our business strategy and our current and future development
plans.
The potential risks and uncertainties that could cause our
actual financial condition, results of operations and future
performance to differ materially from those expressed or implied
in this
Form 10-K
include those set forth under the heading “Risk
Factors” in Item 1A.
We urge you to review carefully this
Form 10-K,
particularly the section “Risk Factors,” for a more
complete discussion of the risks to our business.
From time to time, oral or written forward-looking statements
are also included in our reports on
Forms 10-K,
10-Q and
8-K, press
releases and other materials released to the public. Although we
believe that at the time made, the expectations reflected in all
of these forward-looking statements are and will be reasonable,
any or all of the forward-looking statements in this
Form 10-K,
our reports on
Forms 10-K,
10-Q and
8-K and any
other public statements that are made by us may prove to be
incorrect. This may occur as a result of inaccurate assumptions
or as a consequence of known or unknown risks and uncertainties.
Many factors discussed in this
Form 10-K,
certain of which are beyond our control, will be important in
determining our future performance. Consequently, actual results
may differ materially from those that might be anticipated from
forward-looking statements. In light of these and other
uncertainties, you should not regard the inclusion of a
forward-looking statement in this
Form 10-K,
or other public communications that we might make, as a
representation by us that our plans and objectives will be
achieved, and you should not place undue reliance on such
forward-looking statements.
Item 1B.
Unresolved
Staff Comments
None.
Item 2.
Properties
The following is a description of our significant properties.
North
America
We own our executive office facility in Westlake Village,
California and a divisional office in Miami, Florida. We also
maintain a divisional office in Monterey, California, which is
leased from an affiliate.
Our Hawaii operations are located on the island of Oahu and
total approximately 28,000 acres, which we own. Of the
total acres owned, we farm pineapples on 2,700 acres and
coffee and cacao on an additional 195 acres. The remaining
acres are leased or are in pastures and forest reserves.
We own approximately 1,300 acres of farmland in California,
and lease approximately 12,600 acres of farmland in
California and 4,300 acres in Arizona in connection with
our vegetable and berry operations. The majority of this acreage
is farmed under joint growing arrangements with independent
growers, while we farm the remainder. We own cooling, packing
and shipping facilities in Marina, Gonzales and Huron,
California. Additionally, we have partnership interests in
facilities in Yuma, Arizona and Salinas, California, and leases
in facilities in the following California cities: Oxnard,
Monterey and Watsonville. We own and operate
state-of-the-art,
ready-to-eat
salad and vegetable plants in Yuma, Arizona, Soledad,
California, Springfield, Ohio and Bessemer City, North Carolina.
We own approximately 2,700 acres of peach orchards in
California, which we farm. We own and operate a plant in
Atwater, California that produces individually quick frozen
fruit and lease a production facility located in Decatur,
Michigan.
We produce almonds from approximately 300 acres, pistachios
from approximately 1,100 acres, olives from approximately
300 acres and citrus from approximately 2,700 acres on
orchards in the San Joaquin Valley through agricultural
partnerships in which we have a controlling interest. We produce
grapes on approximately 500 acres of owned property in the
San Joaquin Valley. At December 29, 2007, all of these
assets have been reclassified as assets held-for-sale.
Our Florida based fresh-cut flowers distribution operates from a
328,000 square foot building, which we own. Approximately
200,000 square feet of this facility is refrigerated. This
facility has also been reclassified as an asset held-for-sale at
December 29, 2007. Our fresh-cut flowers business also
operates a cooling and distribution facility in the Miami area,
which we own. In addition, we operate a leased distribution
facility in Los Angeles, California.
Latin
America
We own offices in San Jose, Costa Rica, Bogota and Santa
Marta, Colombia and La Ceiba, Honduras. We also lease
offices in Chile, Costa Rica, Ecuador and Guatemala.
We produce bananas directly from owned plantations in Costa
Rica, Colombia, Ecuador and Honduras as well as through
associated producers or independent growing arrangements in
those countries and others, including Guatemala. We own
approximately 3,100 acres in Colombia, 36,000 acres in
Costa Rica, 3,800 acres in Ecuador and 30,000 acres in
Honduras, all related to banana production, although some of the
acreage is not presently under production.
We own approximately 6,900 acres of land in Honduras,
8,000 acres of land in Costa Rica and 3,000 acres of
land in Ecuador, all related to pineapple production, although
some of the acreage is not presently under production. We also
own a juice concentrate plant in Honduras for pineapple and
citrus. Pineapple is grown primarily for the fresh produce
market.
We grow grapes, stone fruit, kiwi and pears on approximately
3,200 acres owned or leased by us in Chile. We own or
operate 10 packing and cold storage facilities, a corrugated box
plant and a wooden box plant in Chile. In addition, we operate a
fresh-cut salad plant and a small local fruit distribution
company in Chile. We own or operate a packing and cooling plant
and a local fruit distribution company in Argentina.
We also own and operate corrugated box plants in Colombia, Costa
Rica, Ecuador and Honduras.
We indirectly own 35% of Bananapuerto, an Ecuadorian port, and
operate the port pursuant to a port services agreement, the term
of which is up to 30 years.
Dole Latin America operates a fleet of seven refrigerated
container ships, of which four are owned, two are under
long-term capital leases and one is long-term chartered. In
addition, Dole Latin America operates a fleet of
18 breakbulk refrigerated ships, of which nine are owned,
eight are long-term chartered and one is chartered for one year.
One of these ships was sold during the first quarter of 2008. We
also cover part of our requirements under contracts with
existing liner services and occasionally charter vessels for
short periods on a time or voyage basis as and when required. We
own or lease approximately 15,000 refrigerated containers, 2,000
dry containers, 5,800 chassis and 4,500 generator sets
worldwide.
We produce flowers on approximately 900 acres in Colombia.
We own and operate packing and cooling facilities at each of our
flower farms and lease a facility in Bogota, Colombia for
bouquet construction.
We operate a pineapple plantation of approximately 34,000 leased
acres in the Philippines. Approximately 19,000 acres of the
plantation are leased to us by a cooperative of our employees
that acquired the land pursuant to agrarian reform law. The
remaining 15,000 acres are leased from individual land
owners. Two multi-fruit canneries, a blast freezer, cold
storage, a juice concentrate plant, a box forming plant, a can
and drum manufacturing plant, warehouses, wharf and a fresh
fruit packing plant, each owned by us, are located at or near
the pineapple plantation.
We own and operate a tropical fruit cannery and a multi-fruit
processing factory in central Thailand and a second tropical
fruit cannery in southern Thailand. Dole also grows pineapple in
Thailand on approximately 3,800 acres of owned land, not
all of which are currently under cultivation.
We produce bananas and papaya from 33,000 acres of leased
land in the Philippines and also source these products through
associated producers or independent growing arrangements in the
Philippines. A plastic extruding plant and a box forming plant,
both owned by us, are located near the banana plantations. We
also operate banana ripening and distribution centers in Hong
Kong, South Korea, Taiwan, The People’s Republic of China
and the Philippines.
Bananas are also grown on 800 acres of leased land in
Australia.
Additionally, we source products from over 1,200 Japanese
farmers through independent growing arrangements.
Europe
We maintain our European headquarters in Paris, France and have
major regional offices in Antwerp, Belgium, Prague, Czech
Republic, Dartford, England, Rungis, France, Hamburg, Germany,
Lübeck, Germany, Milan, Italy, Madrid, Spain, Athens,
Greece, Helsingborg, Sweden and Cape Town, South Africa, which
are leased from third parties.
We operate and own two banana ripening, produce and flower
distribution centers in Sweden, three facilities in France, two
facilities in Spain, two facilities in Germany, two facilities
in England, one facility in Turkey and one facility in Italy. We
also operate and lease five banana ripening, produce and flower
distribution centers in Sweden, six in France, three in Spain,
one in Portugal, four in Italy, one in Belgium, one in Austria,
two in Germany, and one in England. We have a minority interest
in a French company that owns a majority interest in banana and
pineapple plantations in Cameroon, Ghana and the Ivory Coast. We
are also the majority owner in a company operating a port
terminal and distribution facility in Livorno, Italy.
In addition, we wholly-own Saba Fresh Cuts AB, which owns and
operates a state-of-the-art, ready-to-eat salad and vegetable
plant in Helsingborg, Sweden.
Item 3.
Legal
Proceedings
The Company is involved from time to time in claims and legal
actions incidental to its operations, both as plaintiff and
defendant. The Company 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 the Company is a party are not
expected to have a material adverse effect, individually or in
the aggregate, on the Company’s financial condition or
results of operations.
A significant portion of the Company’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. The Company and other growers applied DBCP on
banana farms in
Latin America and the Philippines and on pineapple farms in
Hawaii. Specific periods of use varied among the different
locations. The Company 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 444 lawsuits, in various stages of
proceedings, alleging injury as a result of exposure to DBCP,
seeking enforcement of Nicaraguan judgments, or seeking to bar
Dole’s efforts to resolve DBCP claims in Nicaragua.
Twenty-two of these lawsuits are currently pending in various
jurisdictions in the United States. Of the 22
U.S. lawsuits, nine have been brought by foreign workers
who allege exposure to DBCP in countries where Dole did not have
operations during the relevant time period. 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, the
damages against Dole have now been 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. Judgment is expected to be
entered on March 31, 2008. The remaining cases are pending
in Latin America and the Philippines, including 212 labor cases
pending in Costa Rica under that country’s national
insurance program. Claimed damages in DBCP cases worldwide total
approximately $42.3 billion, with lawsuits in Nicaragua
representing approximately 85% of this amount. In almost all of
the non-labor cases, the Company is a joint defendant with the
major DBCP manufacturers and, typically, other banana growers.
Except as described below, none of these lawsuits has resulted
in a verdict or judgment against the Company.
In Nicaragua, 189 cases are currently filed in various courts
throughout the country, with all but one of the lawsuits 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.
Twenty-four 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, 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; and
$38.4 million (one case with 192 claimants) on
November 14, 2007. The Company has appealed all judgments,
with the Company’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.
There are 26 active cases currently pending in civil courts in
Managua (15), Chinandega (10) and Puerto Cabezas (1), all
of which have been brought under Law 364 except for one of the
cases pending in Chinandega. In the 25 active cases under Law
364, except for six cases in Chinandega and five cases in
Managua, where the Company has not yet been ordered to answer,
the Company has sought to have the cases returned to the
United States pursuant to Law 364. A Chinandega court in
one case has ordered the plaintiffs to respond to our request.
In the other 2 active cases under Law 364 pending there, the
Chinandega courts have denied the Company’s requests; and
the court in Puerto Cabezas has denied the Company’s
request in the one case there. The Company’s requests in
ten of the cases in Managua are still pending; and the Company
expects to make similar requests in the remaining five cases at
the appropriate time. The Company has appealed the decision of
the court in Puerto Cabezas and the 2 decisions of the
courts in Chinandega.
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.
Claimants have also indicated their intent to seek enforcement
of the Nicaraguan judgments in Colombia, Ecuador, Venezuela and
other countries in Latin America and elsewhere, including the
United States. There is one case pending in Federal District
Court in Miami, Florida seeking enforcement of the
August 8, 2005 $98.5 million Nicaraguan judgment. 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). These cases are
currently inactive. 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.
The Company 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 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 the agricultural chemical 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, the Company 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 other 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.
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 the Company’s financial
condition or results of operations.
European Union Antitrust Inquiry and
U.S. Class Action Lawsuits: On
July 25, 2007, the Company was informed that the European
Commission (“EC”) had adopted a Statement of
Objections against the Company, and other unrelated banana
companies, alleging violations of the European competition
(antitrust) laws by the banana companies within the European
Economic Area (EEA). This Statement of Objections follows
searches carried out by the European Commission in June 2005 at
certain banana importers and distributors, including two of the
Company’s offices. Recently, on November 28 and 29, 2007,
the EC conducted searches of certain of the Company’s
offices in Italy and Spain, as well of other companies’
offices located in these countries.
A Statement of Objections is a procedural step in the EC’s
antitrust investigation, in which the EC communicates its
preliminary view with respect to a possible infringement of
European competition laws. The EC will review Dole’s
written and oral responses to the Statement of Objections in
order to determine whether to issue a final Decision. Any
Decision (including any fines that may be assessed under the
Decision) will be subject to appeal to the European Court of
First Instance and the European Court of Justice. The Company
continues to cooperate with the EC in order to provide the
Commission with a full and transparent understanding of the
banana
market. Although no assurances can be given concerning the
course or outcome of the EC investigation, the Company believes
that it has not violated the European competition laws.
Following the public announcement of the EC searches, a number
of class action lawsuits were filed against the Company and
three competitors in the U.S. District Court for the
Southern District of Florida. The lawsuits were filed on behalf
of entities that directly or indirectly purchased bananas from
the defendants and were consolidated into two separate putative
class action lawsuits: one by direct purchasers (customers); and
another by indirect purchasers (those who purchased bananas from
customers). On June 26, 2007, Dole entered into settlement
agreements resolving these putative consolidated class action
lawsuits filed by the direct purchasers and indirect purchasers.
The Court entered final judgment orders approving the settlement
agreements on November 21, 2007. The direct purchaser
settlement is now completed. The indirect purchaser agreement is
currently under appeal by a single party. The Company did not
admit any wrongdoing in these settlements and continues to
believe they were totally without merit; however, the Company
elected to settle these lawsuits to bring a final conclusion to
this litigation, which had been ongoing since 2005. Neither
settlement will have a material adverse effect on the
Company’s financial condition or results of operations.
Honduran Tax Case: In 2005, the Company
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 the Company’s interest in
Cervecería Hondureña, S.A in 2001. The Company
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, the Company
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 Honduran government is
seeking dismissal of the lawsuit and attachment of assets, which
the Company is challenging. 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 is now challenging
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 the Company’s financial condition or results of
operations.
Hurricane Katrina Cases: Dole is one of a
number of parties sued, including the Mississippi State Port
Authority as well as other third-party terminal operators, in
connection with the August 2005 Hurricane Katrina. The
plaintiffs assert that they suffered property damage because of
the defendants’ alleged failure to reasonably secure
shipping containers at the Gulfport, Mississippi port terminal
before Hurricane Katrina hit. Dole believes that it took
reasonable precautions and that property damage was due to the
unexpected force of Hurricane Katrina, a Category 5 hurricane
that was one of the costliest disasters in U.S. history.
Dole expects that this Katrina-related litigation will not have
a material adverse effect on its financial condition or results
of operations.
Spinach E. coli Outbreak: On
September 15, 2006, Natural Selection Foods LLC recalled
all packaged fresh spinach that Natural Selection Foods produced
and packaged with Best-If-Used-By dates from August 17 through
October 1, 2006, because of reports of illness due to E.
coli O157:H7 following consumption of packaged fresh spinach
produced by Natural Selection Foods. These packages were sold
under 28 different brand names, only one of which was ours. At
that time, Natural Selection Foods produced and packaged all of
our spinach items. On September 15, 2006, Dole announced
that it supported the voluntary recall issued by Natural
Selection Foods. Dole has no ownership or other economic
interest in Natural Selection Foods.
The U.S. Food and Drug Administration announced on
September 29, 2006 that all spinach implicated in the
current outbreak has traced back to Natural Selection Foods. The
FDA stated that this determination was based on epidemiological
and laboratory evidence obtained by multiple states and
coordinated by the Centers for Disease Control and Prevention.
The trace back investigation has narrowed to four implicated
fields on four ranches. FDA and the State of California
announced October 12, 2006 that the test results for
certain samples collected during the field investigation of the
outbreak of E. coli O157:H7 in spinach were positive for
E. coli O157:H7. Specifically, samples of cattle feces on
one of the implicated ranches tested positive based on matching
genetic fingerprints for the same strain of E. coli
O157:H7 found in the infected persons.
To date, 204 cases of illness due to E. coli O157:H7 infection
have been reported to the Centers for Disease Control and
Prevention (203 in 26 states and one in Canada) including
31 cases involving a type of kidney failure called Hemolytic
Uremic Syndrome (HUS), 104 hospitalizations, and three deaths.
Dole expects that the vast majority of the spinach E. coli
O157:H7 claims will be handled outside the formal litigation
process. Since Natural Selection Foods, not Dole, produced and
packaged the implicated spinach products, Dole has tendered the
defense of these and other claims to Natural Selection Foods and
its insurance carriers and has sought indemnity from Natural
Selection Foods, based on the provisions of the contract between
Dole and Natural Selection Foods. The company (and its insurance
carriers) that grew the implicated spinach for Natural Selection
Foods is involved in the resolution of the E. coli
O157:H7 claims. Dole expects that the spinach E. coli
O157:H7 matter will not have a material adverse effect on
Dole’s financial condition or results of operations.
Item 4.
Submission
of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fiscal quarter ended December 29, 2007.
Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
All 1,000 authorized shares of Dole’s common stock are held
by one stockholder, Dole Holding Company, LLC, which itself is a
direct, wholly-owned subsidiary of DHM Holding Company, Inc., of
which David H. Murdock is the 100% beneficial owner. There are
no other Dole equity securities. There is no market for
Dole’s equity securities.
Additional information required by Item 5 is contained in
Note 13 — Shareholders’ Equity, to
Dole’s Consolidated Financial Statements in this
Form 10-K.
Income (loss) from discontinued operations, net of income taxes
—
2
3
3
(1
)
—
Gain on disposal of discontinued operations, net of income taxes
—
3
—
—
—
—
Net income (loss)
$
(58
)
$
(90
)
$
44
$
135
$
23
$
61
Balance Sheet and Other Information
Working capital
$
694
$
688
$
538
$
425
$
283
$
—
Total assets
4,643
4,612
4,413
4,327
3,990
—
Long-term debt
2,316
2,316
2,001
1,837
1,804
—
Total debt
2,411
2,364
2,027
1,869
1,851
—
Total shareholders’ equity
325
341
623
685
463
—
Cash dividends
—
164
77
20
—
8
Capital additions
107
119
146
102
102
4
Depreciation and amortization
156
149
150
145
107
25
Note: As a result of the going-private merger transaction, the
Company’s Consolidated Financial Statements present the
results of operations, financial position and cash flows prior
to the date of the merger transaction as the
“Predecessor.” The merger transaction and the
Company’s results of operations, financial position and
cash flows thereafter are presented as the
“Successor.” Predecessor results have not been
aggregated with those of the Successor in accordance with
accounting principles generally accepted in the U.S. and
accordingly the Company’s Consolidated Financial Statements
do not show the results of operations or cash flows for the year
ended January 3, 2004.
Discontinued operations for the periods presented relate to the
reclassification of the Company’s North American
citrus and pistachio operations to assets held-for-sale during
2007, the sale of the Company’s Pacific Coast Truck
operations during 2006 and the resolution during 2005 of a
contingency related to the 2001 disposition of the
Company’s interest in Cerveceria Hondureña, S.A.
The Company adopted Financial Accounting Standards Board Staff
Position AUG AIR-1, Accounting For Planned Major Maintenance
Activities (“FSP”) at the beginning of its fiscal
2007 year. The FSP required retrospective application for
all financial statement periods presented. As a result, for all
periods presented, the consolidating statements of operations
and balance sheets have been restated. The Company had been
accruing for planned major maintenance activities associated
with its vessel fleet under the
accrue-in-advance
method. The Company adopted the deferral method of accounting
for planned major maintenance activities associated with its
vessel fleet.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
2007
Overview
For the year ended December 29, 2007, Dole Food Company,
Inc. and its consolidated subsidiaries (“Dole” or the
“Company”) achieved record revenues of
$6.9 billion, reflecting growth of 13% compared to the
prior year. Higher sales were reported in the Company’s
fresh fruit and packaged foods operating segments. The Company
earned operating income of $130 million in 2007, compared
to $79 million earned in 2006. A net loss of
$58 million was reported for 2007 compared to a net loss of
$90 million in 2006.
Revenue growth was fueled by strong banana sales worldwide and
higher sales volumes in the European ripening and distribution
operations due in part to the October 2006 acquisition of the
remaining 65% ownership in JP Fruit Distributors Limited
(renamed JP Fresh) that the Company did not previously own. In
addition, the packaged foods segment had higher pricing and
volumes in its North America and European businesses. Operating
income increased as a result of improved pricing in the
Company’s worldwide banana operations and the absence of
$42 million of restructuring costs incurred during 2006 in
the Company’s fresh-cut flowers and European ripening and
distribution operations. These improvements were partially
offset by higher costs in both the Company’s packaged
salads operations and packaged foods segment. Unfavorable
foreign currency exchange movements, primarily in Dole’s
international sourcing locations also impacted operating income.
Higher commodity costs, primarily fuel and containerboard,
continued to adversely impact operations. Throughout 2007, 2006
and 2005, the Company experienced significant cost increases in
many of the commodities it uses in production, including
tinplate, resin and other agricultural chemicals. In addition,
significantly higher average fuel prices resulted in additional
shipping and distribution costs. On a year-over-year basis,
higher commodity costs impacted operating income by
approximately $37 million and $38 million for the
years ended December 29, 2007 and December 30, 2006,
respectively. In an effort to mitigate the exposure to commodity
cost increases, the Company entered into fuel hedging contracts
and renegotiated certain commodity supply contracts during the
year.
Income from discontinued operations, net of income taxes
433
2,236
2,545
Gain on disposal of discontinued operations, net of income taxes
—
2,814
—
Net income (loss)
(57,506
)
(89,627
)
43,630
Revenues
For the year ended December 29, 2007, revenues increased
13% to $6.9 billion from $6.2 billion in the prior
year. Higher worldwide sales of fresh fruit and packaged foods
products in North America and Europe drove the increase in
revenues during 2007. Higher volumes of bananas and pineapples
accounted for approximately $222 million or 28% of the
overall revenues increase. Higher revenues in the Company’s
European ripening
and distribution operations contributed an additional
$528 million. This increase in the ripening and
distribution business was due to the acquisition of the
remaining 65% ownership in JP Fresh in October 2006 as well as
higher volumes in the Company’s Swedish, Spanish and
Eastern European operations. JP Fresh increased 2007 revenues by
approximately $230 million. Higher sales of packaged foods
products, primarily for FRUIT BOWLS, fruit in plastic jars,
pineapple juice and packaged frozen fruit accounted for
approximately $85 million or 11% of the overall revenues
increase. Favorable foreign currency exchange movements in the
Company’s selling locations also positively impacted
revenues by approximately $171 million. These increases
were partially offset by a reduction in fresh vegetables sales
due to lower volumes of commodity vegetables sold in North
America and Asia. In addition, the Company’s fresh-cut
flowers business reported overall lower sales volumes due
primarily to the changes in the customer base and product
offerings attributable to the implementation of the 2006
restructuring plan.
For the year ended December 30, 2006, revenues increased 6%
to $6.2 billion from $5.8 billion in the prior year.
Significant revenue drivers during 2006 were the higher
worldwide sales of fresh fruit as well as higher sales of
packaged foods products. Higher volumes of bananas and
pineapples accounted for approximately $126 million or 37%
of the overall revenues increase. The Company’s European
ripening and distribution operations also had higher revenues as
a result of the October 2006 acquisition of JP Fresh. The
acquisition generated revenues of approximately $69 million
during the fourth quarter of 2006. Fresh fruit revenues also
benefited from higher volumes of deciduous products sold in
North America. Higher sales of packaged foods products,
primarily for FRUIT BOWLS, canned pineapple and fruit parfaits
also increased revenues by $84 million. Fresh vegetables
sales remained flat as additional sales of commodity vegetables
were offset by a decrease in volumes of packaged salads. The
Company’s fresh-cut flowers business reported overall lower
sales volumes due primarily to the impact of the implementation
of the third quarter 2006 restructuring, partially offset by
higher sales volumes at Valentine’s Day and overall higher
pricing in 2006. Net changes in foreign currency exchange rates
versus the U.S. dollar did not have a significant impact on
consolidated revenues during 2006.
Operating
Income
For the year ended December 29, 2007, operating income was
$130.1 million compared with $79 million in 2006. The
increase was primarily attributable to improved operating
results in the Company’s banana operations worldwide which
benefited from stronger pricing and higher volumes. In addition,
operating income improved in the European ripening and
distribution business and the fresh-cut flowers segment due to
the absence of restructuring costs of $12.8 million and
$29 million, respectively. These improvements were
partially offset by lower earnings in the Company’s
packaged salads business and packaged foods segment primarily
due to higher product costs. Packaged salads operating results
were impacted by higher manufacturing costs due in part to the
opening of a new plant in North Carolina. Packaged foods
operating income was lower due to higher product costs resulting
from higher third party purchased fruit costs in Thailand and
higher commodity costs. Unfavorable foreign currency exchange
movements, principally in Thailand and in the Philippines, also
increased sourcing costs. In addition, all of the Company’s
reporting segments were impacted by higher product, distribution
and shipping costs, due to higher commodity costs. If foreign
currency exchange rates in the Company’s significant
foreign operations during 2007 had remained unchanged from those
experienced in 2006, the Company estimates that its operating
income would have been higher by approximately $15 million,
excluding the impact of hedging. The $15 million is
primarily related to exchange rate movements throughout the
Company’s sourcing locations. Operating income in 2007 also
included realized foreign currency transaction gains of
$7 million and foreign currency hedge losses of
$6 million. The Company also settled early its Philippine
peso and Colombian peso hedges, which generated gains of
$13 million.
For the year ended December 30, 2006, operating income was
$79 million compared with $223.4 million in 2005. The
decrease was primarily attributable to lower operating results
from the Company’s European banana operations, fresh-cut
flowers and packaged salads businesses. These decreases were
partially offset by higher worldwide pineapple earnings, higher
sales volumes and pricing in the packaged foods business and
higher pricing in the North America commodity vegetables
operations. The European banana operations were impacted by
higher purchased fruit costs and distribution costs, due mainly
to the European Union’s (“EU”) new import
tariff-only system, which became effective January 1, 2006.
The Company’s fresh-cut flowers business incurred
$29 million of charges associated with the closing of its
operations in Ecuador, the closing and downsizing of farms in
Colombia,
and the impairment of long-lived assets, trade names and
inventory. In addition, all of the Company’s reporting
segments were impacted by higher product, distribution and
shipping costs, due to higher commodity costs. Unfavorable
foreign currency exchange movements also impacted operating
results. If foreign currency exchange rates in the
Company’s significant foreign operations during 2006 had
remained unchanged from those experienced in 2005, the Company
estimates that its operating income would have been higher by
approximately $28 million, excluding the impacts of
hedging. The $28 million is primarily related to exchange
rate movements in the Company’s sourcing locations.
Operating income in 2006 included realized foreign currency
transaction gains of $4 million. Foreign currency hedges
did not have a significant impact on consolidated operating
income during 2006.
Interest
Income and Other Income (Expense), Net
For the year ended December 29, 2007, interest income
increased slightly to $7.6 million from $7.2 million
in 2006. The slight increase in interest income was primarily
related to higher levels of cash at JP Fresh during 2007.
For the year ended December 30, 2006, interest income
increased to $7.2 million from $6 million in 2005. The
increase was primarily due to interest income earned during the
second quarter of 2006 related to the timing of the borrowings
and repayment of the senior secured credit facilities in
connection with the April 2006 debt refinancing.
Other income (expense), net decreased to income of
$1.8 million in 2007 from income of $15.2 million in
2006. The decrease was due to a reduction in the gain generated
on the Company’s cross currency swap of $22.7 million,
partially offset by a reduction in the foreign currency exchange
loss on the Company’s British pound sterling capital lease
vessel obligation (“vessel obligation”) of
$9.2 million.
Other income (expense), net improved to income of
$15.2 million in 2006 from expense of $5.4 million in
2005. The improvement was due to a decrease in debt-related
expenses of $35.7 million when comparing the April 2006
debt refinancing to the April 2005 refinancing and bond tender
transactions. In addition, the Company recorded a gain of
$24.8 million on its cross currency swap and
$6.5 million on the settlement of its interest rate swap in
April 2006. These increases were partially offset by lower
unrealized foreign currency exchange gains in 2006 versus 2005.
In 2006, the Company recorded $1.5 million of foreign
currency exchange gains due to the repayment of the Japanese yen
denominated term loan (“Yen loan”) compared to
$27.1 million of gains in 2005. In addition, the vessel
obligation generated foreign currency exchange losses of
$10.6 million in 2006 compared to foreign currency exchange
gains of $9.5 million in 2005.
Interest
Expense
Interest expense for the year ended December 29, 2007 was
$194.9 million compared to $174.7 million in 2006. The
increase was primarily related to higher levels of borrowings
during 2007 on the Company’s term loan facilities and the
asset based revolving credit facility.
Interest expense for the year ended December 30, 2006 was
$174.7 million compared to $142.5 million in 2005. The
increase was primarily related to higher levels of borrowings
and higher effective market-based borrowing rates on the
Company’s term loan facilities.
Income
Taxes
The Company recorded $1.1 million of income tax expense on
$55.3 million of pretax losses from continuing operations
for the year ended December 29, 2007, reflecting a (1.9%)
effective income tax rate for the year. Income tax expense
decreased $17.1 million from $18.2 million in 2006
primarily due to a shift in the mix of earnings in foreign
jurisdictions taxed at a lower rate than in the U.S. The
effective tax rate in 2006 was (24.8%). The Company’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. For 2007, the
Company’s income tax provision differs from the
U.S. federal statutory rate applied to the Company’s
pretax losses 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.
Income tax expense for the year ended December 30, 2006
increased $11.8 million from $6.4 million in 2005,
after excluding the impact of the repatriation of certain
foreign earnings of $37.8 million during 2005. The change
in the effective income tax rate in 2006 from the 2005 rate of
7.8% is principally due to
non-U.S. taxable
earnings from operations decreasing by a larger relative
percentage than the associated taxes, including the impact of
the accrual for certain tax-related contingencies required to be
provided on such earnings. For 2006 and 2005, the Company’s
income tax provision differs from the U.S. federal
statutory rate applied to the Company’s pretax income
(loss) 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.
During October 2004, the American Jobs Creation Act of 2004 was
signed into law, adding Section 965 to the Internal Revenue
Code. Section 965 provided a special one-time deduction of
85% of certain foreign earnings that were repatriated under a
domestic reinvestment plan, as defined therein. The effective
federal tax rate on any qualified foreign earnings repatriated
under Section 965 was 5.25%. Taxpayers could elect to apply
this provision to a qualified earnings repatriation made during
calendar year 2005. During the second quarter of 2005, the
Company repatriated $570 million of earnings from its
foreign subsidiaries, of which approximately $489 million
qualified for the 85% dividends received deduction under
Section 965. A tax provision of approximately
$37.8 million for the repatriation of certain foreign
earnings was recorded as income tax for the year ended
December 31, 2005.
For 2007, 2006 and 2005, other than the taxes provided on the
$570 million of repatriated foreign earnings, no
U.S. taxes were provided on unremitted foreign earnings
from operations because such earnings are intended to be
indefinitely invested outside the U.S.
Equity in earnings of unconsolidated subsidiaries for the year
ended December 29, 2007 increased to $1.7 million from
$0.2 million in 2006. The increase was primarily related to
higher earnings generated by one of the Company’s European
investments.
Equity in earnings of unconsolidated subsidiaries for the year
ended December 30, 2006 decreased to $0.2 million from
$6.6 million in 2005. The decrease was primarily related to
lower earnings generated by one of the Company’s European
investments.
Discontinued
Operations
During the fourth quarter of 2007, the Company committed to a
formal plan to divest its citrus and pistachio operations
(“Citrus”) located in central California. The Company
concluded that this business 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”). The Company’s
Consolidated Financial Statements and Notes to Consolidated
Financial Statements reflect the Citrus business as a
discontinued operation.
During the fourth quarter of 2006, the Company sold all of the
assets and substantially all of the liabilities associated with
its Pacific Coast Truck operations (“Pac Truck”) for
$20.7 million. The Pac Truck business consisted of a full
service truck dealership that provided medium and heavy-duty
trucks to customers in the Pacific Northwest region. The Company
received net proceeds of $15.3 million from the sale after
the assumption of $5.4 million of debt, realizing a gain of
approximately $2.8 million, net of income taxes of
$2 million. For 2006 and 2005, the Company’s
Consolidated Financial Statements and Notes to Consolidated
Financial Statements reflect the Pac Truck business as a
discontinued operation.
Segment
Results of Operations
The Company has four reportable operating segments: fresh fruit,
fresh vegetables, packaged foods and fresh-cut flowers. These
reportable segments are managed separately due to differences in
their products, production processes, distribution channels and
customer bases.
The Company’s management evaluates and monitors segment
performance primarily through earnings before interest expense
and income taxes (“EBIT”). EBIT is calculated by
adding interest expense and income taxes to income (loss) 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 the Company 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
measures prepared in accordance with GAAP or as a measure of the
Company’s profitability. Additionally, the Company’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.
In the tables below, revenues from external customers and EBIT
reflect only the results from continuing operations.
