Registrant’s
telephone number including area code:
(818) 879-6600
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The approximate