2007
2006
2005
(In thousands)
Revenues from external customers
Fresh fruit
$
4,736,902
$
3,968,963
$
3,699,060
Fresh vegetables
1,059,401
1,082,416
1,083,227
Packaged foods
1,023,257
938,336
854,230
Fresh-cut flowers
110,153
160,074
171,259
Corporate
1,252
1,148
1,049
$
6,930,965
$
6,150,937
$
5,808,825
EBIT
Fresh fruit
$
170,598
$
103,891
$
204,234
Fresh vegetables
(21,725
)
(7,301
)
11,375
Packaged foods
78,492
91,392
87,495
Fresh-cut flowers
(19,132
)
(57,001
)
(5,094
)
Total operating segments
208,233
130,981
298,010
Corporate
(70,247
)
(32,713
)
(70,298
)
Interest expense
(194,865
)
(174,715
)
(142,452
)
Income taxes
(1,060
)
(18,230
)
(44,175
)
Income (loss) from continuing operations, net of income taxes
$
(57,939
)
$
(94,677
)
$
41,085
2007
Compared with 2006
Fresh Fruit: Fresh fruit revenues in 2007
increased 19% to $4.7 billion from $4 billion in 2006.
The increase in fresh fruit revenues was primarily driven by
higher worldwide sales of bananas and higher sales in the
European ripening and distribution operation. Banana sales
increased approximately $200 million due to improved
volumes and higher pricing worldwide. European ripening and
distribution sales were $528 million higher as result of
increased volumes in Sweden, Spain and Eastern Europe as well as
the October 2006 acquisition of the remaining 65% interest in JP
Fresh, an importer and distributor of fresh produce in the
United Kingdom. In addition, revenues benefited from higher
sales of fresh pineapples in North America and Asia. The
increase in fresh pineapple sales resulted from improved pricing
worldwide and higher volumes sold in North America and Asia.
Favorable foreign currency exchange movements in the
Company’s foreign selling locations, primarily from the
euro and Swedish krona, benefited revenues by approximately
$163 million.
Fresh fruit EBIT increased 64% to $170.6 million in 2007
from $103.9 million in 2006. EBIT increased due to improved
banana earnings and the absence of restructuring costs recorded
by Saba Trading AB (“Saba”) during 2006. Higher
earnings in the Company’s banana operations were
attributable to higher sales worldwide, which were partially
offset by higher purchased fruit costs. EBIT also benefited by
$9.1 million due to the final settlement of Company’s
property insurance claim associated with Hurricane Katrina.
These increases were partially offset by lower fresh pineapples
earnings due mainly to higher product, shipping and distribution
costs and a $3.8 million impairment charge for farm assets
in the Chilean deciduous fruit operations. If foreign currency
exchanges rates,
primarily in the Company’s fresh fruit foreign sourcing
locations, during 2007 had remained unchanged from those
experienced in 2006, the Company estimates that fresh fruit EBIT
would have been lower by approximately $16 million,
excluding the impacts of hedging. Fresh fruit EBIT in 2007
included foreign currency hedge losses of $6 million,
unrealized foreign currency exchange losses related to the
vessel obligation of $1 million and realized foreign
currency transaction gains of $7 million. In addition,
fresh fruit EBIT benefited from fuel hedge gains of
$5 million and $2 million related to the early
settlement of Colombian peso hedges.
Fresh Vegetables: Fresh vegetables revenues
for 2007 decreased 2% to $1.06 billion from
$1.08 billion. The decrease in revenues was primarily due
to lower volumes sold in the North America and Asia commodity
vegetables businesses, primarily for berries, lettuce, broccoli
and asparagus, as well as lower surcharges in North America.
These decreases were partially offset by improved pricing for
commodity vegetables in both North America and Asia. In the
packaged salads business, revenues were relatively unchanged as
improved pricing was offset by lower volumes during the first
half of 2007. Additional costs were incurred as a result of
increased promotional activity, which were recorded as a
reduction to revenues during 2007. Consumer demand in the
packaged salads business experienced higher volumes in the later
half of 2007 as the packaged salads category began to recover
from the third quarter 2006 E. coli incident discussed
later in this document. In an effort to increase demand in the
packaged salads category, the Company continues to offer
incentives to its customers and consumers.
Fresh vegetables EBIT for 2007 was a loss of $21.7 million
compared to a loss of $7.3 million in 2006. The decrease in
EBIT was primarily due to higher manufacturing costs and general
and administrative expenses in the packaged salads business due
in part to the new salad plant in North Carolina. These
decreases were partially offset by higher margins generated in
the North America commodity vegetables business due to higher
pricing for lettuce and celery.
Packaged Foods: Packaged foods revenues for
2007 increased 9% to $1 billion from $938.3 million in
2006. The increase in revenues was primarily due to higher
pricing and volumes of FRUIT BOWLS, fruit in plastic jars and
packaged frozen food products, and higher volumes of canned
juice sold in North America. Revenues also grew in Europe due to
higher pricing and volumes of canned solid pineapple, higher
pricing of FRUIT BOWLS and higher sales volumes of concentrate.
Revenues in Asia were lower due primarily to the disposition of
a small distribution company in the Philippines during the
fourth quarter of 2006.
Packaged foods EBIT in 2007 decreased to $78.5 million from
$91.4 million in 2006. EBIT was impacted by higher product
costs in both North America and Europe, which were driven by
unfavorable foreign currency exchange rates in Thailand and the
Philippines, where product is sourced. EBIT in Asia was impacted
by lower sales and higher product costs. If foreign currency
exchanges rates, in packaged foods sourcing locations, during
2007 had remained unchanged from those experienced in 2006, the
Company estimates that packaged foods EBIT would have been
higher by approximately $23 million. Packaged foods EBIT in
2007 included realized foreign currency transaction gains of
$4 million partially offset by foreign currency hedge
losses of $2 million. Packaged foods also settled early its
Philippine peso hedges, which generated gains of
$8.8 million.
Fresh-cut Flowers: Fresh-cut flowers revenues
in 2007 decreased to $110.2 million from
$160.1 million in 2006. The decrease in revenues was due
primarily to lower sales volumes related to changes in the
customer base and product offerings attributable to the
implementation of the 2006 restructuring plan. Volumes were also
impacted by lower productivity yields due to adverse weather
conditions that were experienced in Colombia, where product is
sourced. Beginning in July 2007, revenues were further impacted
by a significant customer reducing its floral purchases from the
industry. These factors were partially offset by higher pricing.
EBIT in the fresh-cut flowers segment in 2007 improved to a loss
of $19.1 million from a loss of $57 million in 2006.
EBIT increased primarily due to the absence of
restructuring-related and asset impairment charges recorded in
2006 of $29 million. In addition, EBIT benefited from lower
shipping expenses due in part to the renegotiation of an
airfreight contract. These improvements were partially offset by
higher product costs resulting from damage to roses in Colombia
caused by adverse weather conditions. If foreign currency
exchanges rates, in the fresh-cut flowers sourcing locations,
during 2007 had remained unchanged from those experienced in
2006, the Company estimates that fresh-cut flowers EBIT would
have been higher by approximately $7 million, excluding the
impacts of hedging. Fresh-cut flowers EBIT in 2007 benefited
from foreign currency hedge gains of $4 million and
$2 million related to the early settlement of Colombian
peso hedges.
At December 29, 2007, certain assets related to the
fresh-cut flowers business had been reclassified as assets
held-for-sale. The Company is currently assessing the fresh-cut
flowers business and is evaluating various alternatives which
would improve operating results in this business and for the
Company.
Corporate: Corporate EBIT includes general and
administrative costs not allocated to the operating segments.
Corporate EBIT in 2007 was a loss of $70.2 million compared
to a loss of $32.7 million in 2006. EBIT decreased
primarily due to a reduction in the gain generated on the
Company’s cross currency swap of $22.7 million. In
addition, there were higher general and administrative expenses
compared to the prior year due primarily to additional legal
costs. Corporate EBIT also included realized foreign currency
transaction losses of $4 million.
2006
Compared with 2005
Fresh Fruit: Fresh fruit revenues in 2006
increased 7% to $4 billion from $3.7 billion in 2005.
The increase in fresh fruit revenues was primarily driven by
higher worldwide sales of bananas and pineapples, higher sales
in the European ripening and distribution operations and more
Chilean deciduous fruit sold in North America. Higher banana
sales resulted from improved volumes worldwide and higher
pricing and surcharges for bananas sold in North America. Strong
pineapple sales reflected higher sales volumes worldwide. Higher
volumes of European bananas was made possible by the EU
implementation of a new “tariff only” import fee
effective January 1, 2006, which ended volume restrictions
on Latin American imported bananas. The increase in sales of
European bananas was partially offset by significantly lower
pricing of bananas as a result of excess supply brought into the
market by non-traditional sellers. European ripening and
distribution sales also increased as a result of the October
2006 acquisition of JP Fresh. These factors were partially
offset by lower sales volumes as a result of the Company ending
a substantial portion of its commercial relationship with a
significant customer of Saba.
Fresh fruit EBIT decreased 49% to $103.9 million in 2006
from $204.2 million in 2005. Lower EBIT in the
Company’s banana operations was primarily due to higher
costs in Europe related to the new tariff system imposed by the
EU and significantly lower local banana pricing in Europe.
Additionally, EBIT decreased as a result of higher product costs
that impacted worldwide banana operations and deciduous fruit
sold in North America. EBIT was also impacted by restructuring
costs of $12.8 million incurred by Saba. These factors were
offset by higher pineapple EBIT due to increased worldwide
volumes and lower advertising expenditures in Asia. If foreign
currency exchanges rates, primarily in the Company’s fresh
fruit foreign sourcing locations, during 2006 had remained
unchanged from those experienced in 2005, the Company estimates
that fresh fruit EBIT would have been higher by approximately
$18 million, excluding the impact of hedging. Fresh fruit
EBIT in 2006 included $10.6 million of an unrealized
foreign currency exchange loss related to the vessel obligation
and realized foreign currency transaction gains of
$4 million.
Fresh Vegetables: Fresh vegetables revenues of
$1.1 billion for 2006 remained relatively unchanged from
2005. Higher pricing in the North America commodity vegetables
business for lettuce, berries, celery, green onions, brussels
sprouts and artichokes were offset by lower volumes and lower
pricing in the packaged salads business. Sales of packaged
salads decreased mainly as a result of the E. coli
incident discussed below, which continued to impact consumer
demand for the packaged salads category.
Fresh vegetables EBIT for 2006 decreased to a loss of
$7.3 million from earnings of $11.4 million in 2005.
The decrease in EBIT was primarily due to lower sales volumes
and higher product, distribution and marketing costs in the
packaged salads business. These decreases were partially offset
by higher earnings generated in the North America commodity
vegetables business due to higher pricing and lower distribution
and selling costs.
On September 15, 2006, Natural Selection Foods LLC recalled
all packaged fresh spinach that Natural Selection Foods produced
and packaged with Best-If-Used-By dates from August 17 through
October 1, 2006, because of reports of illness due to E.
coli O157:H7 following consumption of packaged fresh spinach
produced by Natural Selection Foods. These packages were sold
under 28 different brand names, only one of which was ours. At
that time, Natural Selection Foods produced and packaged all of
our spinach items. On September 15, 2006, Dole announced
that it supported the voluntary recall issued by Natural
Selection Foods. Dole has no ownership or other economic
interest in Natural Selection Foods. Since the recall, 2006
sales in the packaged salad
category dropped by approximately 10%. This recall itself did
not have a significant impact on the Company’s consolidated
results of operations for the year ended December 30, 2006.
Packaged Foods: Packaged foods revenues for
2006 increased 10% to $938.3 million from
$854.2 million in 2005. The increase in revenues was
primarily due to higher pricing and volumes of FRUIT BOWLS,
canned solid pineapple and juice, higher volumes of fruit
parfaits, fruit in plastic jars and packaged frozen food
products sold in North America. Revenues also grew in Europe due
to higher sales volumes of concentrate and FRUIT BOWLS. These
benefits were partially offset by lower sales in Asia due to
lower pricing of canned fruit products in Japan and the
disposition of a small distribution company in the Philippines
during the fourth quarter.
Packaged foods EBIT in 2006 increased 4% to $91.4 million
from $87.5 million in 2005. The increase in EBIT was
primarily due to higher sales in North America related to FRUIT
BOWLS, canned solid pineapple and juice, fruit parfaits, fruit
in plastic jars and packaged frozen food products, partially
offset by higher product and distribution costs in all markets.
If foreign currency exchange rates, in the packaged foods
sourcing locations, during 2006 had remained unchanged from
those experienced in 2005, the Company estimates that packaged
foods EBIT would have been higher by approximately
$11 million.
Fresh-cut Flowers: Fresh-cut flowers revenues
in 2006 decreased 7% to $160.1 million from
$171.3 million in 2005. The decrease was primarily due to
lower sales volumes during the second half of the year
associated with changes in the customer base related to the
implementation of the third quarter restructuring plan,
partially offset by higher overall pricing and additional sales
generated from the Valentine’s Day holiday.
EBIT in the fresh-cut flowers segment in 2006 decreased to a
loss of $57 million from a loss of $5.1 million in
2005. EBIT decreased primarily due to $29 million of
restructuring-related and asset impairment charges, together
with higher crop growing costs and higher third-party flower
purchases.
Corporate: Corporate EBIT includes general and
administrative costs not allocated to the operating segments.
Corporate EBIT in 2006 was a loss of $32.7 million compared
to a loss of $70.3 million in 2005. The improvement in EBIT
was primarily due to a decrease in debt-related expenses of
$35.7 million when comparing the April 2006 debt
refinancing transaction to the April 2005 refinancing and bond
tender transactions. In addition, Corporate EBIT for 2006
included a gain of $24.8 million on its cross currency swap
and $6.5 million on the settlement of the interest rate
swap in April 2006. These increases to EBIT were partially
offset by unrealized foreign currency exchange gains of
$25.6 million related to the Yen loan incurred in 2005.
Long-Term Debt: Details of amounts included in
long-term debt can be found in Note 11 of the Consolidated
Financial Statements. The table assumes that long-term debt is
held to maturity. The variable rate maturities include amounts
payable under the Company’s senior secured credit
facilities.
The Company has $350 million of unsecured senior notes
maturing May 1, 2009. The Company is currently evaluating
its available options to refinance the notes.
Capital Lease Obligations:The Company’s
capital lease obligations include $83.4 million related to
two vessel leases. The obligations under these leases, which
continue through 2024, are denominated in British pound
sterling. The lease payment commitments are presented in
U.S. dollars at the exchange rate in effect on
December 29, 2007 and therefore will change as foreign
currency exchange rates fluctuate.
Operating Lease Commitments:The Company has
obligations under cancelable and non-cancelable operating
leases, primarily for land, as well as for certain equipment and
office facilities. The leased assets are used in the
Company’s operations where leasing offers advantages of
operating flexibility and is less expensive than alternate types
of funding. A significant portion of the Company’s
operating lease payments are fixed. Lease payments are charged
to operations, primarily through cost of products sold. Total
rental expense, including rent related to cancelable and
non-cancelable leases, was $169.2 million,
$153 million and $130 million (net of sublease income
of $16.6 million, $16.4 million and
$15.9 million) for 2007, 2006 and 2005, respectively.
The Company modified the terms of its corporate aircraft lease
agreement during 2007. The modification primarily extended the
lease period from 2010 to 2018. The Company’s corporate
aircraft lease agreement includes a residual value guarantee of
up to $4.8 million at the termination of the lease in 2018.
The Company does not currently anticipate any future payments
related to this residual value guarantee.
Purchase Obligations: In order to secure
sufficient product to meet demand and to supplement the
Company’s own production, the Company enters into
non-cancelable agreements with independent growers, primarily in
Latin America, to purchase substantially all of their production
subject to market demand and product
quality as well as with food manufacturers. Prices under these
agreements are generally fixed and contract terms range from one
to sixteen years. Total purchases under these agreements were
$564.5 million, $474.5 million and $433.4 million
for 2007, 2006 and 2005, respectively.
In order to ensure a steady supply of packing supplies and to
maximize volume incentive rebates, the Company enters into
contracts with certain suppliers for the purchase of packing
supplies, as defined in the respective agreements, over periods
of up to three years. Purchases under these contracts for 2007,
2006 and 2005 were approximately $272.7 million,
$207.6 million and $227.3 million, respectively.
The Company also has an airfreight contract with a company to
transport product from Latin America to the United States.
Payments under this contract were $17.6 million
$22.4 million and $18.9 million for 2007, 2006 and
2005, respectively. The contract expires in 2011.
Interest payments on fixed and variable rate
debt: Commitments for interest expense on debt,
including capital lease obligations, were determined based on
anticipated annual average debt balances, after factoring in
mandatory debt repayments. Interest expense on variable-rate
debt has been based on the prevailing interest rates at
December 29, 2007. For the secured term loan facilities,
interest payment reflects the impact of both the interest rate
swap and cross currency swap. No interest payments were
calculated on the notes payable due to the short term nature of
these instruments. The unsecured notes and debentures as well as
the secured term loans and revolving credit facility mature at
various times between 2009 and 2013. The Company did not
calculate future interest payments on these obligations after
their maturity.
Other Obligations and Commitments:The Company
has obligations with respect to its pension and other
postretirement benefit (“OPRB”) plans (Note 12 to
the Consolidated Financial Statements). During 2007, the Company
contributed $6.6 million to its qualified U.S. pension
plan, which included voluntary contributions above the minimum
requirements for the plan. The Company expects to make
contributions of $8 million to its U.S. qualified plan
during 2008. The Company also has nonqualified U.S. and
international pension and OPRB plans. During 2007, the Company
made payments of $18.7 million related to these pension and
OPRB plans. The Company expects to make payments related to its
other U.S. and foreign pension and OPRB plans of
$20.5 million in 2008. The table includes pension and other
postretirement payments through 2018, as is disclosed in
Note 12 to the Consolidated Financial Statements.
The Company has numerous collective bargaining agreements with
various unions covering approximately 33% of the Company’s
hourly full-time and seasonal employees. Of the unionized
employees, 35% are covered under a collective bargaining
agreement that will expire within one year and the remaining 65%
are covered under collective bargaining agreements expiring
beyond the upcoming year. These agreements are subject to
periodic negotiation and renewal. Failure to renew any of these
collective bargaining agreements may result in a strike or work
stoppage; however management does not expect that the outcome of
these negotiations and renewals will have a material adverse
impact on the Company’s financial condition or results of
operations.
The Company had approximately $269 million of total gross
unrecognized tax benefits based on Financial Accounting
Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement
No. 109 (“FIN 48”). The timing of any
payments which could result from these unrecognized tax benefits
will depend on a number of factors, and accordingly the amount
and period of any future payments cannot be reasonably
estimated. We do not expect a significant tax payment related to
these obligations within the next year.
Operating Activities: The primary drivers of
the Company’s operating cash flows are operating earnings,
adjusted for cash generated from or used in net working capital,
interest paid and taxes paid or refunded. The Company defines
net working capital as the sum of receivables, inventories,
prepaid expenses and other current assets less accounts payable
and accrued liabilities. Factors that impact the Company’s
operating earnings that do not impact cash flows include
depreciation and amortization, gains and losses on the sale and
write-off of assets, pension and other postretirement benefit
expense, minority interests, equity earnings and unrealized
foreign currency exchange gains or losses.
Changes in working capital generally correspond to operating
activity. For example, as sales increase, a larger investment in
working capital is typically required. Management attempts to
keep the Company’s investment in net working capital to a
reasonable minimum by closely monitoring inventory levels and
matching production to expected market demand, keeping tight
control over collection of receivables and optimizing payment
terms on its trade and other payables. Debt levels and interest
rates impact interest payments, and tax payments are impacted by
tax rates, the tax jurisdiction of earnings and the availability
of tax operating losses.
Cash flows provided by operating activities were
$46.3 million in 2007 compared to cash flows provided by
operating activities of $15.9 million in the prior year.
The increase was primarily due to a lower net loss during 2007
and higher levels of accounts payable partially offset by higher
levels of accounts receivable and an increase in the investment
in inventory. Higher accounts payable was attributable to the
timing of payments to suppliers and growers and additional
inventory-related purchases. The increase in inventory was
driven mainly by a build up in finished goods inventory in the
packaged foods segment in anticipation of 2008 sales and the
impact of higher product costs. In addition, there were higher
crop growing costs in the fresh fruit segment due to the timing
of plantings. Cash flows provided by operations in 2006 were
$15.9 million compared to cash flows provided by operating
activities of $72.6 million in 2005. The decrease was
primarily due to the net loss in 2006 and lower levels of
accounts payable partially offset by lower levels of inventory.
The decrease in accounts payable was attributable to the timing
of payments to suppliers and growers. The reduction in inventory
was driven mainly by lower inventory requirements in the
packaged foods segment.
Investing Activities: Cash flows used in
investing activities decreased to $61.4 million in 2007
from $117 million in the prior year. The decrease in cash
outflow during 2007 was primarily due to $30.5 million of
cash proceeds received on the sale of land parcels in central
California by two limited liability companies in which the
company is a majority owner, $11 million of cash proceeds
received on sales of other assets and lower levels of capital
expenditures of $18.2 million. Cash flows used in investing
activities in 2006 decreased to $117 million from
$164.3 million in 2005. The decrease in cash outflow during
2006 was due to less cash spent on acquisitions, lower capital
expenditures of $6.4 million and higher cash proceeds of
$12.1 million received from the sales of a business and
other assets. In 2006, the Company acquired the remaining 65% of
JP Fresh it did not already own for $22.7 million, net of
cash acquired, compared to the 2005 acquisition of the minority
interest in Saba for $47.1 million.
Financing Activities: Cash flows provided by
financing activities decreased to $16 million in 2007 from
$142.8 million in the prior year. The decrease was
primarily due to lower current year borrowings, net of
repayments of $26.5 million versus 2006 net borrowings
of $339.4 million and the absence of an equity contribution
of $28.4 million made by Dole Holding Company, LLC, the
Company’s immediate parent (“DHC”) during 2006.
These items were partially offset by the absence of
$163.7 million of dividends paid to DHC during 2006 as well
as a
net return of capital payment to DHC of $31 million. Cash
flows provided by financing activities in 2006 increased to
$142.8 million from $69.9 million in 2005. The
increase during 2006 was primarily due to higher 2006 net
borrowings of $339.4 million compared to 2005 net
borrowings of $150 million. This increase was offset by
higher dividend payments of $86.4 million and a net return
of capital payment of $31 million to DHC during 2006.
At December 29, 2007, the Company had total outstanding
long-term borrowings of $2.4 billion, consisting primarily
of $1.1 billion of unsecured senior notes and debentures
due 2009 through 2013 and $1.2 billion of secured debt
(consisting of revolving credit and term loan facilities and
capital lease obligations).
Capital Contributions and Return of
Capital: There were no capital contributions or
return of capital transactions during 2007.
On March 3, 2006, DHM Holding Company, Inc.
(“HoldCo”) executed a $150 million senior secured
term loan agreement. In March 2006, HoldCo contributed
$28.4 million to its wholly-owned subsidiary, DHC, the
Company’s immediate parent, which contributed the funds to
the Company. As planned, in October 2006, the Company declared a
cash capital repayment of $28.4 million to DHC, returning
the $28.4 million capital contribution made by DHC in March
2006. The Company repaid this amount during the fourth quarter
of 2006.
On October 4, 2006, the Company loaned $31 million to
DHC, which then dividended the funds to HoldCo for contribution
to Westlake Wellbeing Properties, LLC. In connection with this
funding, an intercompany loan agreement was entered into between
DHC and the Company. DHC has no operations and would need to
repay the loan with a dividend from the Company, a contribution
from HoldCo, or through a financing transaction. It is currently
anticipated that amounts under the intercompany loan agreement
will be replaced with dividend proceeds or, the loan will be
forgiven in the future. The Company has accounted for the
intercompany loan as a distribution of additional paid-in
capital.
Debt Refinancing: In April, 2006, the Company
completed another amendment and restatement of its senior
secured credit facilities. The purposes of this refinancing
included increasing the combined size of the Company’s
revolving credit and letter of credit facilities, eliminating
certain financial maintenance covenants, realizing currency
gains arising out of the Company’s then existing
yen-denominated term loan and refinancing of the higher-cost
bank indebtedness of DHC at the lower-cost Dole Food Company,
Inc. level. The Company obtained $975 million of term loan
facilities and $100 million in a pre-funded letter of
credit facility. The proceeds of the term loans were used to
repay the then outstanding term loans and revolving credit
facilities, as well as pay a dividend of $160 million to
DHC, which proceeds were used to repay its Second Lien Senior
Credit Facility.
In addition, the Company entered into a new asset based
revolving credit facility (“ABL revolver”) of
$350 million. The facility is secured by and is subject to
a borrowing base consisting of up to 85% of eligible accounts
receivable plus a predetermined percentage of eligible
inventory, as defined in the credit facility.
As of December 29, 2007, the ABL revolver borrowing base
was $314.6 million and the amount outstanding under the ABL
revolver was $176.4 million. After taking into account
approximately $4.3 million of outstanding letters of credit
issued under the ABL revolver, the Company had approximately
$133.9 million available for borrowings as of
December 29, 2007. Amounts outstanding under the term loan
facilities were $960.4 million at December 29, 2007.
In addition, the Company had approximately $91.8 million of
letters of credit and bank guarantees outstanding under its
pre-funded letter of credit facility at December 29, 2007.
Refer to Note 11 of the Consolidated Financial Statements
for additional details of the Company’s outstanding debt.
In addition to amounts available under the revolving credit
facility, the Company’s subsidiaries have uncommitted lines
of credit of approximately $187.3 million at various local
banks, of which $98.5 million was available at
December 29, 2007. These lines of credit are used primarily
for short-term borrowings, foreign currency exchange settlement
and the issuance of letters of credit or bank guarantees.
Several of the Company’s uncommitted lines of credit expire
in 2008 while others do not have a commitment expiration date.
These arrangements may be cancelled at any time by the Company
or the banks. The Company’s ability to utilize these lines
of credit is limited under the terms of its senior secured
credit facilities and bond indentures.
The Company believes that available borrowings under the
revolving credit facility and subsidiaries’ uncommitted
lines of credit, together with its existing cash balance of
$97.1 million at December 29, 2007, future cash flow
from operations and access to capital markets will enable it to
meet its working capital, capital expenditure, debt maturity and
other commitments and funding requirements. Factors impacting
the Company’s cash flow from operations include such items
as commodity prices, interest rates and foreign currency
exchange rates, among other things. These factors are set forth
under “Risk Factors” in Item 1A of this
Form 10-K
and under “Quantitative and Qualitative Disclosures About
Market Risk” in Item 7A and elsewhere in this
Form 10-K.
GUARANTEES, CONTINGENCIES AND DEBT COVENANTS:
The Company is a guarantor of indebtedness of some of its key
fruit suppliers and other entities integral to the
Company’s operations. At December 29, 2007, guarantees
of $3.5 million consisted primarily of amounts advanced
under third-party bank agreements to independent growers that
supply the Company with product. The Company has not
historically experienced any significant losses associated with
these guarantees.
The Company 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.
The Company 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 December 29, 2007, total
letters of credit, bank guarantees and bonds outstanding under
these arrangements were $141 million, of which
$4.3 million were issued under Dole’s pre-funded
letter of credit facility.
The Company also provides various guarantees, mostly to foreign
banks, in the course of its normal business operations to
support the borrowings, leases and other obligations of its
subsidiaries. The Company guaranteed $217.1 million of its
subsidiaries’ obligations to their suppliers and other
third parties as of December 29, 2007.
The Company 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 following a change of control (as defined) of the
Company. Refer to Item 11 of this
Form 10-K,
under the heading “Employment, Severance and Change of
Control Arrangements” for additional information concerning
the change of control agreements.
As disclosed in Note 17 to the Consolidated Financial
Statements, the Company is subject to legal actions, most
notably related to the Company’s prior use of the
agricultural chemical dibromochloropropane, or “DBCP”.
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 the Company’s business,
financial condition or results of operations.
Provisions under the senior secured credit facilities and the
indentures to the senior notes and debentures require the
Company 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
Company could borrow approximately an additional
$205 million at December 29, 2007 and remain within
its covenants. At December 29, 2007, the Company was in
compliance with all applicable covenants contained in the
indentures and senior secured credit facilities.
Critical
Accounting Policies and Estimates
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions that
affect reported amounts. These estimates and assumptions are
evaluated on an ongoing basis and are based on historical
experience and on other factors that management believes are
reasonable. Estimates and assumptions include, but are not
limited to, the areas of customer and grower receivables,
inventories, impairment of assets, useful lives of property,
plant and equipment, intangible assets, marketing programs,
income taxes, self-insurance reserves, retirement benefits,
financial instruments and commitments and contingencies.
The Company believes that the following represent the areas
where more critical estimates and assumptions are used in the
preparation of the Consolidated Financial Statements. Refer to
Note 2 of the Consolidated Financial Statements for a
summary of the Company’s significant accounting policies.
Application of Purchase Accounting: The
Company makes strategic acquisitions of entities to enhance its
product portfolio and to leverage the DOLE brand. These
acquisitions require the application of purchase accounting in
accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations. This results in
tangible and identifiable intangible assets and liabilities of
the acquired entity being recorded at fair value. The difference
between the purchase price and the fair value of net assets
acquired is recorded as goodwill.
In determining the fair values of assets and liabilities
acquired in a business combination, the Company uses a variety
of valuation methods including present value, depreciated
replacement cost, market values (where available) and selling
prices less costs to dispose. Valuations are performed by either
independent valuation specialists or by Company management,
where appropriate.
Assumptions must often be made in determining fair values,
particularly where observable market values do not exist.
Assumptions may include discount rates, growth rates, cost of
capital, royalty rates, tax rates and remaining useful lives.
These assumptions can have a significant impact on the value of
identifiable assets and accordingly can impact the value of
goodwill recorded. Different assumptions could result in
materially different values being attributed to assets and
liabilities. Since these values impact the amount of annual
depreciation and amortization expense, different assumptions
could also significantly impact the Company’s statement of
operations and could impact the results of future impairment
reviews.
Grower Advances:The Company makes advances to
third-party growers primarily in Latin America and Asia for
various farming needs. Some of these advances are secured with
property or other collateral owned by the growers. The Company
monitors these receivables on a regular basis and records an
allowance for these grower receivables based on estimates of the
growers’ ability to repay advances and the fair value of
the collateral. These estimates require significant judgment
because of the inherent risks and uncertainties underlying the
growers’ ability to repay these advances. These factors
include weather-related phenomena, government-mandated fruit
prices, market responses to industry volume pressures, grower
competition, fluctuations in local interest rates, economic
crises, security risks in developing countries, political
instability, outbreak of plant disease, inconsistent or poor
farming practices of growers, and foreign currency fluctuations.
The aggregate amounts of grower advances made during fiscal
years 2007, 2006 and 2005 were approximately
$172.4 million, $156.5 million and $148 million,
respectively. Net grower advances receivable were
$51.8 million and $39.4 million at December 29,2007 and December 30, 2006, respectively.
Long-Lived Assets:The Company’s
long-lived assets consist of 1) property, plant and
equipment and amortized intangibles and 2) goodwill and
indefinite-lived intangible assets.
1) Property, Plant and Equipment and Amortized
Intangibles:The Company depreciates property,
plant and equipment and amortizes intangibles principally by the
straight-line method over the estimated useful lives of these
assets. Estimates of useful lives are based on the nature of the
underlying assets as well as the Company’s experience with
similar assets and intended use. Estimates of useful lives can
differ from actual useful lives due to the inherent uncertainty
in making these estimates. This is particularly true for the
Company’s significant long-lived assets such as land
improvements, buildings, farming machinery and equipment,
vessels and customer relationships. Factors such as the
conditions in which the assets are used, availability of capital
to replace assets, frequency of maintenance, changes in farming
techniques and changes to customer relationships can influence
the useful lives of these assets. Refer to Notes 9 and 10
of the Consolidated Financial Statements for a summary of useful
lives by major asset category and for further details on the
Company’s intangible assets, respectively. The Company
incurred depreciation expense of approximately
$151.1 million, $144.8 million and $137.9 million
in 2007, 2006 and 2005, respectively, and amortization expense
of approximately $4.5 million, $4.5 million and
$11.9 million in fiscal 2007, 2006 and 2005, respectively.
The Company reviews property, plant and equipment and
amortizable intangibles to be held and used for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If an evaluation of
recoverability is required, the estimated total undiscounted
future cash flows directly associated
with the asset is compared to the asset’s carrying amount.
If this comparison indicates that there is an impairment, the
amount of the impairment is calculated by comparing the carrying
value to the discounted expected future cash flows expected to
result from the use of the asset and its eventual disposition or
comparable market values, depending on the nature of the asset.
Changes in commodity pricing, weather-related phenomena and
other market conditions are events that have historically caused
the Company to assess the carrying amount of its long-lived
assets.
2) Goodwill and Indefinite-Lived Intangible
Assets:The Company’s indefinite-lived
intangible assets consist of the DOLE brand trade name, with a
carrying value of $689.6 million. In determining whether
intangible assets have indefinite lives, the Company considers
the expected use of the asset, legal or contractual provisions
that may limit the life of the asset, length of time the
intangible has been in existence, as well as competitive,
industry and economic factors. The determination as to whether
an intangible asset is indefinite-lived or amortizable could
have a significant impact on the Company’s statement of
operations in the form of amortization expense and potential
future impairment charges.
Goodwill and indefinite-lived intangible assets are tested for
impairment annually and whenever events or circumstances
indicate that an impairment may have occurred. Indefinite-lived
intangibles are tested for impairment by comparing the fair
value of the asset to the carrying value.
Goodwill is tested for impairment by comparing the fair value of
a reporting unit with its net book value including goodwill. The
fair value of reporting units is determined using a discounted
cash flow methodology, which requires making estimates and
assumptions including pricing and volumes, industry growth
rates, future business plans, profitability, tax rates and
discount rates. If the fair value of the reporting unit exceeds
its carrying amount, then goodwill of that reporting unit is not
considered to be impaired. If the carrying amount of the
reporting unit exceeds its fair value, then the implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination is determined.
An impairment loss is recognized if the implied fair value of
goodwill exceeds its carrying amount. Changes to assumptions and
estimates can significantly impact the fair values determined
for reporting units and the implied value of goodwill, and
consequently can impact whether or not an impairment charge is
recognized, and if recognized, the size thereof. Management
believes that the assumptions used in the Company’s annual
impairment review are appropriate.
Income Taxes: Deferred income taxes are
recognized for the income tax effect of temporary differences
between financial statement carrying amounts and the income tax
bases of assets and liabilities. The Company’s provision
for income taxes is based on domestic and international
statutory income tax rates in the jurisdictions in which it
operates. The Company regularly reviews its deferred income tax
assets to determine whether future taxable income will be
sufficient to realize the benefits of these assets. A valuation
allowance is provided for deferred income tax assets for which
it is deemed more likely than not that future taxable income
will not be sufficient to realize the related income tax
benefits from these assets. In making such determination, the
Company considers all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities,
projected future taxable income, tax planning strategies and
recent financial operations. In the event it is determined that
the Company will not be able to realize its net deferred tax
assets in the future, the Company will reduce such amounts
through a charge to income in the period such determination is
made. Conversely, if it is determined that the Company will be
able to realize deferred tax assets in excess of the carrying
amounts, the Company will decrease the recorded valuation
allowance through a credit to income or a credit to goodwill in
the period that such determination is made.
Significant judgment is required in determining income tax
provisions under Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, and in
evaluating tax positions. The Company believes its tax positions
comply with the applicable tax laws and that it is adequately
provided for all tax related matters. The Company establishes
additional provisions for income taxes when, despite the belief
that tax positions are fully supportable, there remain certain
positions that do not meet the minimum probability threshold, as
defined by FIN 48, which is a tax position that is more
likely than not to be sustained upon examination by the
applicable taxing authority. In the normal course of business,
the Company and its subsidiaries are examined by various
Federal, State and foreign tax authorities. The Company
regularly assesses the potential outcomes of these examinations
and any future examinations for the current or prior years in
determining the adequacy of its provision for income taxes. The
Company continually assesses the likelihood and amount of
potential adjustments and adjusts the income tax provision, the
current tax liability and deferred taxes in the period in which
the facts that give rise to a revision become known.
Refer to Note 6 of the Consolidated Financial Statements
for additional information about the Company’s income taxes.
Pension and Other Postretirement Benefits: The
Company has qualified and nonqualified defined benefit pension
plans covering some of its full-time employees. Benefits under
these plans are generally based on each employee’s eligible
compensation and years of service, except for hourly plans,
which are based on negotiated benefits. In addition to pension
plans, the Company has OPRB plans that provide 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. Pension
and OPRB costs and obligations are calculated based on actuarial
assumptions including discount rates, health care cost trend
rates, compensation increases, expected return on plan assets,
mortality rates and other factors.
Pension obligations and expenses are most sensitive to the
expected return on pension plan assets and discount rate
assumptions. OPRB obligations and expenses are most sensitive to
discount rate assumptions and health care cost trend rates. The
Company determines the expected return on pension plan assets
based on an expectation of average annual returns over an
extended period of years. This expectation is based, in part, on
the actual returns achieved by the Company’s pension plans
over the prior ten-year period. The Company also considers the
weighted-average historical rates of return on securities with
similar characteristics to those in which the Company’s
pension assets are invested. In the absence of a change in the
Company’s asset allocation or investment philosophy, this
estimate is not expected to vary significantly from year to
year. The Company’s 2007 and 2006 pension expense was
determined using an expected rate of return on U.S. plan
assets of 8% and 8.25%, respectively. The Company’s 2008
pension expense will be determined using an expected rate of
return on U.S. plan assets of 8%. At December 29,2007, the Company’s U.S. pension plan investment
portfolio was invested approximately 57% in equity securities,
41% in fixed income securities and 2% in private equity and
venture capital funds. A 25 basis point change in the
expected rate of return on pension plan assets would impact
annual pension expense by $0.6 million.
The Company’s U.S. pension plan’s discount rate
of 6.25% in 2007 and 5.75% in 2006 was determined based on a
hypothetical portfolio of high-quality, non-callable,
zero-coupon bond indices with maturities that approximate the
duration of the liabilities in the Company’s pension plans.
A 25 basis point decrease in the assumed discount rate
would increase the projected benefit obligation by
$6.9 million and increase the annual expense by
$0.3 million.
The Company’s foreign pension plans’ weighted average
discount rate was 7.52% and 6.61% for 2007 and 2006,
respectively. A 25 basis point decrease in the assumed
discount rate of the foreign plans would increase the projected
benefit obligation by approximately $4.7 million and
increase the annual expense by approximately $0.3 million.
While management believes that the assumptions used are
appropriate, actual results may differ materially from these
assumptions. These differences may impact the amount of pension
and other postretirement obligations and future expense. Refer
to Note 12 of the Consolidated Financial Statements for
additional details of the Company’s pension and other
postretirement benefit plans.
Litigation:The Company is involved from time
to time in claims and legal actions incidental to its
operations, both as plaintiff and defendant. The Company 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. Changes in accruals, both up and down, are part
of the ordinary, recurring course of business, in which
management, after consultation with legal counsel, is required
to make estimates of various amounts for business and strategic
planning purposes, as well as for accounting and SEC reporting
purposes. These changes are
reflected in the reported earnings of the Company each quarter.
The litigation accruals at any time reflect updated assessments
of the then existing pool of claims and legal actions. Actual
litigation settlements could differ materially from these
accruals.
Recently
Adopted and Recently Issued Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for
information regarding the Company’s adoption of new
accounting pronouncements and recently issued accounting
pronouncements.
Other
Matters
European Union Banana Import Regime: On
January 1, 2006, the EU implemented a “tariff
only” import regime for bananas. The 2001 EC/US
Understanding on Bananas required the EU to implement a tariff
only banana import system on or before January 1, 2006, and
the EU’s banana regime change was therefore expected by
that date.
Banana imports from Latin America are subject to a tariff of 176
euro per metric ton for entry into the EU market. Under the
EU’s previous banana regime, banana imports from Latin
America were subject to a tariff of 75 euro per metric ton
and were also subject to import license requirements and volume
quotas. License requirements and volume quotas had the effect of
limiting access to the EU banana market.
Although all Latin bananas are subject to a tariff of 176 euro
per metric ton, up to 775,000 metric tons of bananas from
African, Caribbean, and Pacific (“ACP”) countries may
be imported to the EU duty-free. This preferential treatment of
a zero tariff on up to 775,000 tons of ACP banana imports, as
well as the 176 euro per metric ton tariff applied to Latin
banana imports, has been challenged by Panama, Honduras,
Nicaragua, and Colombia in consultation proceedings at the World
Trade Organization (“WTO”). In addition, both Ecuador
and the United States formally requested the WTO Dispute
Settlement Body (“DSB”) to appoint panels to review
the matter. In preliminary rulings on December 10, 2007 and
February 6, 2008, the DSB has ruled against the EU and in
favor of Ecuador and the United States, respectively. The DSB
issued a final ruling maintaining the preliminary findings in
favor of the United States on February 29, 2008. This final
ruling is expected to be made public in March, after which the
EU will have 60 days to decide whether to appeal the
ruling. The final decision with respect to Ecuador’s case
is also not yet publicly available.
The current tariff applied to Latin banana imports may be
lowered and the ACP preference of a zero tariff may be affected
depending on the final outcome of these WTO proceedings. The
Company encourages efforts to lower the tariff through
negotiations with the EU.
Impact of Hurricane Katrina: During the third
quarter of 2005, the Company’s operations in the Gulf Coast
area of the United States were impacted by Hurricane Katrina.
The Company’s fresh fruit division utilizes the Gulfport,
Mississippi port facility to receive and store product from its
Latin American operations. The Gulfport facility, which is
leased from the Mississippi Port Authority, incurred significant
damage from Hurricane Katrina. As a result of the damage
sustained at the Gulfport terminal, the Company diverted
shipments to other Dole port facilities including Freeport,
Texas; Port Everglades, Florida; and Wilmington, Delaware. The
Company resumed discharging shipments of fruit and other cargo
in Gulfport at the beginning of the fourth quarter of 2005. The
rebuilding of the Company’s Gulfport facility was completed
during 2007.
The financial impact to the Company’s fresh fruit
operations included the loss of cargo and equipment, property
damage and additional costs associated with re-routing product
to other ports in the region. Equipment that was destroyed or
damaged included refrigerated and dry shipping containers, as
well as chassis and generator-sets used for land transportation
of the shipping containers. The Company maintains customary
insurance for its property, including shipping containers, as
well as for business interruption.
The Hurricane Katrina related expenses, insurance proceeds and
net gain (loss) on the settlement of the claims for 2007, 2006,
and 2005 are as follows:
Total expenses of $12.4 million include direct incremental
expenses of $6.1 million, write-offs of owned assets with a
net book value of $4.1 million and leased assets of
$2.2 million representing amounts due to lessors. The
Company settled all of its cargo claim for $9.2 million in
December 2006 and, as a result, recognized a gain of
$5.2 million in 2006. In December 2007, the Company settled
all of its property claim for $14.4 million. The Company
realized a gain of $9.1 million in 2007 associated with the
settlement of its property claim, of which $5.2 million was
for the reimbursement of lost and damaged property. The realized
gains associated with the settlements of both the cargo and
property claims are recorded in cost of products sold in the
consolidated statement of operations in 2007 and 2006.
Restructurings and Related Asset Impairments During the
third quarter of 2006, the Company restructured its fresh-cut
flowers division (“DFF”) to better focus on high-value
products and flower varieties, and position the business unit
for future growth. In connection with the restructuring, DFF
ceased its farming operations in Ecuador and closed two farms in
Colombia and downsized other Colombian farms.
DFF incurred total costs of $30.1 million related to this
initiative, of which $7.5 million relates to cash
restructuring costs and $22.6 million to non-cash
impairment charges associated with the write-off of certain
long-lived assets, intangible assets and inventory. The
$7.5 million of restructuring costs relates to land
clearing costs and employee severance costs which impacted
approximately 2,500 employees. The $22.6 million
charge relates to the impairment and write-off of the following
assets: trade names ($4.9 million), deferred crop growing
costs ($8.5 million), property, plant and equipment
($8.4 million), and inventory ($0.8 million). Of the
$30.1 million incurred, $1.1 million was incurred
during 2007 and $29 million was incurred during 2006. The
$1.1 million related to land clearing costs and was
recorded in cost of products sold in the consolidated statement
of operations. For 2006, $24 million was recorded in cost
of products sold and $5 million was recorded in selling,
marketing, and general and administrative expenses in the
consolidated statement of operations. At December 29, 2007,
all of the restructuring costs had been paid.
During the first quarter of 2006, the commercial relationship
substantially ended between the Company’s wholly-owned
subsidiary, Saba, and Saba’s largest customer. Saba is a
leading importer and distributor of fruit, vegetables and
flowers in Scandinavia. Saba’s financial results are
included in the fresh fruit reporting segment. The Company
restructured certain lines of Saba’s business and as a
result, incurred $12.8 million of total related costs. Of
the $12.8 million incurred during the year ended
December 30, 2006, $9 million was recorded in cost of
products sold and $3.8 million in selling, marketing, and
general and administrative expenses in the consolidated
statement of operations. Total restructuring costs included
$9.9 million of employee severance costs which impacted
275 employees, $2.4 million of contractual lease
obligations as well as $0.5 million of fixed asset
write-offs. At December 29, 2007, all of the restructuring
costs had been paid.
In connection with the Company’s ongoing farm optimization
programs in Asia, $2.8 million and $6.7 million of
crop-related costs were written-off during the 2007 and 2006,
respectively. These non-cash charges have been recorded in cost
of products sold in the consolidated statements of operations.
The following financial information has been presented, as
management believes that it is useful information to some
readers of the Company’s Consolidated Financial Statements:
Income from discontinued operations, net of income taxes
(433
)
(2,236
)
(2,545
)
Gain on disposal of discontinued operations, net of income taxes
—
(2,814
)
—
Interest expense
194,865
174,715
142,452
Income taxes
1,060
18,230
44,175
Depreciation and amortization
155,138
148,108
148,513
EBITDA
$
293,124
$
246,376
$
376,225
EBITDA margin
4.2
%
4.0
%
6.5
%
Capital expenditures
$
107,230
$
119,335
$
146,306
“EBITDA” is defined as earnings before interest
expense, income taxes, and depreciation and amortization. EBITDA
is calculated by adding interest expense, income taxes and
depreciation and amortization to income (loss) from continuing
operations. EBITDA margin is defined as the ratio of EBITDA, as
defined, relative to net revenues. EBITDA is reconciled to net
income (loss) in the consolidated financial statements in the
tables above. EBITDA and EBITDA margin fluctuated primarily due
to the same factors that impacted the changes in operating
income and segment EBIT discussed earlier.
The Company presents EBITDA and EBITDA margin because management
believes, similar to EBIT, EBITDA is a useful performance
measure for the Company. In addition, EBITDA is presented
because management believes it is frequently used by securities
analysts, investors and others in the evaluation of companies,
and because certain covenants on the Company’s senior
secured credit facilities and bond indentures are tied to
EBITDA. EBITDA and EBITDA margin should not be considered in
isolation from or as a substitute for net income and other
consolidated income statement data prepared in accordance with
GAAP or as a measure of profitability. Additionally, the
Company’s computation of EBITDA and EBITDA margin may not
be comparable to other similarly titled measures computed by
other companies, because not all companies calculate EBITDA and
EBITDA margin in the same manner.
This Management’s Discussion and Analysis contains
forward-looking statements that involve a number of risks and
uncertainties. Forward-looking statements, which are based on
management’s assumptions and describe the Company’s
future plans, strategies and expectations, are generally
identifiable by the use of terms such as “anticipate”,
“will”, “expect”, “believe”,
“should” or similar expressions. 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; product and raw materials supplies
and pricing; changes in interest and currency exchange rates;
economic crises in developing countries; quotas, tariffs and
other governmental actions and international conflict. Refer to
“Disclosure Regarding Forward-Looking Statements” in
Item 1A. of this
Form 10-K
for additional information concerning these matters.
Item 7A.
Quantitative
and Qualitative Disclosures About Market Risk
As a result of its global operating and financing activities,
the Company is exposed to market risks including fluctuations in
interest rates, fluctuations in foreign currency exchange rates
and changes in commodity pricing.
The Company uses derivative instruments to hedge against
fluctuations in interest rates, foreign currency exchange rate
movements and bunker fuel prices. Through the first quarter of
2007, all of the Company’s derivative instruments were
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 Company does not utilize derivatives for trading or other
speculative purposes.
During the second quarter of 2007, the Company elected to
discontinue its designation of both its foreign currency and
bunker fuel hedges as cash flow hedges under FAS 133. The
interest rate swap will continue to be accounted for as a cash
flow hedge under FAS 133. As a result, all changes in the
fair value of the Company’s derivative financial
instruments from the time of discontinuation of hedge accounting
are reflected in the Company’s consolidated statement of
operations as a component of cost of products sold. The fair
value of the instruments designated as effective hedges under
FAS 133, specifically the interest rate swap at
December 29, 2007, has been included as a component of
accumulated other comprehensive loss in shareholders’
equity.
Interest Rate Risk: As a result of its normal
borrowing and leasing activities, the Company’s operating
results are exposed to fluctuations in interest rates. The
Company has short-term and long-term debt with both fixed and
variable interest rates. Short-term debt is primarily comprised
of the current portion of long-term debt maturing twelve months
from the balance sheet date. Short-term debt also includes
unsecured notes payable to banks and bank lines of credit used
to finance working capital requirements. Long-term debt
represents publicly held unsecured notes and debentures, as well
as amounts outstanding under the Company’s senior secured
credit facilities.
As of December 29, 2007, the Company had $1.1 billion
of fixed-rate debt and $4.2 million of fixed-rate capital
lease obligations and other debt with a combined
weighted-average interest rate of 8.2% and a fair value of
$1.03 billion. The Company currently estimates that a
100 basis point increase in prevailing market interest
rates would decrease the fair value of its fixed-rate debt by
approximately $24.2 million.
As of December 29, 2007, the Company had the following
variable-rate arrangements: $1.14 billion of variable-rate
debt with a weighted-average interest rate of 6.2% and
$84.2 million of variable-rate capital lease obligations
with a weighted-average interest rate of 6.6%. Interest expense
under the majority of these arrangements is based on the London
Interbank Offered Rate (“LIBOR”). The Company
currently estimates that a 100 basis point increase in
LIBOR would lower pretax income by $12.2 million.
As part of the Company’s strategy to manage the level of
exposure to fluctuations in interest rates, the Company entered
into an interest rate swap agreement that effectively converted
$320 million of variable-rate term loan debt to a
fixed-rate basis. The interest rate swap fixed the interest rate
at 7.2%. The paying and receiving rates under the interest rate
swap were 5.49% and 5.24% as of December 29, 2007. The fair
value of the interest rate swap at December 29, 2007 was a
liability of $15.9 million.
The Company also executed a cross currency swap to synthetically
convert $320 million of term loan debt 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%. The fair value of the cross currency swap
was an asset of $9.9 million at December 29, 2007.
Foreign Currency Exchange Risk:The Company
has production, processing, distribution and marketing
operations worldwide in more than 90 countries. Its
international sales are usually transacted in U.S. dollars
and major European and Asian currencies. Some of the
Company’s costs are incurred in currencies different from
those
received from the sale of products. Results of operations may be
affected by fluctuations in currency exchange rates in both
sourcing and selling locations.
The Company has significant sales denominated in Japanese yen as
well as European sales denominated primarily in euro and Swedish
krona. Product and shipping costs associated with a significant
portion of these sales are U.S. dollar-denominated. In
2007, the Company had approximately $570 million of annual
sales denominated in Japanese yen, $1.5 billion of annual
sales denominated in euro, and $429 million of annual sales
denominated in Swedish krona. If U.S. dollar exchange rates
versus the Japanese yen, euro and Swedish krona during 2007 had
remained unchanged from 2006, the Company’s revenues and
operating income would have been lower by approximately
$155 million and $26 million, respectively. In
addition, the Company currently estimates that a 10%
strengthening of the U.S. dollar relative to the Japanese
yen, euro and Swedish krona would lower operating income by
approximately $60 million, excluding the impact of foreign
currency exchange hedges.
The Company sources the majority of its products in foreign
locations and accordingly is exposed to changes in exchange
rates between the U.S. dollar and currencies in these
sourcing locations. The Company’s exposure to exchange rate
fluctuations in these sourcing locations is partially mitigated
by entering into U.S. dollar denominated contracts for
third-party purchased product and most other major supply
agreements, including shipping contracts. However, the Company
is still exposed to those costs that are denominated in local
currencies. The most significant production currencies to which
the Company has exchange rate risk are the Colombian peso,
Chilean peso, Thai baht, Philippine peso and South African rand.
If U.S. dollar exchange rates versus these currencies
during 2007 had remained unchanged from 2006, the Company’s
operating income would have been higher by approximately
$48 million. In addition, the Company currently estimates
that a 10% weakening of the U.S. dollar relative to these
currencies would lower operating income by approximately
$57 million, excluding the impact of foreign currency
exchange hedges.
At December 29, 2007, the Company had British pound
sterling denominated capital lease obligations. The British
pound sterling denominated capital lease of $83.4 million
is owed by foreign subsidiaries whose functional currency is the
U.S. dollar. Fluctuations in the British pound sterling to
U.S. dollar exchange rate resulted in losses that were
recognized through results of operations. In 2007, the Company
recognized $1.4 million in unrealized foreign currency
exchange losses related to the British pound sterling. The
Company currently estimates that the weakening of the value of
the U.S. dollar against the British pound sterling by 10%
as it relates to the capital lease obligation would lower
operating income by approximately $8 million.
Some of the Company’s divisions operate in functional
currencies other than the U.S. dollar. The net assets of
these divisions are exposed to foreign currency translation
gains and losses, which are included as a component of
accumulated other comprehensive loss in shareholders’
equity. Such translation resulted in unrealized gains of
$21.3 million in 2007. The Company has historically not
attempted to hedge this equity risk.
The ultimate impact of future changes to these and other foreign
currency exchange rates on 2008 revenues, operating income, net
income, equity and comprehensive income is not determinable at
this time.
As part of its risk management strategy, the Company uses
derivative instruments to hedge certain foreign currency
exchange rate exposures. The Company’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. The Company uses
foreign currency exchange forward contracts and participating
forward contracts to reduce its risk related to anticipated
dollar equivalent foreign currency cash flows, specifically
forecasted revenue transactions and forecasted operating
expenses. Participating forwards are the combination of a put
and call option, structured such that there is no premium
payment, there is a guaranteed strike price, and the Company can
benefit from positive foreign currency exchange movements on a
portion of the notional amount.
The Company also recorded net realized foreign currency hedging
gains of $5.6 million as a component of cost of products
sold in the consolidated statement of operations for the year
ended December 29, 2007. In 2007, the Company also settled
early its Philippine peso hedges and Colombian peso hedges that
were expected to settle during 2008, realizing gains of
$13.2 million. These gains were also included as a
component of cost of products sold in the consolidated statement
of operations.
Commodity Sales Price Risk: Commodity pricing
exposures include the potential impacts of weather phenomena and
their effect on industry volumes, prices, product quality and
costs. The Company manages its exposure to commodity price risk
primarily through its regular operating activities, however,
significant commodity price fluctuations, particularly for
bananas, pineapples and commodity vegetables could have a
material impact on the Company’s results of operations.
Commodity Purchase Price Risk:The Company
uses a number of commodities in its operations including
tinplate in its canned products, plastic resins in its fruit
bowls, containerboard in its packaging containers and bunker
fuel for its vessels. The Company is most exposed to market
fluctuations in prices of containerboard and fuel. The Company
currently estimates that a 10% increase in the price of
containerboard would lower operating income by approximately
$17 million and a 10% increase in the price of bunker fuel
would lower operating income by approximately $14 million.
The Company enters into bunker fuel hedges to reduce its risk
related to price fluctuations on anticipated bunker fuel
purchases. At December 29, 2007, bunker fuel hedges had an
aggregate outstanding notional amount of 8,891 metric tons that
settled during the first quarter of 2008. The fair value of the
bunker fuel hedges at December 29, 2007 was a receivable of
$1.1 million. The Company realized gains of
$3.9 million on its bunker fuel hedges during the year
ended December 29, 2007.
Counterparty Risk: The counterparties to the
Company’s derivative instruments contracts consist of a
number of major international financial institutions. The
Company has established counterparty guidelines and regularly
monitors its positions and the financial strength of these
institutions. While counterparties to hedging contracts expose
the Company 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. The Company
does not anticipate any such losses.
To the Board of Directors and Shareholder of Dole Food Company,
Inc.:
We have audited the accompanying consolidated balance sheets of
Dole Food Company, Inc. and subsidiaries (the
“Company”) as of December 29, 2007 and
December 30, 2006, and the related consolidated statements
of operations, shareholders’ equity, and cash flows for the
years ended December 29, 2007, December 30, 2006, and
December 31, 2005. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and the financial statement schedule are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 29, 2007 and December 30, 2006,
and the results of its operations and its cash flows for the
years ended December 29, 2007, December 30, 2006, and
December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, the Company adopted, effective at the beginning of
its fiscal 2007 year, new accounting standards for
uncertainty in income taxes and planned major maintenance
activities, and effective December 30, 2006, a new
accounting standard for retirement benefits.
Dole Food Company, Inc. was incorporated under the laws of
Hawaii in 1894 and was reincorporated under the laws of Delaware
in July 2001.
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 fruit and vegetables, as well as
packaged foods. Additionally, the Company markets a full-line of
premium fresh-cut flowers.
Operations are conducted throughout North America, Latin
America, Europe (including eastern European countries), Asia
(primarily in Japan, Korea, the Philippines and Thailand), the
Middle East and Africa (primarily in South Africa). As a result
of its global operating and financing activities, the Company is
exposed to certain risks including changes in commodity pricing,
fluctuations in interest rates, fluctuations in foreign currency
exchange rates, as well as other environmental and business
risks in both sourcing and selling locations.
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 wholesale, retail and institutional
customers and other food product companies.
Note 2 —
Basis of
Presentation and Summary of Significant Accounting
Policies
Basis of Consolidation:The Company’s
consolidated financial statements include the accounts of Dole
Food Company, Inc. and its controlled subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition: Revenue is recognized at
the point title and risk of loss is transferred to the customer,
collection is reasonably assured, persuasive evidence of an
arrangement exists and the price is fixed or determinable.
Sales Incentives:The Company offers sales
incentives and promotions to its customers (resellers) and to
its consumers. These incentives include consumer coupons and
promotional discounts, volume rebates and product placement
fees. The Company follows the requirements of Emerging Issues
Task Force
No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer
(including a Reseller of the Vendor’s Products).
Consideration given to customers and consumers related to
sales incentives is recorded as a reduction of revenues.
Estimated sales discounts are recorded in the period in which
the related sale is recognized. Volume rebates are recognized as
earned by the customer, based upon the contractual terms of the
arrangement with the customer and, where applicable, the
Company’s estimate of sales volume over the term of the
arrangement. Adjustments to estimates are made periodically as
new information becomes available and actual sales volumes
become known. Adjustments to these estimates have historically
not been significant to the Company.
Agricultural Costs: Recurring agricultural
costs include costs relating to irrigation, fertilizing, disease
and insect control and other ongoing crop and land maintenance
activities. Recurring agricultural costs are charged to
operations as incurred or are recognized when the crops are
harvested and sold, depending on the product. Non-recurring
agricultural costs, primarily comprising of soil and farm
improvements and other long-term crop growing costs that benefit
multiple harvests, are deferred and amortized over the estimated
production period, currently from two to seven years.
Shipping and Handling Costs: Amounts billed to
third-party customers for shipping and handling are included as
a component of revenues. Shipping and handling costs incurred
are included as a component of cost of
products sold and represent costs incurred by the Company to
ship product from the sourcing locations to the end consumer
markets.
Marketing and Advertising Costs: Marketing and
advertising costs, which include media, production and other
promotional costs, are generally expensed in the period in which
the marketing or advertising first takes place. In limited
circumstances, the Company capitalizes payments related to the
right to stock products in customer outlets or to provide
funding for various merchandising programs over a specified
contractual period. In such cases, the Company amortizes the
costs over the life of the underlying contract. The amortization
of these costs are classified as a reduction in revenues.
Advertising and marketing costs, included in selling, marketing
and general and administrative expenses, amounted to
$77.1 million, $70.6 million and $71.3 million
during the years ended December 29, 2007, December 30,2006 and December 31, 2005.
Research and Development Costs: Research and
development costs are expensed as incurred. Research and
development costs were not material for the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005.
Income Taxes: Deferred income taxes are
recognized for the income tax effect of temporary differences
between financial statement carrying amounts and the income tax
bases of assets and liabilities. Income taxes, which would be
due upon the repatriation of foreign subsidiary earnings, have
not been provided where the undistributed earnings are
considered indefinitely invested. A valuation allowance is
provided for deferred income tax assets for which it is deemed
more likely than not that future taxable income will not be
sufficient to realize the related income tax benefits from these
assets. The Company establishes liabilities for tax-related
uncertainties based on the estimates of whether, and the extent
to which, additional taxes and interest will be due. The impact
of reserve provisions and changes to the reserves that are
considered appropriate, as well as the related net interest and
penalties, are included in “Income taxes” in the
consolidated statement of operations.
Dole Food Company, Inc. and subsidiaries file its U.S. federal
income tax return and various state income tax returns as part
of the DHM Holding Company, Inc. consolidated tax group. Dole
Food Company, Inc. and subsidiaries calculate current and
deferred tax expense on a stand-alone basis.
Cash and Cash Equivalents: Cash and cash
equivalents consist of cash on hand and highly liquid
investments, primarily money market funds and time deposits,
with original maturities of three months or less.
Grower Advances:The Company makes advances to
third-party growers primarily in Latin America and Asia for
various farming needs. Some of these advances are secured with
property or other collateral owned by the growers. The Company
monitors these receivables on a regular basis and records an
allowance for these grower receivables based on estimates of the
growers’ ability to repay advances and the fair value of
the collateral. Grower advances are stated at the gross advance
amount less allowances for potentially uncollectible balances.
Inventories: Inventories are valued at the
lower of cost or market. Costs related to certain packaged foods
products are determined using the average cost basis. Costs
related to other inventory categories, including fresh fruit,
vegetables and flowers, are determined on the
first-in,
first-out basis. Specific identification and average cost
methods are also used primarily for certain packing materials
and operating supplies. Crop growing costs primarily represent
the costs associated with growing bananas on company-owned farms
or growing vegetables on third-party farms where the Company
bears substantially all of the growing risk.
Investments: Investments in affiliates and
joint ventures with ownership of 20% to 50% are recorded on the
equity method, provided the Company has the ability to exercise
significant influence. All other non-consolidated investments
are accounted for using the cost method. At December 29,2007 and December 30, 2006, substantially all of the
Company’s investments have been accounted for under the
equity method.
Property, Plant and Equipment: Property, plant
and equipment is stated at cost plus the fair value of asset
retirement obligations, if any, less accumulated depreciation.
Depreciation is computed by the straight-line method over the
estimated useful lives of these assets. The Company reviews
long-lived assets to be held and used for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If an
evaluation of recoverability is required, the estimated
undiscounted future cash flows directly associated with the
asset are compared to the asset’s carrying amount. If this
comparison indicates that there is an impairment, the amount of
the impairment is calculated by comparing the carrying value to
discounted expected future cash flows or comparable market
values, depending on the nature of the asset. All long-lived
assets, for which management has committed itself to a plan of
disposal by sale, are reported at the lower of carrying amount
or fair value less cost to sell. Long-lived assets to be
disposed of other than by sale are classified as held and used
until the date of disposal. Routine maintenance and repairs are
charged to expense as incurred.
Goodwill and Intangibles: Goodwill represents
the excess cost of a business acquisition over the fair value of
the net identifiable assets acquired. Goodwill and
indefinite-lived intangible assets are reviewed for impairment
annually, or more frequently if certain impairment indicators
arise. Goodwill is allocated to various reporting units, which
are either the operating segment or one reporting level below
the operating segment. Fair values for goodwill and
indefinite-lived intangible assets are determined based on
discounted cash flows, market multiples or appraised values, as
appropriate.
The Company’s indefinite-lived intangible asset, consisting
of the DOLE brand, is considered to have an indefinite life
because it is expected to generate cash flows indefinitely and
as such is not amortized. The Company’s intangible assets
with a definite life consist primarily of customer
relationships. Amortizable intangible assets are amortized on a
straight-line basis over their estimated useful life. The
weighted average useful life of the Company’s customer
relationships is 11 years.
Concentration of Credit Risk: Financial
instruments that potentially subject the Company to a
concentration of credit risk principally consist of cash
equivalents, derivative contracts, grower advances and trade
receivables. The Company maintains its temporary cash
investments with high quality financial institutions, which are
invested primarily in short-term U.S. government
instruments and certificates of deposit. The counterparties to
the Company’s derivative contracts are major financial
institutions. Grower advances are principally with farming
enterprises located throughout Latin America and Asia and are
secured by the underlying crop harvests. Credit risk related to
trade receivables is mitigated due to the large number of
customers dispersed worldwide. To reduce credit risk, the
Company performs periodic credit evaluations of its customers
but does not generally require advance payments or collateral.
Additionally, the Company maintains allowances for credit
losses. No individual customer accounted for greater than 10% of
the Company’s revenues during the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005. No individual customer accounted for
greater than 10% of accounts receivable as of December 29,2007 or December 30, 2006.
Fair Value of Financial Instruments: The
Company’s financial instruments are primarily composed of
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, revolving
credit facility, 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 the Company’s
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. Based on
these assumptions, with the exception of the Company’s
notes, debentures and term loans, management believes the fair
market values of the Company’s financial instruments are
not materially different from their recorded amounts as of
December 29, 2007 or December 30, 2006.
The Company estimates the fair value of its unsecured notes and
debentures based on current quoted market prices. The estimated
fair value of these unsecured notes and debentures (face value
of $1.11 billion in both 2007 and 2006) was
approximately $1.03 billion and $1.05 billion as of
December 29, 2007 and December 30, 2006, respectively.
The term loans are traded between institutional investors on the
secondary loan market, and the fair values of the term loans are
based on the last available trading price. At December 29,2007, the carrying value and fair value of the term loans was
$960.4 million and approximately $903 million,
respectively. At December 30, 2006, the carrying value of
the Company’s term loans approximated the fair value.
The Company also holds derivative instruments to hedge against
foreign currency exchange, fuel pricing and interest rate
movements. The Company’s derivative financial instruments
are recorded at fair value (Refer to Note 16 for additional
information). The Company estimates the fair values of its
derivatives based on quoted market prices or pricing models
using current market rates.
Foreign Currency Exchange: For subsidiaries
with transactions that are denominated in a currency other than
the functional currency, the net foreign currency exchange
transaction gains or losses resulting from the translation of
monetary assets and liabilities to the functional currency are
included in determining net income. Net foreign currency
exchange gains or losses resulting from the translation of
assets and liabilities of foreign subsidiaries whose functional
currency is not the U.S. dollar are recorded as a part of
cumulative translation adjustment in shareholders’ equity.
Unrealized foreign currency exchange gains and losses on certain
intercompany transactions that are of a long-term-investment
nature (i.e., settlement is not planned or anticipated in the
foreseeable future) are also recorded in cumulative translation
adjustment in shareholders’ equity.
Leases:The Company leases fixed assets for
use in operations where leasing offers advantages of operating
flexibility and is less expensive than alternative types of
funding. The Company also leases land in countries where land
ownership by foreign entities is restricted. The Company’s
leases are evaluated at inception or at any subsequent
modification and, depending on the lease terms, are classified
as either capital leases or operating leases, as appropriate
under Statement of Financial Accounting Standards No. 13,
Accounting for Leases. For operating leases that contain
rent escalations, rent holidays or rent concessions, rent
expense is recognized on a straight-line basis over the life of
the lease. The majority of the Company’s leases are
classified as operating leases. The Company’s principal
operating leases are for land and machinery and equipment. The
Company’s capitalized leases primarily consist of two
vessel leases. The Company’s decision to exercise renewal
options is primarily dependent on the level of business
conducted at the location and the profitability thereof. The
Company’s leasehold improvements were not significant at
December 29, 2007 or December 30, 2006.
Guarantees:The Company makes guarantees as
part of its normal business activities. These guarantees include
guarantees of the indebtedness of some its key fruit suppliers
and other entities integral to the Company’s operations.
The Company also issues bank guarantees as required by certain
regulatory authorities, suppliers and other operating agreements
as well as to support the borrowings, leases and other
obligations of its subsidiaries. The majority of the
Company’s guarantees relate to guarantees of subsidiary
obligations and are scoped out of the initial measurement and
recognition provisions of FASB Interpretation No. 45,
Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others.
Use of Estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the amounts and
disclosures reported in the financial statements and
accompanying notes. Estimates and assumptions include, but are
not limited to, the areas of customer and grower receivables,
inventories, impairment of assets, useful lives of property,
plant and equipment, intangible assets, marketing programs,
income taxes, self-insurance reserves, retirement benefits,
financial instruments and commitments and contingencies. Actual
results could differ from these estimates.
Reclassifications: Certain prior year amounts
have been reclassified to conform with the 2007 presentation.
During September 2006, the Financial Accounting Standards Board
(“FASB”) issued FASB Staff Position AUG AIR-1,
Accounting For Planned Major Maintenance Activities
(“FSP”), which eliminates the acceptability of the
accrue-in-advance
method of accounting for planned major maintenance activities.
As a result, there are three alternative methods of accounting
for planned major maintenance activities: direct expense,
built-in-overhaul
or deferral. The guidance in this FSP became effective for the
Company at the beginning of its fiscal 2007 year and
requires retrospective application for all financial statement
periods presented. The Company had been accruing for planned
major maintenance activities associated with its vessel fleet
under the
accrue-in-advance
method. The Company adopted the deferral method of accounting
for planned major maintenance activities associated with its
vessel fleet. The adoption of this FSP impacted the following
balance sheet accounts at December 30, 2006,
December 31, 2005 and January 1, 2005:
Net income decreased for the years ended December 30, 2006
and December 31, 2005 by approximately $0.6 million
and $0.5 million, respectively.
During September 2006, the FASB issued Statement of Financial
Accounting Standards No. 158, Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans
(“FAS 158”). FAS 158 requires an employer to
recognize the overfunded or underfunded status of a defined
benefit postretirement plan as an asset or liability in its
statement of financial position and to recognize changes in that
funded status in the year in which the changes occur as a
component of comprehensive income. The standard also requires an
employer to measure the funded status as of the date of its
year-end statement of financial position. The Company early
adopted the provisions of FAS 158 effective
December 30, 2006. Refer to Note 12 —
Employee Benefit Plans for additional disclosures required by
FAS 158 and the effects of adoption.
During June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an Interpretation
of FASB Statement No. 109 (“FIN 48”).
FIN 48 clarifies what criteria must be met prior to
recognition of the financial statement benefit of a position
taken in a tax return. FIN 48 also provides guidance on
derecognition of income tax assets and liabilities,
classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated
with tax positions, accounting for income taxes in interim
periods, and income tax disclosures. The Company adopted
FIN 48 at the beginning of its fiscal 2007 year. Refer
to Note 6 — Income Taxes for the impact that the
adoption of FIN 48 had on the Company’s financial
position and results of operations.
Recently
Issued Accounting Pronouncements
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
combinations. It establishes the acquisition date fair value as
the measurement objective for all assets acquired and
liabilities assumed and also requires the acquirer to disclose
to investors and other users all of the information they need to
evaluate and understand the nature and financial effect of the
business combination. Changes in acquired tax contingencies,
including those existing at the date of adoption, will be
recognized in earnings if outside the maximum allocation period
(generally one year). FAS 141R will be applied
prospectively to business combinations with acquisition dates on
or after January 1, 2009. Following the date of adoption of
FAS 141R, the resolution of such items at values that
differ from recorded amounts will be adjusted through earnings,
rather than goodwill.
During December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests
in Consolidated Financial Statements
(“FAS 160”). FAS 160 requires all
entities to report noncontrolling (minority) interests in
subsidiaries in the same way as equity in the consolidated
financial statements. The Company is required to adopt
FAS 160 for the first fiscal year beginning after
December 15, 2008. The Company is currently evaluating the
impact, if any, the adoption of FAS 160 will have on its
financial position and results of operations.
During February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Liabilities — Including an
amendment of FASB Statement No. 115
(“FAS 159”). FAS 159 permits entities to
choose to measure certain financial assets and liabilities at
fair value. Unrealized gains and losses, arising subsequent to
adoption, are reported in earnings. The Company is required to
adopt FAS 159 for the first fiscal year beginning after
November 15, 2007. The Company did not elect the fair value
option for any of its eligible financial instruments and other
items.
During September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(“FAS 157”). FAS 157 defines fair value,
establishes a framework for measuring fair value and requires
enhanced disclosures about fair value measurements. FAS 157
applies to fair value measurements already required or permitted
by existing standards. FAS 157 requires companies to
disclose the fair value of financial instruments according to a
fair value hierarchy as defined in the standard. The changes to
current generally accepted accounting principles from the
application of FAS 157 relate to the definition of fair
value, the methods used to measure fair value, and the expanded
disclosures about fair value measurements. FAS 157 is
effective for fiscal years beginning after November 15,2007 and interim periods within those fiscal years and will be
applied on a prospective basis. The Company is currently
evaluating the impact, if any, the adoption of FAS 157 will
have on its financial position and results of operations.
Note 3 —
Discontinued
Operations
During the fourth quarter of 2007, the Company approved and
committed to a formal plan to divest its citrus and pistachio
operations (“Citrus”) located in central California.
In evaluating the business, the Company concluded that this
business 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 historical results of operations of this business have been
reclassified for all periods presented. Pursuant to
FAS 144, the consolidated balance sheet and consolidated
statements of cash flows do not reflect the reclassification of
Citrus as a discontinued operation. The operating results of
Citrus for fiscal 2007, 2006 and 2005, which were included in
the “Fresh fruit” operating segment, are reported in
the following table:
2007
2006
2005
(In thousands)
Revenues
$
13,586
$
20,527
$
17,960
Income before income taxes
$
733
$
3,767
$
493
Income taxes
$
300
$
1,765
$
182
Income from discontinued operations, net of income taxes
During the fourth quarter of 2006, the Company completed the
sale of its Pacific Coast Truck Center (“Pac Truck”)
business for $20.7 million. The Pac Truck business
consisted of a full service truck dealership that provided
medium and heavy-duty trucks to customers in the Pacific
Northwest region. The Company received $15.3 million of net
proceeds from the sale after the assumption of $5.4 million
of debt and realized a gain of approximately $2.8 million
on the sale, net of income taxes of $2 million. In
accordance with FAS 144, the sale of Pac Truck qualified
for discontinued operations treatment. Accordingly, the
historical results of operations of this business have been
reclassified for all periods presented. Pursuant to
FAS 144, the consolidated balance sheet and consolidated
statements of cash flows do not reflect the reclassification of
Pac Truck as a discontinued operation. The operating results of
Pac Truck for fiscal 2006 and 2005, which were included in the
“Other” operating segment, are reported in the
following table:
2006
2005
(In thousands)
Revenues
$
47,851
$
43,826
Income before income taxes
$
397
$
355
Income taxes
$
163
$
164
Income from discontinued operations, net of income taxes
$
234
$
191
Gain on disposal of discontinued operations, net of income taxes
of $2 million
$
2,814
$
—
During the fourth quarter of 2005, the Company resolved a
contingency related to the sale of Cervecería
Hondureña, S.A., a Honduran corporation principally engaged
in the beverage business in Honduras, which occurred in 2001. As
a result, the Company realized income of $2 million, net of
income taxes of $1.4 million. The income has been recorded
as income from discontinued operations in the Company’s
consolidated statement of operations for the year ended
December 31, 2005. In a related transaction, the Company
recorded $4.8 million in income from continuing operations
resulting from the collection of a fully reserved receivable
balance and interest income.
Note 4 —
Business
Acquisitions
Jamaica
Producers Group, Ltd.
On October 3, 2006, Jamaica Producers Group Ltd.
(“JPG”) accepted the Company’s offer to purchase
from JPG the 65% of JP Fruit Distributors Limited (“JP
Fresh”) that the Company did not already own for
$42.5 million in cash. JP Fresh imports and sells fresh
produce in the United Kingdom. The acquisition of JP Fresh
allows the Company to strengthen its penetration of the fresh
produce market in the United Kingdom and the Republic of
Ireland. The transaction closed during the fourth quarter of
2006. The acquisition resulted in goodwill of $24 million,
which is included in the Company’s fresh fruit segment.
Expected geographical synergies arising from this widening of
the existing Dole network in Europe as well as the ability to
leverage the Company’s tradition of top quality produce and
exceptional service in these markets contributed to a purchase
price that resulted in the recognition of goodwill. The results
of operations for JP Fresh have been included in the
Company’s consolidated results of operations from
October 6, 2006, the effective date of acquisition.
The following table represents the final values attributed to
the assets acquired and liabilities assumed as of the date of
the acquisition. These values include the historical values
attributable to the Company’s predecessor basis (in
thousands):
Total purchase price, including transaction expenses
$
42,500
Current assets
$
58,280
Property, plant and equipment
19,060
Intangible assets
9,898
Goodwill
24,035
Other assets
3,797
Total assets acquired
115,070
Current liabilities
35,878
Other long-term liabilities
16,911
Total liabilities assumed
52,789
Net assets
62,281
Less: Historical net assets attributable to predecessor basis
10,125
Less: Goodwill attributable to predecessor basis
9,656
Net assets acquired
$
42,500
The fair values of the property, plant and equipment and
intangible assets acquired were based on available market
information.
The $9.9 million allocated to intangible assets is a
valuation of customer relationships with finite lives. These
customer relationships will be amortized over approximately
15 years.
JP Fresh contributed approximately $300 million of sales
during the fiscal year ended December 29, 2007. The impact
of JP Fresh on the Company’s consolidated results of
operations for 2007 was not material.
Saba
On December 30, 2004, the Company acquired the remaining
40% of Saba Trading AB (“Saba”), for
$47.1 million, which was paid in cash during the first
fiscal quarter of 2005. Saba is the leading importer and
distributor of fruit, vegetables and flowers in Scandinavia.
Note 5 —
Restructurings
and Related Asset Impairments
During the third quarter of 2006, the Company restructured its
fresh-cut flowers division (“DFF”) to better focus on
high-value products and flower varieties, and position the
business unit for future growth. In connection with the
restructuring, DFF ceased its farming operations in Ecuador,
closed two farms in Colombia and downsized other Colombian farms.
DFF incurred total costs of $30.1 million related to this
initiative, of which $7.5 million relates to cash
restructuring costs and $22.6 million to non-cash
impairment charges associated with the write-off of certain
long-lived assets, intangible assets and inventory. The
$7.5 million of restructuring costs relate to land clearing
costs and employee severance costs which impacted approximately
2,500 employees. The $22.6 million charge relates to
the impairment and write-off of the following assets: trade
names ($4.9 million), deferred crop growing costs
($8.5 million), property, plant and equipment
($8.4 million), and inventory ($0.8 million). Of the
$30.1 million incurred, $1.1 million was incurred
during 2007 and $29 million was incurred during 2006. The
$1.1 million relates to land clearing costs and employee
severance and was recorded in cost of products sold in the
consolidated
statement of operations. For 2006, $24 million was recorded
in cost of products sold and $5 million was recorded in
selling, marketing, and general and administrative expenses in
the consolidated statement of operations. At December 29,2007, all of the restructuring costs had been paid.
During the first quarter of 2006, the commercial relationship
substantially ended between the Company’s wholly-owned
subsidiary, Saba, and Saba’s largest customer. Saba is a
leading importer and distributor of fruit, vegetables and
flowers in Scandinavia. Saba’s financial results are
included in the fresh fruit reporting segment. The Company
restructured certain lines of Saba’s business and as a
result, incurred $12.8 million of total related costs. Of
the $12.8 million incurred during the year ended
December 30, 2006, $9 million is included in cost of
products sold and $3.8 million in selling, marketing, and
general and administrative expenses in the consolidated
statement of operations. Total restructuring costs include
$9.9 million of employee severance costs which impacted
275 employees, $2.4 million of contractual lease
obligations as well as $0.5 million of fixed asset
write-offs. At December 29, 2007 all of the restructuring
costs had been paid.
In connection with the Company’s ongoing farm optimization
programs in Asia, $2.8 million and $6.7 million of
crop-related costs were written-off during 2007 and 2006,
respectively. These non-cash charges have been recorded in cost
of products sold in the consolidated statements of operations.
Note 6 —
Income
Taxes
Income tax expense (benefit) was as follows:
2007
2006
2005
(In thousands)
Current
Federal, state and local
$
735
$
406
$
27,125
Foreign
15,942
20,027
22,790
16,677
20,433
49,915
Deferred
Federal, state and local
(32,568
)
(21,376
)
(17,687
)
Foreign
(3,664
)
(5,657
)
(15,996
)
(36,232
)
(27,033
)
(33,683
)
Non-current tax expense
20,615
24,830
27,943
$
1,060
$
18,230
$
44,175
Pretax earnings attributable to foreign operations were
$53.9 million, $30.7 million and $199.2 million
for the years ended December 29, 2007, December 30,2006 and December 31, 2005, respectively. Undistributed
earnings of foreign subsidiaries, which are intended to be
indefinitely invested, totaled $2.1 billion at
December 29, 2007. Other than the repatriation discussed
below, it is currently not practicable to estimate the tax
liability that might be payable if these foreign earnings were
repatriated.
During October 2004, The American Jobs Creation Act of 2004 was
signed into law, adding Section 965 to the Internal Revenue
Code. Section 965 provided a special one-time deduction of
85% of certain foreign earnings that were repatriated under a
domestic reinvestment plan, as defined therein. The effective
federal tax rate on any qualified repatriated foreign earnings
under Section 965 was 5.25%. Taxpayers could elect to apply
this provision to a qualified earnings repatriation made during
calendar year 2005.
During the second quarter of 2005, the Company repatriated
$570 million of earnings from its foreign subsidiaries, of
which approximately $489 million qualified for the 85%
dividends received deduction under
Section 965. A tax provision of approximately
$37.8 million for the repatriation of certain foreign
earnings was recorded as income tax for the year ended
December 31, 2005.
The Company’s reported income tax expense on continuing
operations differed from the expense calculated using the
U.S. federal statutory tax rate for the following reasons:
2007
2006
2005
(In thousands)
(Benefit)/expense computed at U.S. federal statutory income tax
rate of 35%
$
(19,369
)
$
(25,698
)
$
28,567
Repatriation of certain foreign earnings
—
—
37,772
Foreign income taxed at different rates
10,601
36,303
(39,603
)
State and local income tax, net of federal income taxes
(4,196
)
(2,411
)
(2,053
)
Valuation allowances
13,248
13,848
19,522
Permanent items and other
776
(3,812
)
(30
)
Income tax expense
$
1,060
$
18,230
$
44,175
Deferred tax assets (liabilities) comprised the following:
The Company has gross federal, state and foreign net operating
loss carryforwards of $48.3 million, $1 billion and
$333.1 million, respectively, at December 29, 2007.
The Company has recorded deferred tax assets of
$17.5 million for federal net operating loss and other
carryforwards, which, if unused, will expire between 2023 and
2026. The Company has recorded deferred tax assets of
$45.5 million for state operating loss carryforwards,
which, if unused, will start to expire in 2008. The Company has
recorded deferred tax assets of $104.4 million for foreign
net operating loss carryforwards which are subject to varying
expiration rules. Tax credit carryforwards of $20.9 million
include foreign tax credit carryforwards of $18.4 million
which will expire in 2011, U.S. general business credit
carryforwards of $0.2 million which expire between 2023 and
2025, and state tax credit carryforwards of $2.3 million
with varying expiration dates. The Company has recorded a
U.S. deferred tax asset of $28.7 million for
disallowed interest expense which, although subject to certain
limitations, can be carried forward indefinitely.
A valuation allowance has been established to offset foreign tax
credit carryforwards, state net operating loss carryforwards,
certain foreign net operating loss carryforwards and certain
other deferred tax assets in foreign
jurisdictions. The Company has deemed it more likely than not
that future taxable income in the relevant taxing jurisdictions
will be insufficient to realize the related income tax benefits
for these assets.
Total deferred tax assets and deferred tax liabilities were as
follows:
The Company adopted the provisions of FIN 48 at the
beginning of its fiscal 2007 year. The adoption of
FIN 48 impacted the following balance sheet accounts (in
thousands):
Increase / (Decrease
Goodwill
$(30,191
)
Deferred income tax liabilities
(25,655
)
Other long-term liabilities
(30,971
)
Retained deficit
26,435
A reconciliation of the beginning and ending balances of the
total amounts of gross unrecognized tax benefits is as follows
(in thousands):
Unrecognized tax benefits — opening balance
$
200,641
Gross increases — tax positions in prior period
10,837
Gross decreases — tax positions in prior period
(13,448
)
Gross increases — tax positions in current period
8,284
Settlements
(1,793
)
Lapse of statute of limitations
(100
)
Unrecognized tax benefits — ending balance
$
204,421
The Company has $269 million of total gross unrecognized
tax benefits including interest at December 29, 2007. If
recognized, approximately $146.5 million, net of federal
and state tax benefits, would be recorded as a component of
income tax expense and accordingly impact the effective tax rate.
The Company recognizes accrued interest and penalties related to
its unrecognized tax benefits as a component of income taxes in
the consolidated statements of operations. Accrued interest and
penalties before tax benefits were $48.2 million and
$64.6 million at December 30, 2006 and
December 29, 2007, respectively, and are included as a
component of other long-term liabilities in the consolidated
balance sheet. Accruals for interest and penalties recorded in
the Company’s consolidated statements of operations for
2007, 2006 and 2005 were $17.2 million, $6.9 million
and $20.1 million, respectively.
Dole Food Company 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, the
Company 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:The Company 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 year. Management
considers it unlikely that the resolution of these matters will
have a material adverse effect on the Company’s results of
operations.
Internal Revenue Service Audit: On
June 29, 2006, the IRS completed an examination of the
Company’s federal income tax returns for the years 1995 to
2001 and issued a Revenue Agent’s Report (“RAR”)
that includes various proposed adjustments. The net tax
deficiency associated with the RAR is $175 million, plus
interest and penalties. The Company timely filed a protest
letter contesting the proposed adjustments contained in the RAR
on July 6, 2006. During January 2008, the Company was
notified that the Appeals Branch of the IRS finalized its review
of the Company’s protest. This review is subject to Joint
Committee approval. As a result of the finalization of the
review of the Company’s federal income tax returns for the
years 1995 to 2001 by the Appeals Branch of the IRS, it is
likely that the Company’s gross unrecognized tax benefits
recorded in other long-term liabilities could decrease within
the next twelve months by as much as $110 million. In that
case, the impact on the Company’s consolidated financial
statements would be approximately $130 million, which
includes the $110 million plus $20 million for
interest and federal and state tax benefits. Approximately
$60 million of this amount would reduce the Company’s
income tax provision and effective tax rate, and the remaining
$70 million would reduce goodwill.
The Company is currently under examination by the Internal
Revenue Service for the tax years
2002-2005
and it is anticipated that the examination will be completed by
the end of 2009.
Accrued postretirement and other employee benefits
$
249,230
$
258,319
Liability for unrecognized tax benefits
217,570
279,802
Other
74,434
70,070
$
541,234
$
608,191
Note 8 —
Assets
Held-for-Sale
The Company reviews its assets in order to identify those assets
that do not meet the Company’s future strategic direction
or internal economic return criteria. As a result of this
review, the Company has identified and is in the process of
selling certain long-lived assets. In accordance with
FAS 144, the Company has reclassified these assets as
held-for-sale.
Total assets held-for-sale by segment were are follows:
At December 29, 2007, included in the Company’s
balance sheet are $73.8 million of assets held-for-sale
related primarily to property, plant and equipment, net of
accumulated depreciation and $2.4 million related to
inventory. At December 30, 2006, included in the
Company’s balance sheet are $31.6 million of assets
held-for-sale related to property, plant and equipment, net of
accumulated depreciation and $5.2 million related to
accounts payable.
During the first quarter of 2007, two of the Company’s
non-wholly-owned subsidiaries sold land parcels located in
central California to subsidiaries of Castle & Cooke,
Inc. (“Castle”) for $40.7 million, of which
$30.5 million was in cash and $10.2 million was a note
receivable. Castle is owned by David H. Murdock, the
Company’s Chairman. At December 30, 2006, these land
parcels were recorded as assets held-for-sale in the
consolidated balance sheet. The Company’s share of the gain
on the sale was approximately $0.9 million, net of income
taxes. Since the sale involved the transfer of assets between
two parties under common control, the gain on the sale was
recorded as an increase to additional paid-in capital. These
transactions have been included in the Company’s fresh
fruit segment.
During the second quarter of 2007, the Company reclassified
seven Chilean farms and related assets associated with its
Chilean deciduous fruit operations as assets held-for-sale. In
connection with the Company’s evaluation of the Chilean
assets held-for-sale, the Company determined that certain
long-lived assets were impaired and recorded a non-cash
impairment charge of $3.8 million. The impairment charge of
$3.8 million is included in cost of products sold in the
consolidated statement of operations. The fair values of the
assets in the impairment analysis were based on estimated sales
prices of the related assets. The Company subsequently sold five
of its Chilean farms classified as assets held-for-sale for
$9.3 million. The Company received $4.9 million in
cash proceeds, recorded $4.4 million as notes receivable
and recognized a gain of $0.6 million, which is included in
cost of products sold in the consolidated statement of
operations.
During the second and third quarters of 2007, the Company
reclassified certain long-lived assets associated with its fresh
fruit and fresh-cut flowers operations as assets held-for-sale.
These assets consist of farmland located in Latin America and
California as well as the fresh-cut flowers headquarters
facility, located in Miami, Florida.
During the fourth quarter of 2007, the Company reclassified
additional land parcels (consisting of approximately
4,400 acres of land) and other related assets and
liabilities of its citrus and pistachio operations located in
central California as assets held-for-sale. Refer to
Note 3 — Discontinued Operations for additional
information related to the disposal of these assets.
Also during the fourth quarter, the Company reclassified a
breakbulk refrigerated ship owned by a Latin American subsidiary
as assets held-for-sale. During the first quarter of 2008, the
Company sold the ship for $12.7 million and also entered
into a lease agreement for the ship. The Company recognized a
deferred gain of $11.9 million on the sale which is being
amortized over the 3 year lease term.
Note 9 —
Property,
Plant and Equipment
Major classes of property, plant and equipment were as follows:
Depreciation is computed by the straight-line method over the
estimated useful lives of the assets as follows:
Years
Land improvements
5 to 40
Buildings and leasehold improvements
2 to 50
Machinery and equipment
2 to 35
Vessels and containers
5 to 20
Vessels and equipment under capital leases
Shorter of useful life
or life of lease
Depreciation expense for property, plant and equipment totaled
$151.1 million, $144.8 million and $137.9 million
for the years ended December 29, 2007, December 30,2006 and December 31, 2005, respectively.
The additions to goodwill during the year ended
December 30, 2006 relate to the acquisition of JP Fresh.
Refer to Note 4 — Business Acquisitions for
further details.
The tax-related adjustments result from changes to deductible
temporary differences, operating loss or tax credit
carryforwards and contingencies that existed at the time of the
going-private merger transaction. Included in the 2006
tax-related adjustments is approximately $17.5 million of
deferred tax assets established during 2006 that should have
been established at the date of the going-private merger
transaction.
Details of the Company’s intangible assets were as follows:
Amortization expense of identifiable intangibles totaled
$4.5 million, $4.5 million and $11.9 million for
the years ended December 29, 2007, December 30, 2006
and December 31, 2005, respectively. Estimated remaining
amortization expense associated with the Company’s
identifiable intangible assets in each of the next five fiscal
years is as follows (in thousands):
Fiscal Year
Amount
2008
$
4,421
2009
$
4,421
2010
$
4,421
2011
$
4,421
2012
$
4,421
The Company 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 (“FAS 142”), during
the second quarter of fiscal 2007. This review indicated no
impairment to goodwill or any of the Company’s
indefinite-lived intangible assets.
During the third quarter of 2007, indicators of impairment of
goodwill and long-lived assets were identified in the
Company’s fresh vegetables operating segment, related to
the current operating losses of this segment. In response to
these indicators, the Company performed impairment tests under
the requirements of FAS 142 and FAS 144. The
impairment test under FAS 142 showed that the
Company’s goodwill was not impaired. Additionally, the
impairment test of long-lived assets under FAS 144 for the
fresh vegetables operating segment indicated these assets were
recoverable and accordingly not impaired. The Company will
continue to monitor and perform updates of its impairment
testing of the recoverability of goodwill and long-lived assets
as along as such impairment indicators are present.
During the third quarter of 2006 the Company restructured its
fresh-cut flowers business. Due to indicators of impairment, the
Company performed a two-step impairment test in accordance with
FAS 144. As a result, the Company determined that the
fresh-cut flowers indefinite-lived trade names were fully
impaired and recorded an impairment charge of $4.9 million
which is included in selling, marketing and general and
administrative expenses in the consolidated statement of
operations. Additionally, the Company identified certain other
impairments of long-lived assets as a result of this impairment
test. See Note 5 for a discussion of the fresh-cut flowers
restructuring and asset impairments.
Contracts and notes, at a weighted-average interest rate of 8.4%
in 2007 (7.5% in 2006) through 2014
3,255
2,291
Capital lease obligations
85,959
88,380
Unamortized debt discount
(610
)
(907
)
Notes payable
81,018
34,129
2,411,397
2,364,181
Current maturities
(95,189
)
(48,584
)
$
2,316,208
$
2,315,597
Notes
Payable
The Company borrows funds on a short-term basis to finance
current operations. The terms of these borrowings range from one
month to three months. The Company’s notes payable at
December 29, 2007 consist primarily of foreign borrowings
in Asia and Latin America.
Notes
and Debentures
In April 2002, the Company completed the sale and issuance of
$400 million aggregate principal amount of Senior Notes due
2009 (the “2009 Notes”). The 2009 Notes are
redeemable, at the discretion of the Company, at par plus a
make-whole amount, if any, and accrued and unpaid interest, any
time prior to maturity. The 2009 Notes were issued at 99.50% of
par.
In May 2003, the Company issued and sold $400 million
aggregate principal amount of 7.25% Senior Notes due 2010
(the “2010 Notes”). The 2010 Notes were issued at par.
The Company may redeem some or all of the 2010 Notes at a
redemption price of 101.813% of their principal amount during
2008 and at 100% during 2009 and thereafter, plus accrued and
unpaid interest.
In connection with the going-private merger transaction of 2003,
the Company issued $475 million aggregate principal amount
of 8.875% Senior Notes due 2011 (the “2011
Notes”). The 2011 Notes were issued at par. The Company may
redeem some or all of the 2011 Notes at a redemption price of
102.219% of their principal amount during 2008 and at 100%
during 2009 and thereafter, plus accrued and unpaid interest.
In July 1993, the Company issued and sold debentures due 2013
(the “2013 Debentures”). The 2013 Debentures are not
redeemable prior to maturity and were issued at 99.37% of par.
During 2005, the Company repurchased $325 million aggregate
principal amount of its outstanding debt securities
($50 million of its 2009 Notes and $275 million of its
2011 Notes). As a result, the Company recorded a loss on early
retirement of debt of $42.3 million, which is included in
other income (expense), net in the consolidated statement of
operations for the year ended December 31, 2005.
Interest on the notes and debentures is paid semi-annually.
None of the Company’s notes or debentures are subject to
any sinking fund requirements. The notes and debentures are
guaranteed by the Company’s wholly-owned domestic
subsidiaries (Note 21).
Amendments
to Credit Facilities
In April 2006, the Company completed an amendment and
restatement of its senior secured credit agreement. The purposes
of this refinancing included increasing the combined size of the
Company’s revolving credit and letter of credit facilities,
eliminating certain financial maintenance covenants, realizing
currency gains arising out of the Company’s then existing
yen-denominated term loan, and refinancing the higher-cost bank
indebtedness of the Company’s immediate parent, Dole
Holding Company, LLC (“DHC”) at the lower-cost Dole
Food Company, Inc. level. The Company obtained $975 million
of term loan facilities and $100 million in a pre-funded
letter of credit facility, both of which mature in April 2013.
The proceeds of the term loans were used to repay the then
outstanding term loans and revolving credit facilities, as well
as pay a dividend of $160 million to DHC, which proceeds
were used to repay its Second Lien Senior Credit Facility.
In addition, the Company entered into a new asset based
revolving credit facility (“ABL revolver”) of
$350 million. The facility is secured by and is subject to
a borrowing base consisting of up to 85% of eligible accounts
receivable plus a predetermined percentage of eligible
inventory, as defined in the credit facility. The ABL revolver
matures in April 2011.
In connection with the 2006 refinancing transaction, the Company
wrote-off deferred debt issuance costs of $8.1 million and
recognized a gain of $6.5 million related to the settlement
of its interest rate swap. These amounts were recorded to other
income (expense), net in the consolidated statement of
operations for the year ended December 30, 2006.
Revolving
Credit Facility and Term Loans
As of December 29, 2007, the term loan facilities consisted
of $221.6 million of Term Loan B and $738.8 million of
Term Loan C. The term loan facilities bear interest at LIBOR
plus a margin ranging from 1.75% to 2%, dependent upon the
Company’s senior secured leverage ratio. The weighted
average variable interest rates at December 29, 2007 for
Term Loan B and Term Loan C were LIBOR plus 2%, or 7.2%. The
term loan facilities require quarterly principal payments, plus
a balloon payment due in 2013.
As of December 29, 2007, the ABL revolver borrowing base
was $314.6 million and the amount outstanding under the ABL
revolver was $176.4 million. The ABL revolver bears
interest at LIBOR plus a margin ranging from 1.25% to 1.75%,
dependent upon the Company’s historical borrowing
availability under this facility. At December 29, 2007, the
weighted average variable interest rate for the ABL revolver was
LIBOR plus 1.5%, or 6.6%. After taking into account
approximately $4.3 million of outstanding letters of credit
issued under the ABL revolver, the Company had approximately
$133.9 million available for borrowings as of
December 29, 2007. In addition, the Company had
approximately $91.8 million of letters of credit and bank
guarantees outstanding under its pre-funded letter of credit
facility as of December 29, 2007.
A commitment fee, which fluctuated between 0.25% and 0.375%, was
paid based on the total unused portion of the revolving credit
facility. In addition, there is a facility fee on the pre-funded
letter of credit facility. The Company paid a total of
$0.7 million, $1 million and $0.7 million in
commitment and facility fees for the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005.
During June 2006, the Company entered into an interest rate swap
agreement in order to hedge future changes in interest rates and
a cross currency swap to effectively lower the U.S. dollar
fixed interest rate of 7.2% to a Japanese yen fixed interest
rate of 3.6%. Refer to Note 16 — Derivative
Financial Instruments for additional discussion of the
Company’s hedging activities.
The revolving credit facility and term loan facilities are
collateralized by substantially all of the Company’s
tangible and intangible assets, other than certain intercompany
debt, certain equity interests and each of the Company’s
U.S. manufacturing plants and processing facilities that
has a net book value exceeding 1% of the Company’s net
tangible assets.
Capital
Lease Obligations
At December 29, 2007, included in capital lease obligations
is $83.4 million of vessel financings related to two vessel
leases denominated in British pound sterling. The interest rates
on these leases are based on LIBOR plus a spread. The remaining
$2.6 million of capital lease obligations relate primarily to
ripening rooms and machinery and equipment. Interest rates under
these leases are fixed. The capital lease obligations are
collateralized by the underlying leased assets.
Covenants
Provisions under the indentures to the Company’s senior
notes and debentures require the Company 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. At December 29, 2007, the Company was
in compliance with all applicable covenants.
Debt
Issuance Costs
Expenses related to the issuance of long-term debt are
capitalized and amortized to interest expense over the term of
the underlying debt. During the years ended December 29,2007, December 30, 2006 and December 31, 2005, the
Company amortized deferred debt issuance costs of
$4.1 million, $4.4 million and $5.9 million,
respectively.
The Company wrote off $8.1 million and $10.7 million
of deferred debt issuance costs during the years ended
December 30, 2006 and December 31, 2005, respectively.
The 2006 write-off was a result of the April 2006 refinancing
transaction. The write-off of debt issuance costs in 2005
resulted from the prepayment of $325 million of unsecured
senior notes and $335 million of term loan facilities.
Maturities
of Notes Payable and Long-Term Debt
Maturities with respect to notes payable and long-term debt as
of December 29, 2007 were as follows (in thousands):
In addition to amounts available under the revolving credit
facility, the Company’s subsidiaries have uncommitted lines
of credit of approximately $187.3 million at various local
banks, of which $98.5 million was available at
December 29, 2007. These lines of credit are used primarily
for short-term borrowings, foreign currency exchange settlement
and the issuance of letters of credit or bank guarantees.
Several of the Company’s uncommitted lines of credit expire
in 2008 while others do not have a commitment expiration date.
These arrangements may be cancelled at any time by the Company
or the banks. The Company’s ability to utilize these lines
of credit is limited under the terms of its senior secured
credit facilities and bond indentures.
Note 12 —
Employee
Benefit Plans
The Company sponsors a number of defined benefit pension plans
covering certain employees worldwide. 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
pension plans, the Company has other postretirement benefit
(“OPRB”) 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 the U.S. qualified pension plan, the Company’s
historical policy has been to fund the normal cost plus a
15-year
amortization of the unfunded liability, subject to statutory
minimums. However, as a result of the Pension Protection Act of
2006 (see discussion below), the Company is required to amortize
the unfunded liability over a
7-year
period beginning in 2008. Most of the Company’s
international pension plans and all of its OPRB plans are
unfunded.
All pension benefits for U.S. salaried employees were
frozen in 2002. The assumption for the rate of compensation
increase of 2.5% on the U.S. plans represents the rate
associated with the participants whose benefits are negotiated
under collective bargaining arrangements.
The Company uses a December 31 measurement date for all of its
plans.
Adoption
of FAS 158
As of December 30, 2006, the Company adopted FAS 158,
which changed the accounting rules for reporting and disclosures
related to pension and other postretirement benefit plans.
FAS 158 requires that companies include on the balance
sheet an additional asset or liability to reflect the funded
status of retirement and other postretirement benefit plans, and
a corresponding after-tax adjustment to equity. The adoption in
2006 had no effect on the computation of net periodic benefit
expense for pensions and postretirement benefits.
The incremental effects of applying FAS 158 on individual
lines in the Company’s 2006 consolidated balance sheet were
as follows:
In August 2006, the Pension Protection Act of 2006 was signed
into law. This legislation changes the method of valuing the
U.S. qualified pension plan assets and liabilities for
funding purposes, as well as the minimum funding levels required
beginning in 2008. The effect of these changes will be larger
contributions over the next seven years, with the goal of being
fully funded by 2014. The amount of unfunded liability in future
years will be affected by future contributions, demographic
changes, investment returns on plan assets, and interest rates,
so full funding may be achieved sooner or later than 2014. The
Company anticipates funding pension contributions with cash from
operations.
Medicare
Prescription Drug, Improvement and Modernization Act of
2003
The Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the “Act”) was signed into law in
December 2003. The Act introduced a prescription drug benefit
under Medicare (“Medicare Part D”), as well as a
federal subsidy to sponsors of retiree health care benefit plans
that provide a prescription drug benefit that is at least
actuarially equivalent to Medicare Part D. The Company
determined that the benefits provided by certain of its
postretirement health care plans are actuarially equivalent to
Medicare Part D and thus qualify for the subsidy under the
Act. The expected subsidy decreased the accumulated
postretirement benefit obligation (“APBO”) by
$3.5 million and $5 million as of December 29,2007 and December 30, 2006, respectively. The net periodic
benefit costs for 2007, 2006 and 2005 were reduced by
approximately $0.2 million, $0.3 million and
$0.5 million, respectively, due to the expected subsidy.
All of the Company’s pension plans were underfunded at
December 29, 2007, having accumulated benefit obligations
exceeding the fair value of plan assets. The accumulated benefit
obligation for all defined benefit pension plans was
$417.6 million and $406.6 million at December 29,2007 and December 30, 2006, respectively. The aggregate
projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were as follows:
Components
of Net Periodic Benefit Cost and Other Changes Recognized in
Other Comprehensive Loss
The components of net periodic benefit cost and other changes
recognized in other comprehensive loss for the Company’s
U.S. and international pension plans and OPRB plans were as
follows:
Other changes recognized in other comprehensive loss
Net gain
$
(5,194
)
Amortization of:
Unrecognized net loss
(95
)
Unrecognized prior service benefit
914
Income taxes
2,271
Total recognized in other comprehensive loss
$
(2,104
)
Total recognized in net periodic benefit cost and other
comprehensive loss, net of income taxes
$
2,024
The estimated net loss, prior service cost and transition
obligation for the defined benefit pension plans that will be
amortized from accumulated other comprehensive loss into net
periodic benefit cost over the next fiscal year is
$2.1 million. The estimated actuarial net gain and prior
service benefit for the OPRB plans that will be amortized from
accumulated other comprehensive loss into periodic benefit cost
over the next fiscal year is $0.9 million.
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 29, 2007 and
December 30, 2006 are as follows:
U.S. Pension
International
Plans
Pension Plans
OPRB Plans
2007
2006
2007
2006
2007
2006
Rate assumptions:
Discount rate
5.75
%
5.75
%
6.61
%
10.17
%
5.91
%
5.74
%
Compensation increase
2.50
%
2.50
%
5.15
%
7.02
%
—
4.95
%
Rate of return on plan assets
8.00
%
8.25
%
6.73
%
7.12
%
—
—
International plan discount rates, assumed rates of increase in
future compensation and expected long-term return on assets
differ from the assumptions used for U.S. plans due to
differences in the local economic conditions in the countries in
which the international plans are based.
The APBO for the Company’s U.S. OPRB plan in 2007 and
2006 was determined using the following assumed annual rate of
increase in the per capita cost of covered health care benefits:
Year Ended
Year Ended
December 29,
December 30,
Fiscal Year
2007
2006
Health care costs trend rate assumed for next year
9
%
8
%
Rate of increase to which the cost of benefits is assumed to
decline (the ultimate trend rate)
5.5
%
5.5
%
Year that the rate reaches the ultimate trend rate
2012
2010
A one-percentage-point change in assumed health care cost trend
rates would have the following impact on the Company’s OPRB
plans:
One-Percentage-Point
One-Percentage-Point
Increase
Decrease
(In thousands)
Increase (decrease) in service and interest cost
$
306
$
(267
)
Increase (decrease) in postretirement benefit obligation
The plan’s asset allocation includes a mix of fixed income
investments designed to reduce volatility and equity investments
designed to maintain funding ratios and long-term financial
health of the plan. The equity investments are diversified
across U.S. and international stocks as well as growth,
value, and small and large capitalizations.
Private equity and venture capital funds are used to enhance
long-term returns while improving portfolio diversification. The
Company employs a total return investment approach whereby a mix
of fixed income and
equity investments is used to maximize the long-term return of
plan assets with a prudent level of risk. The objectives of this
strategy are to achieve full funding of the accumulated benefit
obligation, and to achieve investment experience over time that
will minimize pension expense volatility and minimize the
Company’s contributions required to maintain full funding
status. Risk tolerance is established through careful
consideration of plan liabilities, plan funded status and
corporate financial condition. Investment risk is measured and
monitored on an ongoing basis through annual liability
measurements, periodic asset/liability studies and quarterly
investment portfolio reviews.
The following is the plan’s target asset mix, which
management believes provides the optimal tradeoff of
diversification and long-term asset growth:
The Company determines the expected return on pension plan
assets based on an expectation of average annual returns over an
extended period of years. This expectation is based, in part, on
the actual returns achieved by the Company’s pension plans
over the prior ten-year period. The Company also considers the
weighted-average historical rate of returns on securities with
similar characteristics to those in which the Company’s
pension assets are invested.
The Company applies the “10% corridor” approach to
amortize unrecognized actuarial gains (losses) on both its
U.S. and international pension and OPRB plans. Under this
approach, only actuarial gains (losses) that exceed 10% of the
greater of the projected benefit obligation or the
market-related value of the plan assets are amortized. The
amortization period is based on the average remaining service
period of active employees expected to receive benefits under
each plan or over the life expectancy of inactive participants
where all, or nearly all, participants are inactive. For the
year ended December 29, 2007, the average remaining service
period used to amortize unrecognized actuarial gains (losses)
for its domestic plans was approximately 10.5 years.
Plan
Contributions and Estimated Future Benefit
Payments
During 2007, the Company contributed $6.6 million to its
qualified U.S. pension plan, which included voluntary
contributions above the minimum requirements for the plan. The
Company will contribute approximately $8 million to its
U.S. qualified plan in 2008, which is the estimated minimum
funding requirement calculated under the Pension Protection Act
of 2006. Future contributions to the U.S. pension plan in
excess of the minimum funding requirement are voluntary and may
change depending on the Company’s operating performance or
at management’s discretion. The Company expects to make
payments related to its other U.S. and foreign pension and
OPRB plans of $20.5 million in 2008.
The following table presents estimated future benefit payments:
International
U.S. Pension
Pension
Fiscal Year
Plans
Plans
OPRB Plans
(In thousands)
2008
$
24,800
$
9,133
$
5,782
2009
24,500
8,548
5,858
2010
24,400
9,957
5,911
2011
24,100
10,155
5,917
2012
24,000
11,084
5,790
2013-2018
116,800
68,524
26,753
Total
$
238,600
$
117,401
$
56,011
Defined
Contribution Plans
The Company offers defined contribution plans to eligible
employees. Such employees may defer a percentage of their annual
compensation in accordance with plan guidelines. Some of these
plans provide for a Company match that is subject to a maximum
contribution as defined by the plan. Company contributions to
its defined contribution plans totaled $9.3 million,
$9.4 million and $9.6 million in the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005, respectively.
Multi-Employer
Plans
The Company is also party to various industry-wide collective
bargaining agreements that provide pension benefits. Total
contributions to these plans for eligible participants were
approximately $2.8 million, $3.7 million and
$3.6 million in the years ended December 29, 2007,
December 30, 2006 and December 31, 2005, respectively.
Note 13 —
Shareholders’
Equity
The Company’s authorized share capital as of
December 29, 2007 and December 30, 2006 consisted of
1,000 shares of $0.001 par value common stock of which
1,000 shares were issued and outstanding. All issued and
outstanding shares are owned by DHC, a Delaware limited
liability company and a direct wholly-owned subsidiary of DHM
Holding Company, Inc. (“HoldCo”).
Dividends
The Company did not declare or pay a dividend to its parent
during the year ended December 29, 2007. During the year
ended December 30, 2006, the Company declared and paid
dividends of $163.7 million to DHC. During the year ended
December 31, 2005, the Company declared and paid dividends
of $77.3 million to DHC. As planned, the dividends were a
partial return of the $100 million capital contribution
made to the Company by DHC during 2004.
The Company’s ability to declare dividends is limited under
the terms of its senior secured credit facilities and bond
indentures. As of December 29, 2007, the Company had no
ability to declare and pay dividends or other similar
distributions.
Capital
Contributions and Return of Capital
There were no capital contributions or return of capital
transactions during the year ended December 29, 2007.
On March 3, 2006, HoldCo executed a $150 million
senior secured term loan agreement. In March 2006, HoldCo
contributed $28.4 million to its wholly-owned subsidiary,
DHC, the Company’s immediate parent, which contributed the
funds to the Company. As planned, in October 2006, the Company
declared a cash capital
repayment of $28.4 million to DHC, returning the
$28.4 million capital contribution made by DHC in March
2006. The Company repaid this amount during the fourth quarter
of 2006.
On October 4, 2006, the Company loaned $31 million to
DHC, which then dividended the funds to HoldCo for contribution
to Westlake Wellbeing Properties, LLC. In connection with this
funding, an intercompany loan agreement was entered into between
DHC and the Company. DHC has no operations and would need to
repay the loan with a dividend from the Company, a contribution
from HoldCo, or through a financing transaction. It is currently
anticipated that amounts under the intercompany loan agreement
will be replaced with dividend proceeds or, the loan would be
forgiven in the future. The Company has accounted for the
intercompany loan as a distribution of additional paid-in
capital.
Comprehensive
Income (Loss)
Comprehensive income (loss) consists of changes to
shareholders’ equity, other than contributions from or
distributions to shareholders, and net income (loss). The
Company’s other comprehensive income (loss) principally
consists of unrealized foreign currency translation gains and
losses, unrealized gains and losses on cash flow hedging
instruments and pension liability. The components of, and
changes in, accumulated other comprehensive income (loss) are
presented in the Company’s Consolidated Statements of
Shareholders’ Equity.
Note 14 —
Business
Segments
The Company has four reportable operating segments: fresh fruit,
fresh vegetables, packaged foods and fresh-cut flowers. These
reportable segments are managed separately due to differences in
their products, production processes, distribution channels and
customer bases.
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 (loss) 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
the Company 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 the Company’s
profitability. Additionally, the Company’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.
In the tables below, only revenues from external customers and
EBIT reflect results from continuing operations. Total assets,
tangible long-lived assets, depreciation and amortization and
capital additions reflect results from continuing and
discontinued operations for 2007, 2006 and 2005.
The results of operations and financial position of the four
reportable operating segments and corporate were as follows:
Results
of Operations:
2007
2006
2005
(In thousands)
Revenues from external customers
Fresh fruit
$
4,736,902
$
3,968,963
$
3,699,060
Fresh vegetables
1,059,401
1,082,416
1,083,227
Packaged foods
1,023,257
938,336
854,230
Fresh-cut flowers
110,153
160,074
171,259
Corporate
1,252
1,148
1,049
$
6,930,965
$
6,150,937
$
5,808,825
EBIT
Fresh fruit
$
170,598
$
103,891
$
204,234
Fresh vegetables
(21,725
)
(7,301
)
11,375
Packaged foods
78,492
91,392
87,495
Fresh-cut flowers
(19,132
)
(57,001
)
(5,094
)
Total operating segments
208,233
130,981
298,010
Corporate
(70,247
)
(32,713
)
(70,298
)
Interest expense
(194,865
)
(174,715
)
(142,452
)
Income taxes
(1,060
)
(18,230
)
(44,175
)
Income (loss) from continuing operations, net of income taxes
$
(57,939
)
$
(94,677
)
$
41,085
Corporate EBIT includes general and administrative costs not
allocated to operating segments.
Substantially all of the Company’s equity earnings in
unconsolidated subsidiaries, which have been included in EBIT in
the table above, relate to the fresh fruit operating segment.
In addition to obligations recorded on the Company’s
Consolidated Balance Sheet as of December 29, 2007, the
Company has commitments under cancelable and non-cancelable
operating leases, primarily for land, equipment and office
warehouse facilities. A significant portion of the
Company’s lease payments are fixed. Total rental expense,
including rent related to cancelable and non-cancelable leases,
was $169.2 million, $153 million and $130 million
(net of sublease income of $16.6 million,
$16.4 million and $15.9 million) for the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005, respectively.
The Company modified the terms of its corporate aircraft lease
agreement during 2007. The modification primarily extended the
lease period from terminating in 2010 to 2018. The
Company’s corporate aircraft lease agreement includes a
residual value guarantee of up to $4.8 million at the
termination of the lease in 2018.
As of December 29, 2007, the Company’s non-cancelable
minimum lease commitments, including residual value guarantees,
before sublease income, were as follows (in thousands):
Fiscal Year
Amount
2008
$
122,728
2009
80,507
2010
70,171
2011
53,913
2012
32,194
Thereafter
102,695
Total
$
462,208
Total expected future sublease income is $44.6 million.
In order to secure sufficient product to meet demand and to
supplement the Company’s own production, the Company has
entered into non-cancelable agreements with independent growers
primarily in Latin America to purchase substantially all of
their production subject to market demand and product quality as
well as with food manufacturers. Prices under these agreements
are generally fixed and contract terms range from one to sixteen
years. Total purchases under these agreements were
$564.5 million, $474.5 million and $433.4 million
for the years ended December 29, 2007, December 30,2006 and December 31, 2005, respectively.
At December 29, 2007, aggregate future payments under such
purchase commitments (based on December 29, 2007 pricing
and volumes) are as follows (in thousands):
Fiscal Year
Amount
2008
$
491,264
2009
343,762
2010
279,403
2011
228,343
2012
86,095
Thereafter
73,578
Total
$
1,502,445
In order to ensure a steady supply of packing supplies and to
maximize volume incentive rebates, the Company has entered into
contracts with certain suppliers for the purchase of packing
supplies, as defined in the respective agreements, over periods
of up to three years. Purchases under these contracts for the
years ended December 29, 2007, December 30, 2006 and
December 31, 2005 were approximately $272.7 million,
$207.6 million and $227.3 million, respectively.
Under these contracts, the Company was committed at
December 29, 2007, to purchase packing supplies, assuming
current price levels, as follows (in thousands):
Fiscal Year
Amount
2008
$
249,125
2009
83,685
2010
55,185
2011
—
2012
—
Thereafter
—
Total
$
387,995
The Company also has an airfreight contract with a company to
transport product from Latin America to the United States.
Payments under this contract were $17.6 million
$22.4 million and $18.9 million for 2007, 2006 and
2005, respectively. The contract expires in 2011. Estimated
payments for 2008, 2009 and 2010 are $11.7 million each
year and for 2011 are $8.3 million.
The Company has numerous collective bargaining agreements with
various unions covering approximately 33% of the Company’s
hourly full-time and seasonal employees. Of the unionized
employees, 35% are covered under a collective bargaining
agreement that will expire within one year and the remaining 65%
are covered under collective bargaining agreements expiring
beyond the upcoming year. These agreements are subject to
periodic negotiation and renewal. Failure to renew any of these
collective bargaining agreements may result in a strike or work
stoppage; however, management does not expect that the outcome
of these negotiations and renewals will have a material adverse
impact on the Company’s financial condition or results of
operations.
Note 16 —
Derivative
Financial Instruments
The Company 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, the Company uses derivative
instruments to hedge certain foreign currency, bunker fuel and
interest rate exposures. The Company’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. The
Company does not hold or issue derivative financial instruments
for trading or speculative purposes.
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended (“FAS 133”),
establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as
either an asset or liability and measured at fair value.
FAS 133 also requires that changes in the derivative’s
fair value be recognized currently in earnings unless specific
criteria are met and that a company must formally document,
designate and assess the effectiveness of transactions that
receive hedge accounting. For those instruments that qualify for
hedge accounting as cash flow hedges, any unrealized gains or
losses are included in accumulated other comprehensive income
(loss), with the corresponding asset or liability recorded on
the balance sheet. Any portion of a cash flow hedge that is
deemed to be ineffective is recognized into current period
earnings. When the transaction underlying the hedge is
recognized into earnings, the related other comprehensive income
(loss) is reclassified to current period earnings.
Through the first quarter of 2007, all of the Company’s
derivative instruments were designated as effective hedges of
cash flows as defined by FAS 133. However, during the
second quarter of 2007, the Company elected to discontinue its
designation of both its foreign currency and bunker fuel hedges
as cash flow hedges under FAS 133. The interest rate swap
will continue to be accounted for as a cash flow hedge under
FAS 133. As a result, all changes in the fair value of the
Company’s derivative financial instruments from the time of
discontinuation of hedge accounting are reflected in the
Company’s consolidated statement of operations Gains and
losses on foreign currency and bunker fuel hedges are now
recorded as a component of cost of products sold in the
consolidated statement of operations. Gains and losses related
to the interest rate swap are recorded as a component of
interest expense in the consolidated statements of operations.
The Company estimates the fair values of its derivatives based
on quoted market prices or pricing models using current market
rates and records all derivatives on the balance sheet at fair
value.
Foreign
Currency Hedges
Some of the Company’s divisions operate in functional
currencies other than the U.S. dollar. As a result, the
Company enters into cash flow derivative instruments to hedge
portions of anticipated revenue streams and operating expenses.
At December 29, 2007, the Company had forward contract
hedges for forecasted revenue transactions denominated in the
Japanese yen, the Euro and the Canadian dollar and for
forecasted operating expenses denominated in the Chilean peso
and Thai baht. The Company uses foreign currency exchange
forward contracts and participating forward contracts to reduce
its risk related to anticipated dollar equivalent foreign
currency cash flows.
In addition, the net assets of some of the Company’s
foreign subsidiaries are exposed to foreign currency translation
gains and losses, which are included as a component of
accumulated other comprehensive income (loss) in
shareholders’ equity. The Company has historically not
attempted to hedge this equity risk.
The Company recorded a gain of $5.6 million and
$0.9 million for the years ended December 29, 2007 and
December 30, 2006, respectively, and a loss of
$2 million for the year ended December 31, 2005
related to the settlement of foreign currency exchange
contracts. Additionally, during the fourth quarter of 2007, the
Company settled early its Philippine peso hedges and Colombian
peso hedges that were expected to settle during 2008, realizing
gains of $13.2 million. These gains and losses were
included as a component of cost of products sold in the
consolidated statements of operations for 2007, 2006 and 2005.
At December 29, 2007, the gross notional value and
unrecognized gains (losses) of the Company’s foreign
currency hedges were as follows:
Gross Notional Value
Unrecognized
Participating
Gains
Average Strike
Settlement
Forwards
Forwards
Total
(Losses)
Price
Year
(In thousands)
Foreign Currency Hedges(Buy/Sell):
U.S Dollar/Japanese Yen
$
137,610
$
3,784
$
141,394
$
(1,265
)
JPY 113.6
2008
U.S Dollar/Euro
265,025
—
265,025
(8,378
)
EUR 1.37
2008/2009
U.S Dollar/Canadian Dollar
—
43,446
43,446
(2,932
)
CAD 1.05
2008
Chilean Peso/U.S. Dollar
—
27,525
27,525
303
CLP 505
2008
Thai Baht/U.S. Dollar
45,050
37,011
82,061
207
THB 33.7
2008
Total
$
447,685
$
111,766
$
559,451
$
(12,065
)
For foreign currency hedges, unrecognized gain (losses)
represent the fair market value of these instruments and are
recorded in the consolidated balance sheet as either current
assets or current liabilities.
At December 30, 2006the Company had outstanding hedges
denominated in the Japanese yen, the Euro, the Canadian dollar,
the Chilean peso, the Colombian peso and the Philippine peso.
The unrecognized gain associated with these hedges was
$3.5 million at December 30, 2006.
Bunker
Fuel Hedges
The Company enters into bunker fuel hedges for its shipping
operations to reduce its risk related to price fluctuations on
anticipated bunker fuel purchases. At December 29, 2007,
the gross notional value and unrecognized gain (in thousands) of
the Company’s bunker fuel hedges were as follows:
Unrecognized
Notional Volume
Gain
Average Price
Settlement
(metric tons)
(In thousands)
(per metric ton)
Year
Bunker Fuel Hedges:
Rotterdam
8,891
$
749
$
312
2008
At December 29, 2007, the fair value of the bunker fuel
hedges was an asset of $1.1 million. The difference between
the fair value and unrecognized gain of $0.4 million
relates to unsettled bunker fuel hedges that received
FAS 133 treatment prior to the discontinuation of hedge
accounting during the second quarter of 2007. At
December 30, 2006, the fair value of the bunker fuel
hedges, a liability of $2.5 million, included an
ineffective loss component of approximately $1.1 million.
As discussed in Note 11, the Company completed an amendment
and restatement of its senior secured credit facilities in April
2006. As a result of this refinancing transaction, the Company
recognized a gain of $6.5 million related to the settlement
of its interest rate swap associated with its then existing Term
Loan A. This amount was recorded to other income (expense), net
in the consolidated statement of operations for the year ended
December 30, 2006.
In June 2006, subsequent to the refinancing transaction, the
Company entered into an interest rate swap in order 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 June
2011. The interest rate swap fixed the interest rate at 7.24%.
The paying and receiving rates under the interest rate swap were
5.49% and 5.24% as of December 29, 2007, with an
outstanding notional amount of $320 million. The critical
terms of the interest rate swap were substantially the same as
those of Term Loan C, including quarterly principal and interest
settlements. The interest rate swap hedge has been designated as
an effective hedge of cash flows as defined by FAS 133. The
fair value of the interest rate swap was a liability of
$15.9 million and $6.4 million at December 29,2007 and December 30, 2006, respectively. For both 2007 and
2006, $0.4 million was recognized as interest expense in
the consolidated statements of operations related to net
payments of the interest rate swap.
In addition, in June 2006, the Company executed a cross currency
swap 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 7.24% to a Japanese
yen interest rate of 3.60%. Payments under the cross currency
swap were converted from U.S. dollars to Japanese yen at an
exchange rate of ¥111.92 Japanese yen to U.S. dollars.
The cross currency swap does not qualify for hedge accounting
and as a result all gains and losses are recorded through other
income (expense) in the consolidated statement of operations.
The fair value of the cross currency swap was an asset of
$9.9 million and $20.7 million at December 29,2007 and December 30, 2006, respectively. Realized gains
related to settlements of the cross currency swap amounted to
$12.8 million and $4.1 million for 2007 and 2006,
respectively. These gains are recorded through other income
(expense) in the consolidated statement of operations.
Credit
Risk
The counterparties to the foreign currency exchange forward
contracts, bunker fuel hedges and the interest rate swap consist
of a number of major international financial institutions. The
Company has established counterparty guidelines and regularly
monitors its positions and the financial strength of these
institutions. While counterparties to hedging contracts expose
the Company 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. The Company
does not anticipate any such losses.
Note 17 —
Contingencies
The Company is a guarantor of indebtedness to some of its key
fruit suppliers and other entities integral to the
Company’s operations. At December 29, 2007, guarantees
of $3.5 million consisted primarily of amounts advanced
under third-party bank agreements to independent growers that
supply the Company with product. The Company has not
historically experienced any significant losses associated with
these guarantees.
The Company issues letters of credit and bank guarantees through
its ABL revolver and it pre-funded letter of credit facilities,
and, in addition, separately through major banking institutions.
The Company 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 December 29, 2007, total
letters of credit, bank guarantees and bonds outstanding under
these arrangements were $141 million, of which
$4.3 million were issued under its pre-funded letter of
credit facility.
The Company also provides various guarantees, mostly to foreign
banks, in the course of its normal business operations to
support the borrowings, leases and other obligations of its
subsidiaries. The Company guaranteed $217.1 million of its
subsidiaries’ obligations to their suppliers and other
third parties as of December 29, 2007.
The Company 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 following a change of control (as defined) of the
Company.
The Company is involved from time to time in claims and legal
actions incidental to its operations, both as plaintiff and
defendant. The Company 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 the Company is a party are not
expected to have a material adverse effect, individually or in
the aggregate, on the Company’s financial condition or
results of operations.
A significant portion of the Company’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. The Company and other growers applied DBCP on
banana farms in Latin America and the Philippines and on
pineapple farms in Hawaii. Specific periods of use varied among
the different locations. The Company 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 444 lawsuits, in various stages of
proceedings, alleging injury as a result of exposure to DBCP,
seeking enforcement of Nicaraguan judgments, or seeking to bar
Dole’s efforts to resolve DBCP claims in Nicaragua.
Twenty-two of these lawsuits are currently pending in various
jurisdictions in the United States. Of the 22
U.S. lawsuits, nine have been brought by foreign workers
who allege exposure to DBCP in countries where Dole did not have
operations during the relevant time period. One case pending in
Los Angeles Superior Court with 12 Nicaraguan plaintiffs
resulted in initial verdicts of 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, the damages against Dole
have now been 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. Judgment is expected to be entered on
March 31, 2008. The remaining cases are pending in Latin
America and the Philippines, including 212 labor cases pending
in Costa Rica under that country’s national insurance
program. Claimed damages in DBCP cases worldwide total
approximately $42.3 billion, with lawsuits in Nicaragua
representing approximately 85% of this amount. In almost all of
the non-labor cases, the Company is a joint defendant with the
major DBCP manufacturers and, typically, other banana growers.
Except as described below, none of these lawsuits has resulted
in a verdict or judgment against the Company.
In Nicaragua, 189 cases are currently filed in various courts
throughout the country, with all but one of the lawsuits 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.
Twenty-four 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, 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
There are 26 active cases currently pending in civil courts in
Managua (15), Chinandega (10) and Puerto Cabezas (1), all
of which have been brought under Law 364 except for one of the
cases pending in Chinandega. In the 25 active cases under Law
364, except for six cases in Chinandega and five cases in
Managua, where the Company has not yet been ordered to answer,
the Company has sought to have the cases returned to the United
States pursuant to Law 364. A Chinandega court in one case has
ordered the plaintiffs to respond to our request. In the other 2
active cases under Law 364 pending there, the Chinandega courts
have denied the Company’s requests; and the court in Puerto
Cabezas has denied the Company’s request in the one case
there. The Company’s requests in ten of the cases in
Managua are still pending; and the Company expects to make
similar requests in the remaining five cases at the appropriate
time. The Company has appealed the decision of the court in
Puerto Cabezas and the 2 decisions of the courts in
Chinandega.
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.
Claimants have also indicated their intent to seek enforcement
of the Nicaraguan judgments in Colombia, Ecuador, Venezuela and
other countries in Latin America and elsewhere, including the
United States. There is one case pending in Federal District
Court in Miami, Florida seeking enforcement of the
August 8, 2005 $98.5 million Nicaraguan judgment. 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). These cases are
currently inactive. 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.
The Company 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 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 the agricultural chemical 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, the Company 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 other 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.
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 the Company’s financial
condition or results of operations.
European Union Antitrust Inquiry and
U.S. Class Action Lawsuits: On
July 25, 2007, the Company was informed that the European
Commission (“EC”) had adopted a Statement of
Objections against the Company, and other unrelated banana
companies, alleging violations of the European competition
(antitrust) laws by the banana companies within the European
Economic Area (EEA). This Statement of Objections follows
searches carried out by the European Commission in June 2005 at
certain banana importers and distributors, including two of the
Company’s offices. Recently, on November 28 and 29, 2007,
the EC conducted searches of certain of the Company’s
offices in Italy and Spain, as well of other companies’
offices located in these countries.
A Statement of Objections is a procedural step in the EC’s
antitrust investigation, in which the EC communicates its
preliminary view with respect to a possible infringement of
European competition laws. The EC will review Dole’s
written and oral responses to the Statement of Objections in
order to determine whether to issue a final Decision. Any
Decision (including any fines that may be assessed under the
Decision) will be subject to appeal to the European Court of
First Instance and the European Court of Justice. The Company
continues to cooperate with the EC in order to provide the
Commission with a full and transparent understanding of the
banana market. Although no assurances can be given concerning
the course or outcome of the EC investigation, the Company
believes that it has not violated the European competition laws.
Following the public announcement of the EC searches, a number
of class action lawsuits were filed against the Company and
three competitors in the U.S. District Court for the
Southern District of Florida. The lawsuits were filed on behalf
of entities that directly or indirectly purchased bananas from
the defendants and were consolidated into two separate putative
class action lawsuits: one by direct purchasers (customers); and
another by indirect purchasers (those who purchased bananas from
customers). On June 26, 2007, Dole entered into settlement
agreements resolving these putative consolidated class action
lawsuits filed by the direct purchasers and indirect purchasers.
The Court entered final judgment orders approving the settlement
agreements on November 21, 2007. The direct purchaser
settlement is now completed. The indirect purchaser agreement is
currently under appeal by a single party. The Company did not
admit any wrongdoing in these settlements and continues to
believe they were totally without merit; however, the Company
elected to settle these lawsuits to bring a final conclusion to
this litigation, which had been ongoing since 2005. Neither
settlement will have a material adverse effect on the
Company’s financial condition or results of operations.
Honduran Tax Case: In 2005, the Company
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 the Company’s interest in
Cervecería Hondureña, S.A. in 2001. The Company
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, the Company
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 Honduran government is
seeking dismissal of the lawsuit and attachment of assets, which
the Company is challenging. 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 is now
challenging 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 the Company’s financial
condition or results of operations.
Hurricane Katrina Cases: Dole is one of a
number of parties sued, including the Mississippi State Port
Authority as well as other third-party terminal operators, in
connection with the August 2005 Hurricane Katrina. The
plaintiffs assert that they suffered property damage because of
the defendants’ alleged failure to reasonably secure
shipping containers at the Gulfport, Mississippi port terminal
before Hurricane Katrina hit. Dole believes that it took
reasonable precautions and that property damage was due to the
unexpected force of Hurricane Katrina, a Category 5 hurricane
that was one of the costliest disasters in U.S. history.
Dole expects that this Katrina-related litigation will not have
a material adverse effect on its financial condition or results
of operations.
Spinach E. coli Outbreak: On
September 15, 2006, Natural Selection Foods LLC recalled
all packaged fresh spinach that Natural Selection Foods produced
and packaged with Best-If-Used-By dates from August 17 through
October 1, 2006, because of reports of illness due to E.
coli O157:H7 following consumption of packaged fresh spinach
produced by Natural Selection Foods. These packages were sold
under 28 different brand names, only one of which was ours. At
that time, Natural Selection Foods produced and packaged all of
our spinach items. On September 15, 2006, Dole announced
that it supported the voluntary recall issued by Natural
Selection Foods. Dole has no ownership or other economic
interest in Natural Selection Foods.
The U.S. Food and Drug Administration announced on
September 29, 2006 that all spinach implicated in the
current outbreak has traced back to Natural Selection Foods. The
FDA stated that this determination was based on epidemiological
and laboratory evidence obtained by multiple states and
coordinated by the Centers for Disease Control and Prevention.
The trace back investigation has narrowed to four implicated
fields on four ranches. FDA and the State of California
announced October 12, 2006 that the test results for
certain samples collected during the field investigation of the
outbreak of E. coli O157:H7 in spinach were positive for
E. coli O157:H7. Specifically, samples of cattle feces on
one of the implicated ranches tested positive based on matching
genetic fingerprints for the same strain of E. coli
O157:H7 found in the infected persons.
To date, 204 cases of illness due to E. coli O157:H7 infection
have been reported to the Centers for Disease Control and
Prevention (203 in 26 states and one in Canada) including
31 cases involving a type of kidney failure called Hemolytic
Uremic Syndrome (HUS), 104 hospitalizations, and three deaths.
Dole expects that the vast majority of the spinach E. coli
O157:H7 claims will be handled outside the formal litigation
process. Since Natural Selection Foods, not Dole, produced and
packaged the implicated spinach products, Dole has tendered the
defense of these and other claims to Natural Selection Foods and
its insurance carriers and has sought indemnity from Natural
Selection Foods, based on the provisions of the contract between
Dole and Natural Selection Foods. The company (and its insurance
carriers) that grew the implicated spinach for Natural Selection
Foods is involved in the resolution of the E. coli
O157:H7 claims. Dole expects that the spinach E. coli
O157:H7 matter will not have a material adverse effect on
Dole’s financial condition or results of operations.
Note 18 —
Related
Party Transactions
David H. Murdock, the Company’s Chairman, owns, inter
alia, Castle, a transportation equipment leasing company, a
private dining club and a hotel. During the years ended
December 29, 2007, December 30, 2006 and
December 31, 2005, the Company paid Mr. Murdock’s
companies an aggregate of approximately $7.2 million,
$7.6 million and $7.3 million, respectively, primarily
for the rental of truck chassis, generator sets and warehousing
services. Castle purchased approximately $0.7 million,
$1.1 million and $4 million of products from the
Company during the years ended December 29, 2007,
December 30, 2006 and December 31, 2005, respectively.
The Company and Castle are responsible for 68% and 32%,
respectively, of all obligations under an aircraft lease
arrangement. Each party is responsible for the direct costs
associated with its use of this aircraft, and all other
indirect costs are shared proportionately. During the year ended
December 29, 2007, December 30, 2006 and
December 31, 2005, the Company’s proportionate share
of the direct and indirect costs for this aircraft was
$2 million, $1.9 million and $1.9 million,
respectively.
The Company and Castle operate their risk management departments
on a joint basis. Insurance procurement and premium costs are
based on the relative risk borne by each company as determined
by the insurance underwriters. Administrative costs of the risk
management department, which were not significant, are shared on
a 50-50
basis.
The Company retains risk for commercial property losses
sustained by the Company and Castle totaling $4 million in
the aggregate and $4 million per occurrence, above which
the Company has coverage provided through third-party insurance
carriers. The arrangement provides for premiums to be paid to
the Company by Castle in exchange for the Company’s
retained risk. The Company received approximately
$0.6 million, $0.6 million and $0.7 million from
Castle during 2007, 2006 and 2005, respectively. The Company
paid approximately $0.2 million and $0.2 million to
Castle for property losses in 2007 and 2006, respectively.
The Company had a number of other transactions with Castle and
other entities owned by Mr. Murdock, generally on an
arms-length basis, none of which, individually or in the
aggregate, were material. The Company had outstanding net
accounts receivable of $0.5 million and a note receivable
of $10.2 million due from Castle at December 29, 2007
and outstanding net accounts payable of $5.6 million to
Castle at December 30, 2006. The net accounts payable
balance of $5.6 million included $5.2 million related
to the reimbursement of entitlement costs for partnership land
parcels held-for-sale, which were sold in 2007.
In the first quarter of 2007, the Company and Castle executed a
lease agreement pursuant to which the Company’s fresh
vegetables operations occupy an office building in Monterey,
California, which is owned by Castle. The Company occupied the
building in 2006 and recorded $0.6 million of rent expense.
Rent expense for the year ended December 29, 2007 was
$1 million.
Note 19 —
Impact of
Hurricane Katrina
During the third quarter of 2005, the Company’s operations
in the Gulf Coast area of the United States were impacted by
Hurricane Katrina. The Company’s fresh fruit division
utilizes the Gulfport, Mississippi port facility to receive and
store product from its Latin American operations. The Gulfport
facility, which is leased from the Mississippi Port Authority,
incurred significant damage from Hurricane Katrina. As a result
of the damage sustained at the Gulfport terminal, the Company
diverted shipments to other Dole port facilities including
Freeport, Texas; Port Everglades, Florida; and Wilmington,
Delaware. The Company resumed discharging shipments of fruit and
other cargo in Gulfport during the fourth quarter of 2005. The
rebuilding of the Company’s Gulfport facility was completed
during 2007.
The financial impact to the Company’s fresh fruit
operations included the loss of cargo and equipment, property
damage and additional costs associated with re-routing product
to other ports in the region. Equipment that was destroyed or
damaged included refrigerated and dry shipping containers, as
well as chassis and generator-sets used for land transportation
of the shipping containers. The Company maintains customary
insurance for its property, including shipping containers, as
well as for business interruption.
The Hurricane Katrina related expenses, insurance proceeds and
net gain (loss) on the settlement of the claims for 2007, 2006,
and 2005 are as follows:
Total charges of $12.4 million include direct incremental
expenses of $6.1 million, write-offs of owned assets with a
net book value of $4.1 million and leased assets of
$2.2 million representing amounts due to lessors. The
Company settled all of its cargo claim for $9.2 million in
December 2006 and, as a result, recognized a gain of
$5.2 million in 2006. In December 2007, the Company settled
all of its property claim for $14.4 million. The Company
realized a gain of $9.1 million in 2007 associated with the
settlement of its property claim, of which $5.2 million was
for the reimbursement of lost and damaged property. The realized
gains associated with the settlements of both the cargo and
property claims are recorded in cost of products sold in the
consolidated statement of operations in 2007 and 2006.
Note 20 —
Subsequent
Event
During February 2008, the Company entered into an agreement to
sell approximately 2,000 acres of land parcels located in Hawaii
for approximately $39 million. The sale is expected to be
completed by the third quarter of 2008. The land parcels will be
reclassified to assets held-for-sale in the consolidated balance
sheet during the first quarter of 2008.
Note 21 —
Guarantor
Financial Information
In connection with the issuance of the 2011 Notes in March 2003
and the 2010 Notes in May 2003, all of the Company’s
wholly-owned domestic subsidiaries (“Guarantors”) have
fully and unconditionally guaranteed, on a joint and several
basis, the Company’s obligations under the indentures
related to such Notes and to the Company’s 2009 Notes and
2013 Debentures (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 the Company’s share in
the subsidiaries’ cumulative results of operations, capital
contributions and distributions and other changes in equity.
Elimination entries relate primarily to the elimination of
investments in subsidiaries and associated intercompany balances
and transactions.
As of January 1, 2006, Dole Packaged Frozen Foods, Inc. was
converted to a limited liability company. In addition, the
assets and liabilities of the Dole Packaged Foods division were
contributed to Dole Packaged Frozen Foods, Inc., and the
combined entity was renamed Dole Packaged Foods, LLC. Prior to
January 1, 2006, Dole Packaged Foods was included as a
division of Dole Food Company, Inc. for all guarantor financial
statements presented. Subsequent to the change in structure
effective January 1, 2006, Dole Packaged Foods, LLC is
presented as a Guarantor for disclosure purposes in the
accompanying consolidated financial statements for the year
ended December 29, 2007.
Income (loss) from continuing operations, net of income taxes
(5,849
)
18,876
(58,652
)
(49,052
)
Income (loss) from discontinued operations, net of income taxes
(5
)
(350
)
2,549
42
Gain on disposal of discontinued operations, net of income taxes
—
—
—
2,814
Net income (loss)
(5,854
)
18,526
(56,103
)
(46,196
)
During the fourth quarter of 2007 the Company approved and
committed to a formal plan to divest its citrus and pistachio
operations (“Citrus”) located in central California.
In evaluating the facets of this business, the Company concluded
that this business 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. Accordingly, the historical
results of operations of this business have been reclassified
for all periods presented.
During the fourth quarter of 2006, the Company completed the
sale of its Pacific Coast Truck Center (“Pac Truck”)
business for $20.7 million. The Pac Truck business
consisted of a full service truck dealership that provided
medium and heavy-duty trucks to customers in the Pacific
Northwest region. The Company received $15.3 million of net
proceeds from the sale after the assumption of $5.4 million
of debt and realized a gain of approximately $2.8 million
on the sale, net of income taxes of $2 million.
The Company adopted Financial Accounting Standards Board Staff
Position AUG AIR-1, Accounting For Planned Major Maintenance
Activities (“FSP”) at the beginning of its fiscal
2007 year. The FSP required retrospective application for
all financial statement periods presented. As a result, for all
periods presented, the consolidating statements of operations
have been restated. The Company had been accruing for planned
major maintenance activities associated with its vessel fleet
under the
accrue-in-advance
method. The Company adopted the deferral method of accounting
for planned major maintenance activities associated with its
vessel fleet.
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A.
Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rule
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) that are designed to provide
reasonable assurance that information required to be disclosed
in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is
accumulated and communicated to our management, including our
principal executive officer and our principal financial officer,
as appropriate, to allow timely decisions regarding required
disclosure.
Management, with the participation of our principal executive
officer and our principal financial officer, performed an
evaluation of the effectiveness of our disclosure controls and
procedures as of December 29, 2007 (the end of our fiscal
year) and concluded, based on this evaluation, that our
disclosure controls and procedures were effective as of
December 29, 2007.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting that occurred in the last fiscal quarter (the fiscal
quarter ended December 29, 2007) that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Annual
Report of Management on Internal Control Over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 15d-15(f)
under the Exchange Act) for the Company. Management, with the
participation of our principal executive officer and our
principal financial officer, evaluated the effectiveness of our
internal control over financial reporting as of
December 29, 2007 (the end of our fiscal year), based on
the framework and criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that
our internal control over financial reporting was effective as
of December 29, 2007.
This annual report does not include an attestation report of the
Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s
registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company
to provide only management’s report in this annual report.
Directors,
Executive Officers and Corporate Governance
Below is a list of the names and ages of all directors and
executive officers of Dole as of March 4, 2008, indicating
their positions with Dole and their principal occupations during
the past five years. The current terms of the executive officers
will expire at the next organizational meeting of Dole’s
Board of Directors or at such time as their successors are
elected.
David H. Murdock, Chairman of the
Board. Mr. Murdock, 84, joined Dole as
Chairman of the Board and Chief Executive Officer in July 1985.
In June 2007, Mr. DeLorenzo was elected President and Chief
Executive Officer of Dole, at which time Mr. Murdock
continued as a director and officer of Dole in the capacity of
Chairman of the Board. He has been Chairman of the Board, Chief
Executive Officer and Director of Castle & Cooke,
Inc., a Hawaii corporation, since October 1995 (Mr. Murdock
has beneficially owned all of the capital stock of
Castle & Cooke, Inc. since September 2000). Since June
1982, he has been Chairman of the Board and Chief Executive
Officer of Flexi-Van Leasing, Inc., a Delaware corporation
wholly owned by Mr. Murdock. Mr. Murdock also is the
developer of the Sherwood Country Club in Ventura County,
California, and numerous other real estate developments.
Mr. Murdock also is the sole stockholder of numerous
corporations engaged in a variety of business ventures and in
the manufacture of industrial and building products.
Mr. Murdock is Chairman of the Executive Committee and of
the Corporate Compensation and Benefits Committee of Dole’s
Board of Directors.
C. Michael Carter, Executive Vice President, General
Counsel and Corporate Secretary, and
Director. Mr. Carter, 64, became Dole’s
Senior Vice President, General Counsel and Corporate Secretary
in July 2003, Executive Vice President, General Counsel and
Corporate Secretary in July 2004, and a director of Dole in
April 2003. Mr. Carter joined Dole in October 2000 as Vice
President, General Counsel and Corporate Secretary. Prior to his
employment by Dole, Mr. Carter had served as Executive Vice
President, General Counsel and Corporate Secretary of
Pinkerton’s Inc. Prior to Pinkerton’s, Inc.,
Mr. Carter held positions at Concurrent Computer
Corporation, Nabisco Group Holdings, The Singer Company and the
law firm of Winthrop, Stimson, Putnam and Roberts.
Andrew J. Conrad, Ph.D.,
Director. Dr. Conrad, 44, became a director
in July 2003. Dr. Conrad was a
co-founder
of the National Genetics Institute and has been its chief
scientific officer since 1992. The National Genetics Institute
is now a subsidiary of Laboratory Corporation of America, where
Dr. Conrad is Chief Scientific Officer.
David A. DeLorenzo, President and Chief Executive Officer,
and Director. Mr. DeLorenzo, 61, rejoined
Dole as its President and Chief Executive Officer in June 2007.
Mr. DeLorenzo originally joined Dole in 1970. He was
President of Dole Fresh Fruit Company from September 1986 to
June 1992, President of Dole Food Company from July 1990 to
March 1996, President of Dole Food Company-International from
September 1993 to March 1996, President and Chief Operating
Officer of Dole from March 1996 to February 2001, and Vice
Chairman of Dole from February 2001 through December 2001, at
which time Mr. DeLorenzo became a consultant for Dole under
contract for the period from January 2002 through January 2007.
He has been a director of Dole for more than five years.
Scott A. Griswold, Executive Vice President, Corporate
Development, and Director. Mr. Griswold, 54,
became Dole’s Vice President, Acquisitions and Investments
in July 2003, Executive Vice President, Corporate Development in
July 2004, and a director in April 2003. Mr. Griswold has
been Executive Vice President of Finance of Castle &
Cooke, Inc., which is wholly owned by David H. Murdock, since
2000, and previously, from 1993, Vice President and Chief
Financial Officer of Pacific Holding Company, a sole
proprietorship of David H. Murdock. Since 1987, he has served as
an officer
and/or
director of various other companies held by Mr. Murdock.
Justin M. Murdock, Vice President, New Products and Corporate
Development, and Director. Mr. Murdock, 35,
became Dole’s Vice President, New Products and Corporate
Development in November 2004, and a director in April 2003.
Mr. Murdock has been Vice President of Investments of
Castle & Cooke, Inc., which is wholly owned by David
H. Murdock, since 2001, and previously, from 1999, Vice
President of Mergers and Acquisitions of Pacific Holding
Company, a sole proprietorship of David H. Murdock.
Edward C. Roohan, Director. Mr. Roohan,
44, became a director of Dole in April 2003. Mr. Roohan has
been President and Chief Operating Officer of Castle &
Cooke, Inc., which is wholly owed by David H. Murdock,
since December 2000. He was Vice President and Chief Financial
Officer of Castle & Cooke, Inc. from April 1996 to
December 2000. He has served as an officer
and/or
director of various companies held by Mr. Murdock for more
than five years. Mr. Roohan is Chairman of the Audit
Committee of Dole’s Board of Directors.
Joseph S. Tesoriero, Vice President and Chief Financial
Officer. Mr. Tesoriero, 54, became
Dole’s Vice President and Chief Financial Officer in July
2004, after joining Dole as Vice President of Taxes in October
2002. Prior to his employment by Dole, Mr. Tesoriero was
Senior Vice President of Tax at Global Crossing.
Mr. Tesoriero also held tax positions at Coleman Camping
Equipment, Revlon Cosmetics, and International Business Machines.
Roberta Wieman, Executive Vice President, Chief of Staff, and
Director. Ms. Wieman, 62, joined Dole in
1991 as Executive Assistant to the Chairman of the Board and
Chief Executive Officer. She became a Vice President of Dole in
1995, Executive Vice President and Chief of Staff in July 2004,
and a director in April 2003. Ms. Wieman has been Executive
Vice President of Castle & Cooke, Inc. since August
2001; Vice President and Corporate Secretary of
Castle & Cooke, Inc. from April 1996 to August 2001;
Corporate Secretary of Castle & Cooke, Inc. from April
1996; and a Director of Flexi-Van Leasing, Inc., which is wholly
owned by Mr. Murdock, since August 1996, and Assistant
Secretary thereof for more then five years.
All directors serve a term from the date of their election until
the next annual meeting. The executive officers (as defined in
the SEC’s
Rule 3b-7)
of the Company are David H. Murdock, C. Michael Carter, David A.
DeLorenzo and Joseph S. Tesoriero.
Justin M. Murdock is a son of David H. Murdock. Otherwise, there
is no family relationship between any other officer or director
of Dole.
Dole’s Board of Directors has determined that Dole has at
least one audit committee financial expert serving on its Audit
Committee, Edward C. Roohan, who is not independent. The other
members of the Audit Committee are Scott A. Griswold and Justin
M. Murdock.
Dole has adopted a code of ethics (as defined in Item 406
of the SEC’s
Regulation S-K)
applicable to our principal executive officer, principal
financial officer and principal accounting officer. A copy of
the code of ethics, which we call our Code of Conduct, and which
applies to all employees of Dole, is available on Dole’s
web site at www.dole.com. We intend to post on our web site any
amendments to, or waivers (with respect to our principal
executive officer, principal financial officer and principal
accounting officer) from, this code of ethics within four
business days of any such amendment or waiver.
Item 11.
Executive
Compensation
Compensation
Discussion and Analysis
Objectives
Generally, Dole compensates its Named Executive Officers through
a mix of cash programs: base salary, annual incentives and
long-term incentives. These programs are designed to be
competitive with both general industry and food industry
employers and to align the Named Executive Officers incentives
with the long-term interests of Dole. The Company’s
compensation policies are intended to enable Dole to attract and
retain top quality management as well as to motivate management
to set and achieve aggressive goals in their respective areas of
responsibility. The compensation setting process consists of
targeting total compensation for each Named Executive Officer
and reviewing each component of compensation both individually
and as a piece of overall compensation.
Corporate
Compensation and Benefits Committee Role
The Corporate Compensation and Benefits Committee (the
“Committee”) meets as often as required during the
year in furtherance of its duties, including an annual review of
compensation for the Named Executive Officers. The Committee
retains the services of Hewitt Associates, an executive
compensation consulting firm, to periodically review the
competitiveness of the Company’s executive compensation
programs relative to comparable companies. Hewitt provides the
Committee with the relevant market data for each Named Executive
Officer’s position, as well as for other key executives
within Dole. Hewitt also responds to requests generated by the
Committee through management.
Role
of Named Executive Officers in Compensation
Decisions
The Chairman annually reviews the performance of the President
and Chief Executive Officer and the Executive Vice President,
General Counsel and Corporate Secretary; and the President and
Chief Executive Officer reviews the performance of the Vice
President and Chief Financial Officer. Their recommendations
with respect to each component of pay are presented to the
Committee for approval. The Committee can exercise its
discretion in modifying recommendations made for any Named
Executive Officer. The Committee alone makes decisions with
regard to the Chairman’s compensation.
Setting
Executive Pay
The Committee compares each component of its pay program against
a group of food and consumer products companies. The Committee
also compares pay components to other general industry
companies. For comparison purposes, Dole’s revenue is
slightly below the median of the group and data is
size-regressed to adjust the compensation data for differences
in revenue. Revenues range from approximately $2 billion to
$16 billion. The companies comprising the group are as
follows and represent the relevant companies found in
Hewitt’s database:
Anheuser-Busch Companies, Inc.
Constellation Brands, Inc.
The Hershey Company
Reynolds American Inc.
ARAMARK Corporation
Corn Products International Inc.
Hormel Foods Corporation
Sara Lee Corporation
Campbell Soup Company
Del Monte Foods Company
Kellogg Company
UST Inc.
Chiquita Brands International, Inc.
General Mills, Inc.
McCormick & Company, Inc.
Wm. Wrigley Jr. Company
ConAgra Foods, Inc.
H. J. Heinz Company
Molson Coors Brewing Co.
Based on the analysis of the competitive review, targeted 2007
total compensation for the President and Chief Executive Officer
was set at approximately $4.2 million. Base Salary and
Annual Incentives for the President and Chief Executive Officer
are targeted slightly above the median of the similar
compensation for similarly situated executive officers at other
comparably sized companies. Targeted compensation for the
Chairman was set at approximately $3.3 million, reflecting,
in part, his ownership position.
In establishing award levels for the other Named Executive
Officers, the Committee uses a similar process. Base Salaries
and Annual Incentives are targeted at approximately or above the
median for the other Named Executive Officers.
Dole competes with many larger public companies for executive
talent. The Committee has determined, however, that because Dole
is a privately-held enterprise, Dole will rely on base salary
and annual incentives that are targeted at or above the median
of other similarly sized companies and that long-term incentive
compensation will likely trail the median since Dole relies on
cash programs.
Pay
Mix
Under Dole’s current total compensation structure, the
approximate mix of base salary, annual incentive and long-term
incentive programs for the Named Executive Officers is as
follows: 30% — 35% to base salary, 20% — 30%
to annual incentives, and 40% — 45% to long-term
incentives. In allocating total compensation among these
components of pay, the Committee believes the compensation
package should be predominantly performance-based since these
individuals are the ones who have the greatest ability to affect
and influence the financial performance of the Company.
The Committee wants to provide a base salary that is
commensurate with the position in the Company and is comparable
to what other individuals in similarly situated positions might
receive. The Committee considers each Named Executive
Officer’s position relative to the market, his
responsibilities and performance in the job, and other
subjective factors. Based on market data and factors noted
above, the Committee decided on the pay levels noted in the
Summary Compensation Table.
Annual
Incentives
Dole’s annual incentive program, the One-Year Management
Incentive Plan (the “One-Year Plan”), has target
bonuses for the Named Executive Officers, as a percentage of
salary, ranging from 65% to 100%. Payments are generally payable
only if the specified minimum level of financial performance is
realized and may be increased to maximum levels only if
substantially higher performance levels are attained. Payments
can range from 0% to 300% of target. Maximums over 200% are used
at Dole because of the lack of equity upside. The Named
Executive Officers have identical financial performance goals
for their incentives and will earn 100% of their targeted
incentives if established targets for consolidated cash-flow
return on investment goals are met. The targeted cash-flow
return on investment goal set for 2007 represents an increase of
over 20% compared to actual results in 2006. Targeted cash flow
return on investment goals are set at the beginning of each
year, and are structured to present a challenging, yet
achievable, growth scenario for the Company. The Committee may
approve discretionary payments to the Named Executive Officers
if the cash-flow goals are not attained, in recognition of their
respective overall performance at the Company. See the
Plan-Based Awards table on page 114. The Committee has not
determined bonus amounts with respect to performance for 2007
under the
One-Year
Plan, but is expected to do so by the end of the second fiscal
quarter of 2008.
Long-Term
Incentives
Under Dole’s long-term cash incentive plan, the Sustained
Profit Growth Plan (the “Growth Plan”), the
performance matrix established for the
2007-2009
Incentive Period consists of a combination of revenue and return
on shareholder investment as a driver of the financial
performance factors used in determining contingent awards for
the Named Executive Officers. This performance matrix was
designed to further align executive compensation with
shareholder’s return on a long-term basis. The performance
matrix for the
2008-2010
Incentive Period has not yet been determined. The Growth Plan
contemplates annual grants each with three-year Incentive
Periods. Each Named Executive Officer’s final award in
connection with each grant is determined as of the end of the
Incentive Period for that grant, and is paid in lump sum within
90 days following the end of the Incentive Period. The
Compensation Committee has authorized all of the Named Executive
Officers to participate in the Growth Plan.
Consistent with the approach for allocating total target
compensation among the three components of compensation, target
long-term cash incentive levels for the Named Executive Officers
for the
2007-2009
Incentive Period under the Growth Plan are approximately 40% of
total target compensation.
The Named Executive Officers have identical performance goals
and will earn 100% of their targeted long-term incentives if the
revenue and shareholder’s return goals are achieved.
Payments range from 0% to 300% of a Named Executive
Officer’s target. There is no discretionary pay component
available under the Growth Plan. Achievement of target awards
under this plan requires company performance, on a consolidated
basis, to meet three-year performance goals. Such goals are
driven by the Company’s three-year financial plan.
Achievement of the Company’s three-year financial plan can
be difficult to reach and is subject to the volatile nature of
Dole’s businesses, which can be impacted by numerous
factors, such as exposure to commodity input costs like fuel,
shipping and packaging, as well as product supplies which can be
impacted by weather, political risk, currency fluctuations and
other factors.
Payment under the Growth Plan for the 2005 — 2007
Incentive Period will be paid in 2008 based on the level of
revenue achievement, as follows: the Chairman will receive
$247,950; the President and Chief Executive Officer will receive
$0, since he was rehired by the Company in 2007 and was not,
therefore, an award recipient for the
2005-2007
Incentive Period; the former President and Chief Operating
Officer will receive $163,125; the Executive Vice President,
General Counsel and Corporate Secretary will receive $118,690;
and the Vice President and Chief Financial Officer will receive
$36,703.
Retirement
Plan
Until December 31, 2001, the Company maintained a
traditional defined benefit pension plan. Subsequent to that
time no new participants were added to the plan and benefits
under the plan for existing participants were frozen. The
Company did institute a five-year transition benefit plan for
long-term employees and it was completed at the end of 2006.
Neither the Vice President and Chief Financial Officer nor the
former President and Chief Operating Officer had accrued any
benefit under the benefit pension plan prior to the freeze. The
Executive Vice President, General Counsel and Corporate
Secretary, assuming he is employed to age 65 (or later),
has an annual retirement benefit of approximately $5,747. The
Chairman is over the age of
701/2
and, as required by the Internal Revenue Code, is receiving his
current annual retirement benefit of $208,604. If any
individual’s benefit under the pension plan exceeds the
maximum annual benefit or the maximum compensation limit, Dole
will pay the excess from an unfunded excess and supplemental
benefit plan. Additional details regarding the supplemental
retirement plan are provided below following the Pension Plan
Table. The President and Chief Executive Officer is receiving
$344,803 in pension benefit payments annually.
Savings
Plans
Dole matches contributions to the 401(k) plan up to 6% of
eligible compensation. Additional details regarding the 401(k)
plan are found on page 115.
The Named Executive Officers, as well as other U.S. based
senior executives, are eligible to participate in the Excess
Savings Plan where eligible employees can contribute up to 100%
of eligible earnings (base pay and annual incentive). Additional
details regarding the Excess Savings Plan can be found on
page 115.
Perquisites
Perquisites for the Named Executive Officers (except the
Chairman) are the reimbursement of $5,000 per year for financial
planning and a company-paid annual executive physical not to
exceed $6,000. The Executive Vice President, General Counsel and
Corporate Secretary and the Vice President and Chief Financial
Officer are provided with company cars, insurance costs and
maintenance. The Chairman and the Executive Vice President,
General Counsel and Corporate Secretary receive an annual car
allowance of $5,000. The Company paid dues for one-half of the
year on behalf of the former President and Chief Operating
Officer for membership in a club and, on behalf of the Chairman,
paid an annual subscription to the New York Metropolitan
Opera.
The Company airplane (co-leased by an affiliate of Dole) is used
by the Chairman for both business and personal use. The cost to
the Company of these expenses are discussed in Item 13.
Certain Relationships and Related Transactions on page 121.
The Named Executive Officers participate in the Company’s
other benefit plans on the same terms as other employees. These
plans include medical and dental insurance, life insurance, and
charitable gift matching (limited to $500 per employee per year).
The Company does not offer any employment agreements to
executives, including the Named Executive Officers, except for
change of control agreements which the Company believes are
important in order to keep executives focused on the business of
the Company should a change of control occur. See page 118
for further explanation.
The Committee reviews and approves changes in total compensation
to the Named Executive Officers with the Chairman. The Chairman
recuses himself from discussions with regard to his own
compensation.
The Committee has reviewed and discussed the Compensation
Discussion and Analysis with management and has determined that
it accurately describes the compensation programs at Dole.
The table below summarizes total compensation paid, earned or
awarded to each of the Named Executive Officers for the fiscal
year ended December 29, 2007.
Change in
Pension Value
and
Nonqualified
Non-Equity
Deferred
Incentive Plan
Compensation
All Other
Name and Principal Position
Year
Salary(1)
Bonus(2)
Compensation(3)
Earnings(4)
Compensation(5)(6)
Total
David H. Murdock
2007
$
950,000
$
TBD
$
247,950
$
(85,159
)
$
29,415
$
TBD
Chairman
2006
$
950,000
$
—
$
437,950
$
(7,972
)
$
26,795
$
1,406,773
Dole Food Company, Inc.
David A. DeLorenzo
2007
$
687,692
$
TBD
$
—
$
(122,773
)
$
41,352
$
TBD
President and Chief Executive Officer
Dole Food Company, Inc.
Richard J. Dahl(7)
2007
$
375,000
$
—
$
163,125
$
69,292
$
777,948
$
1,385,365
Former President and Chief Operating Officer
Dole Food Company, Inc.
2006
$
750,000
$
—
$
195,925
$
54,402
$
360,939
$
1,361,266
C. Michael Carter
2007
$
600,000
$
TBD
$
118,690
$
78,891
$
80,805
$
TBD
Executive Vice President, General Counsel and Corporate
Secretary
Dole Food Company, Inc.
2006
$
562,500
$
450,000
$
195,925
$
63,095
$
300,893
$
1,572,413
Joseph S. Tesoriero
2007
$
444,231
$
TBD
$
36,703
$
11,944
$
62,293
$
TBD
Vice President and Chief Financial Officer,
Dole Food Company, Inc.
2006
$
425,000
$
100,000
$
50,134
$
7,665
$
112,248
$
695,047
(1)
2007 salaries reflect Dole’s fiscal year containing
52 weeks. Base salary adjustments are made based on
performance, internal equity and market data.
(2)
The Committee has not yet determined bonus amounts with respect
to performance for 2007 under the One-Year Plan, which is
discussed in further detail on page 110, but is expected to
do so by the end of the second fiscal quarter of 2008.
(3)
Amounts shown reflect awards earned for the 2005 —
2007 incentive period (paid in 2008) under the Growth Plan.
Further explanation can be found on page 110.
(4)
The amounts shown reflect the actuarial decrease or increase in
the present value of Mr. Murdock’s,
Mr. DeLorenzo’s and Mr. Carter’s benefits
under all pension plans established by the Company using
interest rate and mortality rate assumptions consistent with
those used in the Company’s financial statements and
includes amounts which the Named Executive Officer may not
currently be entitled to receive. In general, the present value
of the benefits under the pension plans increase until
attainment of age 65 and thereafter decrease due to the
mortality assumptions. Also reflected in the amounts shown is
the annual earnings on each Named Executive Officer’s
deferred compensation balance.
(5)
The 2007 amounts shown include the following: (1) on behalf
of Mr. Murdock an amount of $24,415 for an annual
subscription to the New York Metropolitan Opera;
(2) Dole’s matching contributions to the 401(k) and
Excess Savings Plans of Dole Food Company, Inc. (see
“Deferred Compensation — Qualified and
Nonqualified” on page 115) on behalf of
Mr. Murdock $0, Mr. Carter $63,043, Mr. Dahl
$13,173, Mr. DeLorenzo $41,262 and Mr. Tesoriero
$33,000; (3) the value attributable to personal use of the
company-provided automobiles for Mr. Carter $2,464, and
Mr. Tesoriero $20,693; (4) an annual car allowance to
Mr. Murdock $5,000, Mr. Carter $5,000 and
Mr. Dahl $2,500 (pro-rated); (5) the cost of financial
planning services reimbursed (amounts are included in the
executive’s
W-2 and
taxes are borne by the executive) by the Company for
Mr. Murdock $0, Mr. Carter $5,000, Mr. Dahl
$5,000, Mr. DeLorenzo $0 and Mr. Tesoriero $4,850;
(6) the cost of an annual executive physical (amounts are
included in the executive’s
W-2 and
taxes are borne by the executive) for Mr. Murdock $0,
Mr. Carter $5,298, Mr. Dahl $5,805, Mr. DeLorenzo
$90 and Mr. Tesoriero
$3,750; (7) annual dues of $1,470 for club membership for
Mr. Dahl and (8) Mr. Dahl received a lump-sum
separation payment in the amount of $750,000.
(6)
The 2006 amounts shown include the following (1) on behalf
of Mr. Murdock an amount of $21,795 for an annual
subscription to the New York Metropolitan Opera;
(2) Dole’s matching contributions to the 401(k) and
Excess Savings Plans of Dole Food Company, Inc, (see
“Deferred Compensation — Qualified and
Nonqualified” on page 115) on behalf of
Mr. Murdock $0, Mr. Carter $37,518, Mr. Dahl
$73,620 and Mr. Tesoriero $33,132; (3) the value
attributable to personal use of the company-provided automobiles
for Mr. Mr. Carter $3,162, Mr. Dahl $16,469 and
Mr. Tesoriero $19,691; (4) the cost of financial
planning services reimbursed (amounts are included in the
executive’s
W-2 and
taxes are borne by the executive) by the Company for
Mr. Murdock $0, Mr. Carter $5,000, Mr. Dahl
$5,000 and Mr. Tesoriero $1,300; (5) an annual car
allowance to Mr. Murdock $5,000, Mr. Carter $5,000 and
Mr. Dahl $5,000; (6) the cost of an annual executive
physical (amounts are included in the executive’s
W-2 and
taxes are borne by the executive) for Mr. Murdock $0,
Mr. Carter $3,213, Mr. Dahl $6,000 and
Mr. Tesoriero $5,925; (7) the delayed payout of 35%
under the 2003 executive incentive plan paid in January 2006 for
Mr. Murdock $0, Mr. Carter $252,000, Mr. Dahl
$252,000 and Mr. Tesoriero $52,200; and (8) annual
dues of $2,850 for club membership for Mr. Dahl.
(7)
Mr. Dahl’s employment with Dole terminated on
June 29, 2007.
Grants
of Plan-Based Awards Table
Estimated Future Payout Under Non-Equity Incentive Awards
Name
Grant Date
Incentive Period
Threshold
Target
Maximum
David H. Murdock
1/1/2007
2007 Fiscal Year (1)(2)
$
285,000
$
950,000
$
2,850,000
1/1/2007
2007-2009(3)(4)(5)
$
498,750
$
1,425,000
$
4,275,000
David A. DeLorenzo
6/4/2007
2007 Fiscal Year(1)(2)
$
360,000
$
1,200,000
$
3,600,000
6/4/2007
2007-2009(3)(4)(5)
$
630,000
$
1,800,000
$
5,400,000
C. Michael Carter
1/1/2007
2007 Fiscal Year(1)(2)
$
135,000
$
450,000
$
1,350,000
1/1/2007
2007-2009(3)(4)(5)
$
262,500
$
750,000
$
2,250,000
Joseph S. Tesoriero
1/1/2007
2007 Fiscal Year(1)(2)
$
87,750
$
292,500
$
877,500
1/1/2007
2007-2009(3)(4)(5)
$
181,125
$
517,500
$
1,552,500
(1)
Under the One-Year Plan, target incentives for the Named
Executive Officers, as a percentage of base salary, range from
65% to 100%, depending principally on Dole’s performance
relative to financial performance targets set in early 2006.
Incentive awards for Named Executive Officers are determined
based on the consolidated financial performance and are
generally payable only if the specified minimum level of the
Company’s financial performance is realized and may be
increased to maximum levels only if substantially higher
performance levels are attained. Amounts shown represent the
specified minimum of the threshold’s shown, however,
incentive awards can range from 0% to 300% of target incentives.
Mr. Dahl is not eligible for incentive awards granted in
2007.
(2)
Under the One-Year Plan, amounts for target and maximum are
based on annual salary at the end of the Incentive Period.
(3)
The performance matrix established for the Incentive Period
2007 — 2009 consists of a combination of revenue and
return on shareholder investment as the financial performance
goals used in determining the contingent awards for the Named
Executive Officers. Amounts shown represent the specified
minimum of the threshold’s shown, however, incentive awards
can range from 0% to 300% of target incentives. The performance
matrix has not yet been established for the 2008 —
2010 Incentive Period. Final awards are paid in a lump sum
within 90 days following the end of the Incentive Period. A
final award may become payable in the event of the Named
Executive Officer’s death, disability or retirement, or
involuntary termination without cause, and are subject to
customary adjustments for certain changes in capitalization.
(4)
If the minimum combination of revenue and return on shareholder
investment in the performance matrix is not achieved as of the
end of the Incentive Period, no amount will be earned by the
Named Executive Officers for the Incentive Period.
Under the Growth Plan, contingent award amounts for target and
maximum are based on annual salary at the beginning of the
Incentive Period.
Pension
Benefits
The Company sponsors both a qualified and nonqualified defined
benefit plan. The nonqualified plan is a restoration plan,
providing benefits that cannot be provided under the qualified
plan on account of Internal Revenue Code limits on compensation
and benefits.
Participation in both the defined benefit plans was frozen on
December 31, 2001. Benefits were also frozen for most
employees at that time, although some long-service employees
received additional benefit accruals over the next five years.
No benefits accrue under either defined benefit plan after
December 31, 2006. All participants are fully vested as of
that date.
Participants may receive their full benefit upon normal
retirement at age 65 or a reduced benefit upon early
retirement on or after age 55.
The amounts in the table below reflect the actuarial increase in
present value of the Named Executive Officer’s benefits
under all defined benefit pension plans sponsored by the Company
and are determined using the interest rate and mortality rate
assumptions used for U.S. pension plans in the pension
footnote of the Company’s financial statements.
Number of
Years of
Present Value of
Payments
Credited
Accumulated
During Last
Name(1)
Plan Name
Service
Benefit
Fiscal Year
David H. Murdock(2)
Plan 29
8.5
$
1,305,238
$
93,973
Chairman
SERP
8.5
$
727,366
$
52,368
Dole Food Company, Inc.
David A. DeLorenzo(3)
Plan 29
31.5
$
984,801
$
75,349
President and Chief Executive Officer
SERP
31.5
$
3,022,055
$
240,616
Dole Food Company, Inc.
C. Michael Carter
Plan 29
1.25
$
31,170
$
—
Executive Vice President,
SERP
1.25
$
30,287
$
—
General Counsel and Corporate Secretary
Dole Food Company, Inc.
(1)
Mr. Dahl and Mr. Tesoriero joined Dole after the
defined benefit plans were frozen and are not shown in the table
as they do not have an accrued benefit under the qualified or
nonqualified defined benefits plan.
(2)
As required by the Internal Revenue Code, Mr. Murdock, who
is over the age of
701/2,
is receiving his current annual retirement benefit as a joint
and survivor annuity.
(3)
Mr. DeLorenzo retired from Dole on December 29, 2001
and began receiving retirement benefit payments.
Mr. DeLorenzo was rehired on June 4, 2007.
Deferred
Compensation — Qualified and
Nonqualified
All salaried employees are eligible to participate in the
Salaried 401(k) Plan. There is a separate 401(k) plan that
covers most hourly paid non-union employees. Participants in the
Salaried 401(k) Plan may contribute on a pre-tax basis up to the
lesser of 50% of their annual salary or the limit prescribed
under the Internal Revenue Code. Participants may also
contribute up to 5% of their salary on an after-tax basis. The
Company will match 100% of the first 6% of salary that is
contributed to the Plan on a pre-tax basis. All contributions,
including the Company match, are immediately and fully vested.
Named Executive Officers and certain other executives are
eligible to participate in the Excess Savings Plan. This plan is
a nonqualified savings plan that provides participants with the
opportunity to contribute amounts on a
deferred tax basis which are in excess of the limits that apply
to the 401(k) Plan. The Excess Savings Plan is coordinated with
the Salaried 401(k) Plan so that, on a combined plan basis,
participants may defer up to 100% of eligible earnings
(generally, base salary and annual incentives) and will receive
a Company match of the first 6% of eligible earnings. Amounts
contributed to the Excess Savings Plan received a fixed rate of
interest. For 2007, the interest rate was 7.25%. The interest
rate in 2008 has been set at 7.2%. Such rate is declared
annually by the Compensation Committee and is based on the
Company’s weighted average cost of long-term debt.
Aggregate
Aggregate
Executive
Registrant
Earnings
Balance at
Contributions
Contributions
in Last
Aggregate
Last Fiscal
Name
in Last FY
in Last FY
FY
Withdrawals/Distributions
Year End
David H. Murdock
$
—
$
—
$
18,483
$
—
$
273,422
Chairman
Dole Food Company, Inc.
David A. DeLorenzo
$
27,692
$
27,762
$
382
$
—
$
55,836
President and Chief Executive Officer
Dole Food Company, Inc.
Richard J. Dahl
$
—
$
2,000
$
69,292
$
—
(1)
$
998,752
Former President and Chief Operating Officer
Dole Food Company, Inc.
C. Michael Carter
$
48,057
$
49,543
$
73,518
$
—
$
1,150,617
Executive Vice President,
General Counsel and Corporate Secretary
Dole Food Company, Inc.
Joseph S. Tesoriero
$
22,500
$
19,500
$
11,944
$
—
$
198,554
Vice President and Chief Financial Officer
Dole Food Company, Inc.
(1)
Mr. Dahl received a $998,825 distribution of his Excess
Savings Plan balance in January 2008. This payment was made in
accordance with the irrevocable election made by Mr. Dahl
upon his participation in the Excess Savings Plan.
By irrevocable election, an executive may elect to receive
benefits under the ESP in either a lump sum payment or annual
installments up to fifteen years. Lump-sum benefits under the
Excess Savings Plan will be paid the earlier of the beginning of
the year following the executive’s retirement or
termination or a specified year. However, upon a showing of
financial hardship and receipt of approval from the Compensation
Committee, an executive may be allowed to access funds deferred,
earlier than previously elected by the executive.
Section 409A of the Internal Revenue Code imposes
restrictions on distributions, and elections with respect to
distributions, from nonqualified deferred compensation plans,
such as the Excess Savings Plan. The IRS has issued final
regulations on 409A. These regulations include transition rules
that will apply through December 31, 2008.
There are no investment options available under the Excess
Savings Plan.
For purposes of illustration, target amounts are shown. Payments
made in the event of retirement, death or disability would be
based on actual results after conclusion of the plan year.
(2)
For purposes of illustration, targets amounts are shown.
Payments made in the event of retirement, death, disability or
involuntary termination without cause would be based on actual
results for the applicable incentive periods and the number of
months of participation in any applicable incentive period.
Amounts shown for retirement, death, disability, and involuntary
termination without cause are payable following the termination
and calculation of the applicable incentive period. Awards, if
any, are prorated based on the applicable termination date for
the Named Executive Officer. The performance matrix has not yet
been established for the 2008 — 2010 Incentive Period.
(3)
Mr. DeLorenzo rejoined Dole in 2007 and became eligible for
contingent awards in 2007.
(4)
A Change of Control Agreement has been offered to Mr. DeLorenzo
effective March 5, 2008.
Severance
The Severance Pay Plan for Employees of Dole Food Company, Inc.
and Participating Divisions and Subsidiaries (the
“Severance Plan”) is in place for all eligible
employees and provides for payment if an employee’s
(including a Named Executive Officer) employment is
involuntarily terminated as a result a workforce reduction,
elimination of operations, or job elimination. There are no
other severance plans or severance agreements covering the Named
Executive Officers. In the unlikely circumstance that a Named
Executive Officer is involuntarily terminated under the
qualifications of the Severance Plan, the Severance Plan
provides for benefits in an amount equal to the weekly base
compensation determined according to the following schedule:
Years of Service
Severance Pay Benefit
1 to 4
2 weeks for each year of service plus 2 weeks
5 to 14
2 weeks for each year of service plus 4 weeks
15 or more
2 weeks for each year of service plus 6 weeks
In no event will the severance benefits under the Severance Plan
exceed either of the following: (i) an amount equal to a
total of 104 weeks of weekly base compensation; or
(ii) an amount equal to twice the Named Executive
Officer’s compensation (including wages, salary, and any
other benefit of monetary value) during the twelve-month period
immediately preceding his termination of service.
Health and other insurance benefits are continued for up to six
months corresponding to the termination benefits. A terminated
employee is entitled to receive any benefits he would otherwise
have been entitled to receive under the 401(k) plan, frozen
pension plan and supplemental retirement plans. Those benefits
are neither increased nor accelerated. See the table on
page 117 for hypothetical payment amounts.
Change
of Control
In line with the practice of numerous companies of Dole’s
size, we recognize that the possibility of a change of control
of Dole may result in the departure or distraction of management
to the detriment of Dole. In March 2001, Dole put in place a
program to offer Change of Control Agreements to each Named
Executive Officer and certain other officers and employees of
Dole. At the time the program was put in place, Dole was advised
by its executive compensation consultants that the benefits
provided under the Change of Control Agreements were within the
range of customary practices of other public companies. The
benefits under the Change of Control Agreements are paid in a
lump sum and are based on a multiple of three for each of the
Named Executive Officers.
In order to receive a payment under the Change of Control
Agreement, two triggers must occur. The first trigger is a
change of control, as defined in the change of control
agreement. The second trigger is that the Named Executive
Officer must be terminated from employment with the successor
company within two years of the change of control date.
The payments to the Named Executive Officers would be in the
form of a lump sum cash payment, determined as follows:
•
Three times the Named Executive Officer’s base salary
•
Three times the Named Executive Officer’s target bonus
•
$30,000, in lieu of any other health and welfare benefits,
fringe benefits and perquisites (including medical, life,
disability, accident and other insurance, car allowance or other
health and welfare plan, programs, policies or practices or
understandings but excluding the Named Executive Officer’s
rights relative to the option of acquiring full ownership of the
company car) and other taxable perquisites and fringe benefits
that the Named Executive Officer or his family may have been
entitled to receive
•
The pro-rata portion of the greater of (i) the Named
Executive Officer’s target amounts under the Growth Plan
and (ii) the Named Executive Officer’s actual benefits
under the Growth Plan
•
Accrued obligations (any unpaid base salary to date of
termination, any accrued vacation pay or paid time off), and
deferred compensation — including interest and
earnings and pursuant to outstanding elections
•
Pro-rata portion of the Named Executive Officer’s target
bonus for the fiscal year in which the termination occurs
•
Reimbursement for outstanding reimbursable expenses
•
A gross-up
payment to hold the Named Executive Officer harmless against the
impact, if any, of federal excise taxes imposed on the executive
as a result of the payments contingent on a change in control.
There are four events that could constitute a
change-in-control
at Dole. The occurrence of any of these events would be deemed a
change-of control. These events were carefully reviewed by both
internal and external experts and were deemed to best capture
those situations in which control of the company would be
altered. Below, we provide a general summary of the events that
constitute a change-of-control.
1) An acquisition of 20% or more of the combined voting
power of the Company’s stock. Excluded from the 20%
acquisition rule is Mr. David H. Murdock, or following his
death, any trust or trustees designated by Mr. Murdock.
2) A change in the majority constitution of the Board of
Directors, unless the changes are approved by two-thirds of
incumbent board.
3) A merger, reorganization, consolidation,
recapitalization, exchange offer or other extraordinary
transaction where the current beneficial owners of the
outstanding securities of the Company do not own at least
50 percent of the outstanding securities of the new
organization.
4) A sale, transfer, or distribution of all or
substantially all of the Company’s assets.
The full text of the Change of Control Agreement covering the
Named Executive Officers can be found under cover of Dole’s
Report on
Form 8-K
dated February 4, 2005, File
No. 1-4455.
Non-Employee
Director Compensation
The Company uses cash compensation to attract and retain
qualified non-employee candidates to serve on the Board. In
setting outside director compensation, the Company considers the
significant amount of time that Directors expend in fulfilling
their duties to the Company, as well as the skill sets each
outside director brings as a member of the Board.
Members of the Board who were not employees of the Company are
entitled to receive an annual cash retainer of $50,000 and a
Board meeting fee of $2,000 for each Board meeting attended.
Telephonic Board meeting fees are $1,000. Directors receive
$4,000 annually for service as chairman of committees of the
Board in addition to the cash retainer, except in the case of
the chairman of the audit committee who receives $10,000
annually. Committee meeting fees are $1,000 per meeting
attended, either in person or telephonically. Directors who are
employees of the Company receive no compensation for their
service as directors.
The Non-Employee Deferred Cash Compensation Plan is a program in
which each non-employee director may defer up to 100% of his or
her total annual retainer and meeting fees. In 2007, each
non-employee director who defers his or her annual retainer or
fees through this program has an interest rate of 7.25%, the
same as the interest rate used for management’s Excess
Savings Plan. In 2008, the interest rate for this plan will be
7.2%. None of the non-employee directors have elected to defer
the annual retainer or fees in 2008.
Amounts deferred under this program are distributed to each
non-employee director at the termination of service as a
Director, either as a lump-sum, or in equal annual cash
installments over a period not to exceed five years.
Annual
Physical
Each non-employee director has an annual executive physical
benefit.
David H. Murdock, the Company’s Chairman of the Board,
Richard J. Dahl, former President and Chief Operating Officer,
C. Michael Carter, Executive Vice President, General Counsel and
Corporate Secretary, Scott Griswold, Executive Vice President,
Corporate Development, Justin Murdock, Vice President, New
Products and Corporate Development and Roberta Wieman, Executive
Vice President, Chief of Staff, are not included in this table
because they are (or were) employees of the Company and do not
receive any compensation for their service as Directors. David
A. DeLorenzo received compensation for his service on the Board
to June 2007 at which time he was rehired by the Company as
President and Chief Executive Officer. Compensation for
Messrs. Murdock, DeLorenzo, Dahl and Carter may be found in
the Summary Compensation Table on page 113.
(2)
Mr. DeLorenzo retired from the Company on December 29,2001 as an employee of the Company and he is receiving
retirement payments. He was rehired by the Company on
June 4, 2007 at which time his fees for service on the
Board of Directors, or any Board Committees, were terminated.
(3)
In 2007, interest earnings applied to deferred compensation
accounts for Dr. Conrad and Mr. DeLorenzo were $6,260
and $23,079, respectively.
(4)
The cost of Mr. DeLorenzo’s annual physical paid by
the Company.
Item 12.
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Mr. Murdock beneficially owns these shares through one or
more affiliates, and has effective sole voting and dispositive
power with respect to the shares. Beneficial ownership is
determined in accordance with
Rule 13d-3
under the Securities Exchange Act of 1934, as amended.
Mr. Murdock is Dole’s Chairman of the Board and Chief
Executive Officer.
Dole has no equity compensation plans. All of the
outstanding shares of common stock of Dole have been pledged
pursuant to Dole’s Credit Agreement and ancillary documents
thereto.
Item 13.
Certain
Relationships and Related Transactions
David H. Murdock, the Company’s Chairman, owns, inter
alia, Castle & Cooke, Inc. (“Castle”), a
transportation equipment leasing company, a private dining club
and a hotel. During the years ended December 29, 2007,
December 30, 2006 and December 31, 2005, the Company
paid Mr. Murdock’s companies an aggregate of
approximately $7.2 million, $7.6 million and
$7.3 million, respectively, primarily for the rental of
truck chassis, generator sets and warehousing services. Castle
purchased approximately $0.7 million, $1.1 million and
$4 million of products from the Company during the years
ended December 29, 2007, December 30, 2006 and
December 31, 2005, respectively.
The Company and Castle are responsible for 68% and 32%,
respectively, of all obligations under an aircraft lease
arrangement. Each party is responsible for the direct costs
associated with its use of this aircraft, and all other indirect
costs are shared proportionately. During the year ended
December 29, 2007, December 30, 2006 and
December 31, 2005, the Company’s proportionate share
of the direct and indirect costs for this aircraft was
$2 million, $1.9 million and $1.9 million,
respectively.
The Company and Castle operate their risk management departments
on a joint basis. Insurance procurement and premium costs are
based on the relative risk borne by each company as determined
by the insurance underwriters. Administrative costs of the risk
management department, which were not significant, are shared on
a 50-50
basis.
The Company retains risk for commercial property losses
sustained by the Company and Castle totaling $4 million in
the aggregate and $4 million per occurrence, above which
the Company has coverage provided through third-party insurance
carriers. The arrangement provides for premiums to be paid to
the Company by Castle in exchange for the Company’s
retained risk. The Company received approximately
$0.6 million, $0.6 million and $0.7 million from
Castle during 2007, 2006 and 2005, respectively.
The Company had a number of other transactions with Castle and
other entities owned by Mr. Murdock, generally on an
arms-length basis, none of which, individually or in the
aggregate, were material. The Company had outstanding net
accounts receivable of $0.5 million and a note receivable
of $10.2 million due from Castle at December 29, 2007
and outstanding net accounts payable of $5.6 million to
Castle at December 30, 2006. The net accounts payable
balance of $5.6 million included $5.2 million related
to the reimbursement of entitlement costs for partnership land
parcels held for sale, which were sold in 2007.
In the first quarter of 2007, the Company and Castle executed a
lease agreement pursuant to which the Company’s fresh
vegetables operations occupy an office building in Monterey,
California, which is owned by Castle. The Company occupied the
building in 2006 and recorded $0.6 million of rent
expense. Rent expense for the year ended December 29. 2007
was $1 million.
Mr. Murdock is a director and executive officer of Dole and
also serves as a director and executive officer of privately
held entities that he owns or controls. Mr. Scott Griswold,
Ms. Roberta Wieman and Mr. Justin Murdock, each a
director and officer of Dole, also serve as directors and
officers of privately held entities controlled by
Mr. Murdock. Mr. Edward C. Roohan is a director of
Dole and a director and executive officer of Castle. Any
compensation paid by such other entities is within the
discretion of their respective boards of directors.
During December 2006, Dole entered into a five-year lease with
Laboratory Corporation of America, pursuant to which the latter
is leasing approximately 1,483 rentable square feet in
Dole’s World Headquarters building in Westlake Village,
California, at a rental rate of $115,674 per year, subject to
annual inflation adjustments. The lease provides that the tenant
may renew the lease for two additional five-year terms.
Dr. Conrad, a director of Dole, is the tenant’s Chief
Scientific Officer.
Dole’s secured credit facilities and its unsecured senior
notes and debenture indentures impose substantive and procedural
requirements with respect to the entry by the Company and its
subsidiaries into transactions with affiliates. The credit
facilities generally requires that, except as expressly
permitted in the credit facilities, all such
transactions with affiliates be entered into in the ordinary
course of business and on terms and conditions substantially as
favorable to Dole as would reasonably be expected to be
obtainable at the time in a comparable arms-length transaction
with an unaffiliated third party. The indentures generally
require that, except as expressly permitted in the indentures,
all transactions with affiliates must satisfy the requirements
set forth above pursuant to Dole’s credit facilities and,
in addition, any transaction or series of related transactions
with an affiliate involving aggregate payments with a fair
market value in excess of $7.5 million must be approved by
a Board of Directors resolution stating that the Board has
determined that the transaction complies with the preceding
requirements; further, if such aggregate payments have a fair
market value of more than $20 million, the Board of
Directors must, prior to the consummation of the transaction,
have obtained a favorable opinion as to the fairness of the
transaction to the Company from a financial point of view, from
an independent financial advisor, and such opinion must be filed
with the indenture trustee. In addition, the Company’s
legal department and finance department review all transactions
with related parties to ensure that they comply with the
preceding requirements. The Audit Committee of the
Company’s Board of Directors annually receives and reviews
a detailed summary of all transactions with related parties,
which provides a basis for the Audit Committee’s approval
of the disclosure in respect of related party transactions
contained in the Company’s Annual Report on
Form 10-K.
The Company has traditionally used the definition of
“independent director” provided by the New York Stock
Exchange, since Dole securities were listed on the New York
Stock Exchange prior to Dole’s going-private merger
transaction in 2003. The Company does not believe that any of
its current directors are “independent directors”
under that definition.
Item 14.
Principal
Accountant Fees and Services
Principal
Accountant Fees and Services
The following table summarizes the aggregate fees billed to the
Company by its independent auditor Deloitte & Touche
LLP, the member firms of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively, the “Deloitte
Entities”):
Audit fees include $3,959,000 and $3,626,000 for services
related to the audit of the annual consolidated financial
statements and reviews of the quarterly condensed consolidated
financial statements for 2007 and 2006, respectively.
(b)
Audit-related fees include $137,000 and $211,000
Section 404 advisory services for 2007 and 2006,
respectively. Audit-related fees for 2007 and 2006 also include
$208,000 and $216,000, respectively, for employee benefit plan
audits. The remaining amounts relate to accounting and financial
reporting consultations, and various
agreed-upon
procedures and compliance reports.
(c)
There were no fees for tax compliance services billed in 2006
and 2005, respectively. Fees for tax planning and advice billed
in 2007 and 2006 were $217,500 and $348,000, respectively.
Ratio of Tax Planning and Advice Fees and All Other Fees to
Audit Fees, Audit-Related Fees and Tax Compliance Fees
0.1:1
0.1:1
In considering the nature of the services provided by the
independent auditor, the Audit Committee determined that such
services are compatible with the provision of independent audit
services. The Audit Committee discussed these services with the
independent auditor and Company management to determine that
they are permitted under the rules and regulations concerning
auditor independence promulgated by the Securities and Exchange
Commission to implement the Sarbanes-Oxley Act of 2002, as well
as the American Institute of Certified Public Accountants.
Articles of Incorporation of AG 1970, Inc., dated as of
September 25, 1987. Certificate of Amendment of Articles of
Incorporation of AG 1970, Inc., dated as of December 13,
1989.
3.1(d)†
Articles of Incorporation of AG 1971, Inc., dated as of
September 25, 1987. Certificate of Amendment of Articles of
Incorporation of AG 1971, Inc., dated as of December 13,
1989.
3.1(e)†
Articles of Incorporation of AG 1972, Inc., dated as of
September 25, 1987. Certificate of Amendment of Articles of
Incorporation of AG 1972, Inc., dated as of December 13,
1989.
Articles of Incorporation of Barclay Hollander Curci, Inc.,
dated as of February 28, 1969. Certificate of Amendment of
Articles of Incorporation, dated as of February 1975, changed
the company’s name to Barclay Hollander Corporation.
Certificate of Amendment of Articles of Incorporation of Barclay
Hollander Corporation, dated as of November 26, 1980.
Certificate of Amendment of Articles of Incorporation of Barclay
Hollander Corporation, dated as of June 11, 1990.
3.1(h)†
Articles of Incorporation of Grandma Mac’s Orchard, dated
as of August 27, 1976. Certificate of Amendment of Articles
of Incorporation of Grandma Mac’s Orchard, dated as of
January 6, 1988, changed the company’s name to Sun
Giant, Inc. Certificate of Amendment of Articles of
Incorporation of Sun Giant, Inc., dated as of March 4,
1988, changed the company’s name to Dole Bakersfield, Inc.
Certificate of Amendment of Articles of Incorporation of Dole
Bakersfield, Inc., dated as of June 11, 1990. Agreement of
Merger of Bud Antle, Inc. and Dole Bakersfield, Inc., dated as
of December 18, 2000, changed the company’s name to
Bud Antle, Inc.
3.1(i)†
Articles of Incorporation of Lake Anderson Corporation, dated as
of June 26, 1964. Certificate of Amendment of Articles of
Incorporation, dated as of November 12, 1971. Certificate
of Amendment of Articles of Incorporation, dated as of
August 28, 1972, changed the company’s name to Oceanic
California Inc. Certificate of Amendment of Articles of
Incorporation, dated as of July 14, 1977. Certificate of
Amendment of Articles of Incorporation of Oceanic California
Inc., dated as of June 17, 1981. Certificate of Amendment
of Articles of Incorporation of Oceanic California Inc., dated
as of November 16, 1990, changed the company’s name to
Castle & Cooke California, Inc. Certificate of
Amendment of Articles of Incorporation of Castle &
Cooke California, Inc., dated as of December 21, 1995,
changed the company’s name to Calicahomes, Inc.
Articles of Incorporation of Dole ABPIK, Inc., dated as of
November 15, 1988. Certificate of Amendment of Articles of
Incorporation of Dole ABPIK, Inc., dated as of December 13,
1989.
Articles of Incorporation of CCJM, Inc., dated as of
December 11, 1989. Certificate of Amendment of Articles of
Incorporation of CCJM, Inc., dated as of September 9, 1991,
changed the company’s name to Dole Carrot Company.
3.1(n)†
Articles of Incorporation of Miracle Fruit Company, dated as of
September 12, 1979. Certificate of Amendment of Articles of
Incorporation of Miracle Fruit Company, dated as of
October 1, 1979, changed the company’s name to Blue
Goose Growers, Inc. Certificate of Amendment of Articles of
Incorporation of Blue Goose Growers, Inc., dated as of
June 11, 1990. Certificate of Amendment of Articles of
Incorporation of Blue Goose Growers, Inc., dated as of
February 15, 1991, changed the company’s name to Dole
Citrus.
3.1(o)†
Articles of Incorporation of Dole DF&N, Inc., dated as of
November 15, 1988. Certificate of Amendment of Articles of
Incorporation of Dole DF&N, Inc., dated as of
December 13, 1989.
3.1(p)†
General Partnership Agreement of Dole Dried Fruit and Nut
Company, a California general partnership, dated as of
October 15, 1995.
3.1(q)†
Articles of Incorporation of Canfield Farming Company, dated as
of July 17, 1963. Certificate of Amendment of Articles of
Incorporation of Canfield Farming Company, dated as of
March 15, 1971, changed the company’s name to Tenneco
Farming Company. Certificate of Amendment of Articles of
Incorporation of Tenneco Farming Company, dated as of
January 6, 1988, changed the company’s name to Sun
Giant Farming, Inc. Certificate of Amendment of Articles of
Incorporation of Sun Giant Farming, Inc., dated as of
April 25, 1988, changed the company’s name to Dole
Farming, Inc. Certificate of Amendment of Articles of
Incorporation of Dole Farming, Inc., dated as of June 11,
1990.
3.1(r)†
Articles of Incorporation of Castle & Cooke Fresh
Vegetables, Inc., dated as of July 14, 1983. Certificate of
Amendment of Articles of Incorporation of Castle &
Cooke Fresh Vegetables, Inc., dated as of December 13,
1989. Certificate of Amendment of Articles of Incorporation of
Castle & Cooke Fresh Vegetables, Inc., dated as of
January 2, 1990, changed the company’s name to Dole
Fresh Vegetables, Inc.
3.1(s)†
Restated Articles of Incorporation of T.M. Duche Nut Co., Inc.,
dated as of October 15, 1986. Certificate of Amendment of
Articles of Incorporation of T.M. Duche Nut Co., Inc., dated as
of November 14, 1986. Certificate of Amendment of Articles
of Incorporation, dated as of April 20, 1988, changed the
company’s name to Dole Nut Company. Certificate of
Amendment of Articles of Incorporation of Dole Nut Company,
dated as of December 13, 1989. Certificate of Amendment of
Articles of Incorporation of Dole Nut Company, dated as of
January 28, 1998, changed the company’s name to Dole
Orland, Inc.
Articles of Incorporation of E.T. Wall, Grower-Shipper, Inc.,
dated as of November 25, 1975. Certificate of Amendment of
Articles of Incorporation of E.T. Wall, Grower-Shipper, Inc.,
dated as of July 25, 1984, changed the company’s name
to E.T. Wall Company. Certificate of Amendment of Articles of
Incorporation of E.T. Wall Company, dated as of June 11,
1990.
3.1(v)†
Articles of Incorporation of Earlibest Orange Association, Inc.,
dated as of November 7, 1963. Certificate of Amendment of
Articles of Incorporation of Earlibest Orange Association, Inc.,
dated as of December 13, 1989.
Articles of Incorporation of The Citrus Company, dated as of
February 1, 1984. Certificate of Amendment of Articles of
Incorporation of The Citrus Company, dated as of
February 16, 1984, changed the company’s name to
Fallbrook Citrus Company, Inc. Certificate of Amendment of
Articles of Incorporation, dated as of March 15, 1994.
Certificate of Amendment of Articles of Incorporation of
Fallbrook Citrus Company, Inc., dated as of June 11, 1990.
Articles of Incorporation of Oceanview Produce Company, dated as
of June 15, 1989. Certificate of Amendment of Articles of
Incorporation of Oceanview Produce Company, dated as of
August 7, 1989.
Articles of Incorporation of Kingsize Packing Co., dated as of
February 5, 1990. Certificate of Amendment of Articles of
Incorporation of Kingsize Packing Co., dated as of
March 30, 1990, changed the company’s name to Royal
Packing Co.
3.1(ac)†
Articles of Incorporation of Trojan Transport Co., dated as of
August 31, 1955. Certificate of Amendment of Articles of
Incorporation of Trojan Transport Co., dated as of July 31,
1956, changed the company’s name to Trojan Transportation
and Warehouse Co. Certificate of Amendment of Articles of
Incorporation of Trojan Transportation Co., dated as of
January 24, 1961, changed the company’s name to
Veltman Terminal Co.
Certificate of Incorporation of Tenneco Sudan, Inc., dated as of
June 8, 1977. Certificate of Amendment of Certificate of
Incorporation of Tenneco Sudan, Inc., dated as of
December 10, 1986, changed the company’s name to
Tenneco Realty Development Holding Corporation. Certificate of
Amendment of Certificate of Incorporation of Tenneco Realty
Development Holding Corporation, dated as of April 21,
1988, changed the company’s name to Oceanic California
Realty Development Holding Corporation. Certificate of Amendment
of Certificate of Incorporation of Oceanic California Realty
Development Holding Corporation, dated as of November 16,
1990, changed the company’s name to Castle &
Cooke Bakersfield Holdings, Inc. Certificate of Amendment of
Certificate of Incorporation of Castle & Cooke
Bakersfield Holdings, Inc., dated as of March 18, 1996,
changed the company’s name to Delphinium Corporation.
3.1(ag)†
Certificate of Incorporation of Standard Banana Company, dated
as of March 21, 1955. Certificate of Amendment of
Certificate of Incorporation of Standard Banana Company, dated
as of January 8, 1971, changed the company’s name to
Standard Fruit Sales Company. Certificate of Amendment of
Certificate of Incorporation of Standard Fruit Sales Company,
dated as of June 6, 1973, changed the company’s name
to Castle & Cooke Food Sales Company. Certificate of
Amendment of Certificate of Incorporation of Castle &
Cooke Food Sales Company, dated as of September 25, 1984,
changed the company’s name to Dole Europe Company.
Certificate of Change of Location of Registered Office and of
Registered Agent, dated as of April 18, 1988.
3.1(ah)†
Certificate of Incorporation of Castle Aviation, Inc., dated as
of June 25, 1987. Certificate of Amendment of Certificate
of Incorporation of Castle Aviation, Inc., dated as of
April 10, 1992, changed the company’s name to Dole
Foods Flight Operations, Inc.
3.1(ai)†
Certificate of Incorporation of Cut Flower Exchange, Inc., dated
as of February 11, 1988. Certificate of Merger, dated as of
July 31, 1991, changed the company’s name Sunburst
Farms, Inc. Certificate of Amendment of Certificate of
Incorporation of Sunburst Farms, Inc., dated as of June 23,1999, changed the company’s name to Dole Fresh Flowers, Inc.
3.1(aj)†
Certificate of Incorporation of Wenatchee-Beebe Orchard Company,
dated as of November 7, 1927. Certificate of Ownership and
Merger in Wenatchee-Beebe Orchard Company, dated as of
June 23, 1943. Certificate of Amendment of Certificate of
Incorporation of Wenatchee-Beebe Orchard Company, dated as of
April 20, 1983, changed the company’s name to Beebe
Orchard Company. Certificate of Merger of Wells and Wade Fruit
Company and Beebe Orchard Company, dated as of March 23,2001, changed the company’s name to Dole Northwest, Inc.
Certificate of Incorporation of Standard Fruit Company, dated as
of March 14, 1955. Certificate of Change of Location of
Registered Office and of Registered Agent, dated as of
April 18, 1988.
3.1(an)†
Certificate of Incorporation of Produce America, Inc., dated as
of June 24, 1982. Certificate of Amendment of Certificate
of Incorporation Before Payment of Capital of Produce America,
Inc., dated as of October 29, 1982, changed the
company’s name to CCFV, Inc. Certificate of Amendment of
Certificate of Incorporation of CCFV, Inc., dated as of
September 29, 1983, changed the company’s name to Sun
Country Produce, Inc.
Articles of Incorporation of Cool Care Consulting, Inc., dated
as of September 16, 1986. Articles of Amendment of Cool
Care Consulting, Inc., dated as of April 4, 1996, changed
the company’s name to Cool Care, Inc.
Articles of Incorporation of Castle & Cooke
Development Corporation, dated as of June 8, 1992. Articles
of Amendment to Change Corporate Name, dated as of March 1,1993, changed the company’s name to Castle &
Cooke Communities, Inc. Articles of Amendment to Change
Corporate Name, dated as of March 18, 1996, changed the
company’s name to Blue Anthurium, Inc.
3.1(au)†
Articles of Incorporation of Dole Acquisition Corporation, dated
as of October 13, 1994. Articles of Amendment to Change
Corporate Name, dated as of January 10, 1995, changed the
company’s name to Castle & Cooke Homes, Inc.
Articles of Amendment to Change Corporate Name, dated as of
March 18, 1996, changed the company’s name to
Cerulean, Inc.
3.1(av)†
Articles of Incorporation of Castle & Cooke Land
Company, Inc., dated as of March 8, 1990. Articles of
Amendment to Change Corporate Name, dated as of May 7,1997, changed the company’s name to Dole Diversified, Inc.
3.1(aw)†
Articles of Association of Kohala Sugar Company, dated as of
February 3, 1863. Articles of Amendment to Change Corporate
Name, dated as of May 1, 1989, changed the company’s
name to Dole Land Company, Inc.
Articles of Association of Oceanic Properties, Inc., dated as of
May 19, 1961. Articles of Amendment to Change Corporate
Name, dated as of October 23, 1990, changed the
company’s name to Castle & Cooke Properties, Inc.
Articles of Amendment, dated as of November 26, 1990.
Articles of Amendment to Change Corporate Name, dated as of
December 4, 1995, changed the company’s name to
La Petite d’Agen, Inc.
3.1(az)†
Articles of Incorporation of Lanai Holdings, Inc., dated as of
May 4, 1990. Articles of Amendment, dated as of
November 26, 1990. Articles of Amendment to Change
Corporate Name, dated as of January 22, 1996, changed the
company’s name to Malaga Company, Inc.
3.1(ba)†
Articles of Incorporation of M K Development, Inc., dated as of
February 26, 1988. Articles of Amendment, dated as of
November 26, 1990.
3.1(bb)†
Articles of Incorporation of Mililani Town, Inc., dated as of
December 29, 1966. Articles of Amendment, dated as of
November 26, 1990. Articles of Amendment to Change
Corporate Name, December 24, 1990, changed the
company’s name to Castle & Cooke Residential,
Inc. Articles of Amendment to Change Corporate Name, dated as of
October 21, 1993, changed the company’s name to
Castle & Cooke Homes Hawaii, Inc. Articles of
Amendment to Change Corporate Name, dated as of December 4,1995, changed the company’s name to Muscat, Inc.
Articles of Incorporation of Oahu Transport Company, Limited,
dated as of April 15, 1947. Articles of Amendment, dated as
of July 24, 1987. Articles of Amendment, dated as of May
1997.
Articles of Incorporation of Waialua Sugar Company, Inc., dated
as of January 12, 1968. Certificate of Amendment, dated as
of January 24, 1986.
3.1(bf)†
Certificate of Incorporation of Lanai Company, Inc., dated as of
June 15, 1970. Articles of Amendment, dated as of
November 26, 1990. Articles of Amendment to Change
Corporate Name, dated as of December 4, 1995, changed the
company’s name to Zante Currant, Inc.
Articles of Incorporation of Pan-Alaska Fisheries, Inc., dated
as of July 28, 1959. Articles of Amendment to Articles of
Incorporation of Pan-Alaska Fisheries, Inc., dated as of
May 26, 1972. Articles of Amendment to Articles of
Incorporation of Pan-Alaska Fisheries, Inc., dated as of
August 30, 1973. Amendment to Articles of Incorporation,
dated as of June 25, 1976.
Limited Liability Company Agreement of Dole Packaged Foods, LLC,
dated as of December 30, 2005.
4.1
Indenture, dated as of July 15, 1993, between Dole and
Chase Manhattan Bank and Trust Company (formerly Chemical
Trust Company of California) (incorporated by reference to
Exhibit 4.6 to Dole’s Quarterly Report on
Form 10-Q
for the quarterly period ended March 23, 2002, File
No. 1-4455).
4.2
First Supplemental Indenture, dated as of April 30, 2002,
between Dole and J.P. Morgan Trust Company, National
Association, to the Indenture dated as of July 15, 1993,
pursuant to which $400 million of Dole’s senior notes
due 2009 were issued (incorporated by reference to
Exhibit 4.9 to Dole’s Quarterly Report on
Form 10-Q
for the quarterly period ended March 23, 2002, File
No. 1-4455).
4.3
Officers’ Certificate, dated August 3, 1993, pursuant
to which $175 million of Dole’s debentures due 2013
were issued (incorporated by reference to Exhibit 4.3 to
Dole’s Annual Report on
Form 10-K
for the fiscal year ended January 2, 1999, File
No. 1-4455).
4.4
Second Supplemental Indenture, dated as of March 28, 2003,
between Dole and Wells Fargo Bank, National Association
(successor trustee to J.P. Morgan Trust Company), to
the Indenture dated as of July 15, 1993 (incorporated by
reference to Exhibit 4.10 to Dole’s Current Report on
Form 8-K,
event date April 4, 2003, File
No. 1-4455).
4.5†
Agreement of Removal, Appointment and Acceptance, dated as of
March 28, 2003, by and among Dole, J.P. Morgan
Trust Company, National Association, successor in interest
to Chemical Trust Company of California, as Prior Trustee,
and Wells Fargo Bank, National Association.
Third Supplemental Indenture, dated as of June 25, 2003, by
and among Dole, Miradero Fishing Company, Inc., the guarantors
signatory thereto and Wells Fargo Bank, National Association, as
trustee.
4.7
Indenture, dated as of March 28, 2003, by and among Dole,
the guarantors signatory thereto and Wells Fargo Bank, National
Association, as trustee, pursuant to which $475 million of
Dole’s
87/8% senior
notes due 2011 were issued (incorporated by reference to
Exhibit 4.10 to Dole’s Quarterly Report on
Form 10-Q
for the quarterly period ended March 22, 2003, File
No. 1-4455).
4.8†
First Supplemental Indenture, dated as of June 25, 2003, by
and among Dole, Miradero Fishing Company, Inc., the guarantors
signatory thereto and Wells Fargo Bank, National Association, as
trustee.
4.9
Form of Global Note and Guarantee for Dole’s new
87/8% senior
notes due 2011 (included as Exhibit B to
Exhibit Number 4.7 hereto).
4.11†
Indenture, dated as of May 29, 2003, by and among Dole, the
guarantors signatory thereto and Wells Fargo Bank, National
Association, as trustee, pursuant to which $400 million of
Dole’s
71/4% senior
notes due 2010 were issued.
4.12†
First Supplemental Indenture, dated as of June 25, 2003, by
and among Dole, Miradero Fishing Company, Inc., the guarantors
signatory thereto and Wells Fargo Bank, National Association, as
trustee.
4.13
Form of Global Note and Guarantee for Dole’s
71/4% senior
notes due 2010 (included as Exhibit A to
Exhibit Number 4.11 hereto).
4.14
Dole Food Company, Inc. Master Retirement Savings
Trust Agreement, dated as of February 1, 1999, between
Dole and The Northern Trust Company (incorporated by
reference to Exhibit 4.7 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended January 2, 1999, File
No. 1-4455).
10.1
Credit Agreement, dated as of March 28, 2003, amended and
restated as of April 18, 2005 and further amended and
restated as of April 12, 2006, among DHM Holding Company,
Inc., a Delaware corporation, Dole Holding Company, LLC, a
Delaware limited liability company, Dole Food Company, Inc., a
Delaware corporation, Solvest, Ltd., a company organized under
the laws of Bermuda, the Lenders from time to time party hereto,
Deutsche Bank AG New York Branch, as Deposit Bank, Deutsche Bank
AG New York Branch, as Administrative Agent, Banc Of America
Securities LLC, as Syndication Agent, The Bank of Nova Scotia,
as Documentation Agent and Deutsche Bank Securities Inc., as
Lead Arranger and Sole Book Runner (incorporated by reference to
Exhibit 10.1 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, File
No. 1-4455).
10.2
Credit Agreement, dated as of April 12, 2006, among DHM
Holding Company, Inc., a Delaware corporation, Dole Holding
Company, LLC, a Delaware limited liability company, Dole Food
Company, Inc., a Delaware corporation, the Lenders party hereto
from time to time, Deutsche Bank AG New York Branch, as
Administrative Agent, Banc of America Securities LLC, as
Syndication Agent, Deutsche Bank Securities LLC and Banc of
America Securities LLC, as Joint Book Running Managers and
Deutsche Bank Securities Inc. as Lead Arranger (incorporated by
reference to Exhibit 10.2 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, File
No. 1-4455).
10.3
Dole’s Supplementary Executive Retirement Plan, effective
January 1, 1989, First Restatement (incorporated by
reference to Exhibit 10(c) to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 29, 1990, File
No. 1-4455).
This Plan was amended on March 22, 2001 (the March 22,2001 amendments are incorporated by reference to
Exhibit 10.10 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 30, 2000, File
No. 1-4455).
10.4
Dole’s Executive Deferred Compensation Plan (incorporated
by reference to Exhibit 10.9 to Dole’s Annual Report
on
Form 10-K
for the fiscal year ended December 31, 1994, File
No. 1-4455).
This Plan was amended on March 22, 2001 (the March 22,2001 amendments are incorporated by reference to
Exhibit 10.10 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 30, 2000, File
No. 1-4455).
Schedule of executive officers having Form 1 Change of
Control Agreement.
10.7
Form 1 Change of Control Agreement (incorporated by
reference to Exhibit 10.14 to Dole’s Quarterly Report
on
Form 10-Q
for the quarterly period ended March 23, 2002, File
No. 1-4455).
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David A. DeLorenzo and C.
Michael Carter, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this
Annual Report on
Form 10-K,
and to file the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or
could do in person, lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Articles of Incorporation of AG 1970, Inc., dated as of
September 25, 1987. Certificate of Amendment of Articles of
Incorporation of AG 1970, Inc., dated as of December 13,
1989.
3.1(d)†
Articles of Incorporation of AG 1971, Inc., dated as of
September 25, 1987. Certificate of Amendment of Articles of
Incorporation of AG 1971, Inc., dated as of December 13,
1989.
3.1(e)†
Articles of Incorporation of AG 1972, Inc., dated as of
September 25, 1987. Certificate of Amendment of Articles of
Incorporation of AG 1972, Inc., dated as of December 13,
1989.
Articles of Incorporation of Barclay Hollander Curci, Inc.,
dated as of February 28, 1969. Certificate of Amendment of
Articles of Incorporation, dated as of February 1975, changed
the company’s name to Barclay Hollander Corporation.
Certificate of Amendment of Articles of Incorporation of Barclay
Hollander Corporation, dated as of November 26, 1980.
Certificate of Amendment of Articles of Incorporation of Barclay
Hollander Corporation, dated as of June 11, 1990.
3.1(h)†
Articles of Incorporation of Grandma Mac’s Orchard, dated
as of August 27, 1976. Certificate of Amendment of Articles
of Incorporation of Grandma Mac’s Orchard, dated as of
January 6, 1988, changed the company’s name to Sun
Giant, Inc. Certificate of Amendment of Articles of
Incorporation of Sun Giant, Inc., dated as of March 4,
1988, changed the company’s name to Dole Bakersfield, Inc.
Certificate of Amendment of Articles of Incorporation of Dole
Bakersfield, Inc., dated as of June 11, 1990. Agreement of
Merger of Bud Antle, Inc. and Dole Bakersfield, Inc., dated as
of December 18, 2000, changed the company’s name to
Bud Antle, Inc.
3.1(i)†
Articles of Incorporation of Lake Anderson Corporation, dated as
of June 26, 1964. Certificate of Amendment of Articles of
Incorporation, dated as of November 12, 1971. Certificate
of Amendment of Articles of Incorporation, dated as of
August 28, 1972, changed the company’s name to Oceanic
California Inc. Certificate of Amendment of Articles of
Incorporation, dated as of July 14, 1977. Certificate of
Amendment of Articles of Incorporation of Oceanic California
Inc., dated as of June 17, 1981. Certificate of Amendment
of Articles of Incorporation of Oceanic California Inc., dated
as of November 16, 1990, changed the company’s name to
Castle & Cooke California, Inc. Certificate of
Amendment of Articles of Incorporation of Castle &
Cooke California, Inc., dated as of December 21, 1995,
changed the company’s name to Calicahomes, Inc.
Articles of Incorporation of Dole ABPIK, Inc., dated as of
November 15, 1988. Certificate of Amendment of Articles of
Incorporation of Dole ABPIK, Inc., dated as of December 13,
1989.
Articles of Incorporation of CCJM, Inc., dated as of
December 11, 1989. Certificate of Amendment of Articles of
Incorporation of CCJM, Inc., dated as of September 9, 1991,
changed the company’s name to Dole Carrot Company.
3.1(n)†
Articles of Incorporation of Miracle Fruit Company, dated as of
September 12, 1979. Certificate of Amendment of Articles of
Incorporation of Miracle Fruit Company, dated as of
October 1, 1979, changed the company’s name to Blue
Goose Growers, Inc. Certificate of Amendment of Articles of
Incorporation of Blue Goose Growers, Inc., dated as of
June 11, 1990. Certificate of Amendment of Articles of
Incorporation of Blue Goose Growers, Inc., dated as of
February 15, 1991, changed the company’s name to Dole
Citrus.
Articles of Incorporation of Dole DF&N, Inc., dated as of
November 15, 1988. Certificate of Amendment of Articles of
Incorporation of Dole DF&N, Inc., dated as of
December 13, 1989.
3.1(p)†
General Partnership Agreement of Dole Dried Fruit and Nut
Company, a California general partnership, dated as of
October 15, 1995.
3.1(q)†
Articles of Incorporation of Canfield Farming Company, dated as
of July 17, 1963. Certificate of Amendment of Articles of
Incorporation of Canfield Farming Company, dated as of
March 15, 1971, changed the company’s name to Tenneco
Farming Company. Certificate of Amendment of Articles of
Incorporation of Tenneco Farming Company, dated as of
January 6, 1988, changed the company’s name to Sun
Giant Farming, Inc. Certificate of Amendment of Articles of
Incorporation of Sun Giant Farming, Inc., dated as of
April 25, 1988, changed the company’s name to Dole
Farming, Inc. Certificate of Amendment of Articles of
Incorporation of Dole Farming, Inc., dated as of June 11,
1990.
3.1(r)†
Articles of Incorporation of Castle & Cooke Fresh
Vegetables, Inc., dated as of July 14, 1983. Certificate of
Amendment of Articles of Incorporation of Castle &
Cooke Fresh Vegetables, Inc., dated as of December 13,
1989. Certificate of Amendment of Articles of Incorporation of
Castle & Cooke Fresh Vegetables, Inc., dated as of
January 2, 1990, changed the company’s name to Dole
Fresh Vegetables, Inc.
3.1(s)†
Restated Articles of Incorporation of T.M. Duche Nut Co., Inc.,
dated as of October 15, 1986. Certificate of Amendment of
Articles of Incorporation of T.M. Duche Nut Co., Inc., dated as
of November 14, 1986. Certificate of Amendment of Articles
of Incorporation, dated as of April 20, 1988, changed the
company’s name to Dole Nut Company. Certificate of
Amendment of Articles of Incorporation of Dole Nut Company,
dated as of December 13, 1989. Certificate of Amendment of
Articles of Incorporation of Dole Nut Company, dated as of
January 28, 1998, changed the company’s name to Dole
Orland, Inc.
Articles of Incorporation of E.T. Wall, Grower-Shipper, Inc.,
dated as of November 25, 1975. Certificate of Amendment of
Articles of Incorporation of E.T. Wall, Grower-Shipper, Inc.,
dated as of July 25, 1984, changed the company’s name
to E.T. Wall Company. Certificate of Amendment of Articles of
Incorporation of E.T. Wall Company, dated as of June 11,
1990.
3.1(v)†
Articles of Incorporation of Earlibest Orange Association, Inc.,
dated as of November 7, 1963. Certificate of Amendment of
Articles of Incorporation of Earlibest Orange Association, Inc.,
dated as of December 13, 1989.
3.1(w)†
Articles of Incorporation of The Citrus Company, dated as of
February 1, 1984. Certificate of Amendment of Articles of
Incorporation of The Citrus Company, dated as of
February 16, 1984, changed the company’s name to
Fallbrook Citrus Company, Inc. Certificate of Amendment of
Articles of Incorporation, dated as of March 15, 1994.
Certificate of Amendment of Articles of Incorporation of
Fallbrook Citrus Company, Inc., dated as of June 11, 1990.
Articles of Incorporation of Oceanview Produce Company, dated as
of June 15, 1989. Certificate of Amendment of Articles of
Incorporation of Oceanview Produce Company, dated as of
August 7, 1989.
Articles of Incorporation of Kingsize Packing Co., dated as of
February 5, 1990. Certificate of Amendment of Articles of
Incorporation of Kingsize Packing Co., dated as of
March 30, 1990, changed the company’s name to Royal
Packing Co.
3.1(ac)†
Articles of Incorporation of Trojan Transport Co., dated as of
August 31, 1955. Certificate of Amendment of Articles of
Incorporation of Trojan Transport Co., dated as of July 31,
1956, changed the company’s name to Trojan Transportation
and Warehouse Co. Certificate of Amendment of Articles of
Incorporation of Trojan Transportation Co., dated as of
January 24, 1961, changed the company’s name to
Veltman Terminal Co.
Certificate of Incorporation of Tenneco Sudan, Inc., dated as of
June 8, 1977. Certificate of Amendment of Certificate of
Incorporation of Tenneco Sudan, Inc., dated as of
December 10, 1986, changed the company’s name to
Tenneco Realty Development Holding Corporation. Certificate of
Amendment of Certificate of Incorporation of Tenneco Realty
Development Holding Corporation, dated as of April 21,
1988, changed the company’s name to Oceanic California
Realty Development Holding Corporation. Certificate of Amendment
of Certificate of Incorporation of Oceanic California Realty
Development Holding Corporation, dated as of November 16,
1990, changed the company’s name to Castle &
Cooke Bakersfield Holdings, Inc. Certificate of Amendment of
Certificate of Incorporation of Castle & Cooke
Bakersfield Holdings, Inc., dated as of March 18, 1996,
changed the company’s name to Delphinium Corporation.
3.1(ag)†
Certificate of Incorporation of Standard Banana Company, dated
as of March 21, 1955. Certificate of Amendment of
Certificate of Incorporation of Standard Banana Company, dated
as of January 8, 1971, changed the company’s name to
Standard Fruit Sales Company. Certificate of Amendment of
Certificate of Incorporation of Standard Fruit Sales Company,
dated as of June 6, 1973, changed the company’s name
to Castle & Cooke Food Sales Company. Certificate of
Amendment of Certificate of Incorporation of Castle &
Cooke Food Sales Company, dated as of September 25, 1984,
changed the company’s name to Dole Europe Company.
Certificate of Change of Location of Registered Office and of
Registered Agent, dated as of April 18, 1988.
3.1(ah)†
Certificate of Incorporation of Castle Aviation, Inc., dated as
of June 25, 1987. Certificate of Amendment of Certificate
of Incorporation of Castle Aviation, Inc., dated as of
April 10, 1992, changed the company’s name to Dole
Foods Flight Operations, Inc.
3.1(ai)†
Certificate of Incorporation of Cut Flower Exchange, Inc., dated
as of February 11, 1988. Certificate of Merger, dated as of
July 31, 1991, changed the company’s name Sunburst
Farms, Inc. Certificate of Amendment of Certificate of
Incorporation of Sunburst Farms, Inc., dated as of June 23,1999, changed the company’s name to Dole Fresh Flowers, Inc.
3.1(aj)†
Certificate of Incorporation of Wenatchee-Beebe Orchard Company,
dated as of November 7, 1927. Certificate of Ownership and
Merger in Wenatchee-Beebe Orchard Company, dated as of
June 23, 1943. Certificate of Amendment of Certificate of
Incorporation of Wenatchee-Beebe Orchard Company, dated as of
April 20, 1983, changed the company’s name to Beebe
Orchard Company. Certificate of Merger of Wells and Wade Fruit
Company and Beebe Orchard Company, dated as of March 23,2001, changed the company’s name to Dole Northwest, Inc.
Certificate of Incorporation of Standard Fruit Company, dated as
of March 14, 1955. Certificate of Change of Location of
Registered Office and of Registered Agent, dated as of
April 18, 1988.
3.1(an)†
Certificate of Incorporation of Produce America, Inc., dated as
of June 24, 1982. Certificate of Amendment of Certificate
of Incorporation Before Payment of Capital of Produce America,
Inc., dated as of October 29, 1982, changed the
company’s name to CCFV, Inc. Certificate of Amendment of
Certificate of Incorporation of CCFV, Inc., dated as of
September 29, 1983, changed the company’s name to Sun
Country Produce, Inc.
Articles of Incorporation of Cool Care Consulting, Inc., dated
as of September 16, 1986. Articles of Amendment of Cool
Care Consulting, Inc., dated as of April 4, 1996, changed
the company’s name to Cool Care, Inc.
Articles of Incorporation of Castle & Cooke
Development Corporation, dated as of June 8, 1992. Articles
of Amendment to Change Corporate Name, dated as of March 1,1993, changed the company’s name to Castle &
Cooke Communities, Inc. Articles of Amendment to Change
Corporate Name, dated as of March 18, 1996, changed the
company’s name to Blue Anthurium, Inc.
3.1(au)†
Articles of Incorporation of Dole Acquisition Corporation, dated
as of October 13, 1994. Articles of Amendment to Change
Corporate Name, dated as of January 10, 1995, changed the
company’s name to Castle & Cooke Homes, Inc.
Articles of Amendment to Change Corporate Name, dated as of
March 18, 1996, changed the company’s name to
Cerulean, Inc.
3.1(av)†
Articles of Incorporation of Castle & Cooke Land
Company, Inc., dated as of March 8, 1990. Articles of
Amendment to Change Corporate Name, dated as of May 7,1997, changed the company’s name to Dole Diversified, Inc.
3.1(aw)†
Articles of Association of Kohala Sugar Company, dated as of
February 3, 1863. Articles of Amendment to Change Corporate
Name, dated as of May 1, 1989, changed the company’s
name to Dole Land Company, Inc.
Articles of Association of Oceanic Properties, Inc., dated as of
May 19, 1961. Articles of Amendment to Change Corporate
Name, dated as of October 23, 1990, changed the
company’s name to Castle & Cooke Properties, Inc.
Articles of Amendment, dated as of November 26, 1990.
Articles of Amendment to Change Corporate Name, dated as of
December 4, 1995, changed the company’s name to
La Petite d’Agen, Inc.
3.1(az)†
Articles of Incorporation of Lanai Holdings, Inc., dated as of
May 4, 1990. Articles of Amendment, dated as of
November 26, 1990. Articles of Amendment to Change
Corporate Name, dated as of January 22, 1996, changed the
company’s name to Malaga Company, Inc.
3.1(ba)†
Articles of Incorporation of M K Development, Inc., dated as of
February 26, 1988. Articles of Amendment, dated as of
November 26, 1990.
3.1(bb)†
Articles of Incorporation of Mililani Town, Inc., dated as of
December 29, 1966. Articles of Amendment, dated as of
November 26, 1990. Articles of Amendment to Change
Corporate Name, December 24, 1990, changed the
company’s name to Castle & Cooke Residential,
Inc. Articles of Amendment to Change Corporate Name, dated as of
October 21, 1993, changed the company’s name to
Castle & Cooke Homes Hawaii, Inc. Articles of
Amendment to Change Corporate Name, dated as of December 4,1995, changed the company’s name to Muscat, Inc.
3.1(bc)†
Articles of Incorporation of Oahu Transport Company, Limited,
dated as of April 15, 1947. Articles of Amendment, dated as
of July 24, 1987. Articles of Amendment, dated as of May
1997.
Articles of Incorporation of Waialua Sugar Company, Inc., dated
as of January 12, 1968. Certificate of Amendment, dated as
of January 24, 1986.
3.1(bf)†
Certificate of Incorporation of Lanai Company, Inc., dated as of
June 15, 1970. Articles of Amendment, dated as of
November 26, 1990. Articles of Amendment to Change
Corporate Name, dated as of December 4, 1995, changed the
company’s name to Zante Currant, Inc.
Articles of Incorporation of Pan-Alaska Fisheries, Inc., dated
as of July 28, 1959. Articles of Amendment to Articles of
Incorporation of Pan-Alaska Fisheries, Inc., dated as of
May 26, 1972. Articles of Amendment to Articles of
Incorporation of Pan-Alaska Fisheries, Inc., dated as of
August 30, 1973. Amendment to Articles of Incorporation,
dated as of June 25, 1976.
Limited Liability Agreement of Dole Packaged Foods, LLC, dated
as of December 30, 2005
4.1
Indenture, dated as of July 15, 1993, between Dole and
Chase Manhattan Bank and Trust Company (formerly Chemical
Trust Company of California) (incorporated by reference to
Exhibit 4.6 to Dole’s Quarterly Report on
Form 10-Q
for the quarterly period ended March 23, 2002, File
No. 1-4455).
4.2
First Supplemental Indenture, dated as of April 30, 2002,
between Dole and J.P. Morgan Trust Company, National
Association, to the Indenture dated as of July 15, 1993,
pursuant to which $400 million of Dole’s senior notes
due 2009 were issued (incorporated by reference to
Exhibit 4.9 to Dole’s Quarterly Report on
Form 10-Q
for the quarterly period ended March 23, 2002, File
No. 1-4455).
4.3
Officers’ Certificate, dated August 3, 1993, pursuant
to which $175 million of Dole’s debentures due 2013
were issued (incorporated by reference to Exhibit 4.3 to
Dole’s Annual Report on
Form 10-K
for the fiscal year ended January 2, 1999, File
No. 1-4455).
4.4
Second Supplemental Indenture, dated as of March 28, 2003,
between Dole and Wells Fargo Bank, National Association
(successor trustee to J.P. Morgan Trust Company), to
the Indenture dated as of July 15, 1993 (incorporated by
reference to Exhibit 4.10 to Dole’s Current Report on
Form 8-K,
event date April 4, 2003, File
No. 1-4455).
4.5†
Agreement of Removal, Appointment and Acceptance, dated as of
March 28, 2003, by and among Dole, J.P. Morgan
Trust Company, National Association, successor in interest
to Chemical Trust Company of California, as Prior Trustee,
and Wells Fargo Bank, National Association.
4.6†
Third Supplemental Indenture, dated as of June 25, 2003, by
and among Dole, Miradero Fishing Company, Inc., the guarantors
signatory thereto and Wells Fargo Bank, National Association, as
trustee.
4.7
Indenture, dated as of March 28, 2003, by and among Dole,
the guarantors signatory thereto and Wells Fargo Bank, National
Association, as trustee, pursuant to which $475 million of
Dole’s
87/8% senior
notes due 2011 were issued (incorporated by reference to
Exhibit 4.10 to Dole’s Quarterly Report on
Form 10-Q
for the quarterly period ended March 22, 2003, File
No. 1-4455).
4.8†
First Supplemental Indenture, dated as of June 25, 2003, by
and among Dole, Miradero Fishing Company, Inc., the guarantors
signatory thereto and Wells Fargo Bank, National Association, as
trustee.
4.9
Form of Global Note and Guarantee for Dole’s new
87/8% senior
notes due 2011 (included as Exhibit B to
Exhibit Number 4.7 hereto).
4.11†
Indenture, dated as of May 29, 2003, by and among Dole, the
guarantors signatory thereto and Wells Fargo Bank, National
Association, as trustee, pursuant to which $400 million of
Dole’s
71/4% senior
notes due 2010 were issued.
4.12†
First Supplemental Indenture, dated as of June 25, 2003, by
and among Dole, Miradero Fishing Company, Inc., the guarantors
signatory thereto and Wells Fargo Bank, National Association, as
trustee.
4.13
Form of Global Note and Guarantee for Dole’s
71/4% senior
notes due 2010 (included as Exhibit A to
Exhibit Number 4.11 hereto).
4.14
Dole Food Company, Inc. Master Retirement Savings
Trust Agreement, dated as of February 1, 1999, between
Dole and The Northern Trust Company (incorporated by
reference to Exhibit 4.7 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended January 2, 1999, File
No. 1-4455).
Credit Agreement, dated as of March 28, 2003, amended and
restated as of April 18, 2005 and further amended and
restated as of April 12, 2006, among DHM Holding Company,
Inc., a Delaware corporation, Dole Holding Company, LLC, a
Delaware limited liability company, Dole Food Company, Inc., a
Delaware corporation, Solvest, Ltd., a company organized under
the laws of Bermuda, the Lenders from time to time party hereto,
Deutsche Bank AG New York Branch, as Deposit Bank, Deutsche Bank
AG New York Branch, as Administrative Agent, Banc Of America
Securities LLC, as Syndication Agent, The Bank of Nova Scotia,
as Documentation Agent and Deutsche Bank Securities Inc., as
Lead Arranger and Sole Book Runner (incorporated by reference to
Exhibit 10.1 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, File
No. 1-4455).
10.2
Credit Agreement, dated as of April 12, 2006, among DHM
Holding Company, Inc., a Delaware corporation, Dole Holding
Company, LLC, a Delaware limited liability company, Dole Food
Company, Inc., a Delaware corporation, the Lenders party hereto
from time to time, Deutsche Bank AG New York Branch, as
Administrative Agent, Banc of America Securities LLC, as
Syndication Agent, Deutsche Bank Securities LLC and Banc of
America Securities LLC, as Joint Book Running Managers and
Deutsche Bank Securities Inc. as Lead Arranger (incorporated by
reference to Exhibit 10.2 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, File
No. 1-4455).
10.3
Dole’s Supplementary Executive Retirement Plan, effective
January 1, 1989, First Restatement (incorporated by
reference to Exhibit 10(c) to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 29, 1990, File
No. 1-4455).
This Plan was amended on March 22, 2001 (the March 22,2001 amendments are incorporated by reference to
Exhibit 10.10 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 30, 2000, File
No. 1-4455).
10.4
Dole’s Executive Deferred Compensation Plan (incorporated
by reference to Exhibit 10.9 to Dole’s Annual Report
on
Form 10-K
for the fiscal year ended December 31, 1994, File
No. 1-4455).
This Plan was amended on March 22, 2001 (the March 22,2001 amendments are incorporated by reference to
Exhibit 10.10 to Dole’s Annual Report on
Form 10-K
for the fiscal year ended December 30, 2000, File
No. 1-4455).
Schedule of executive officers having Form 1 Change of
Control Agreement.
10.7
Form 1 Change of Control Agreement (incorporated by
reference to Exhibit 10.14 to Dole’s Quarterly Report
on
Form 10-Q
for the quarterly period ended March 23, 2002, File
No. 1-4455).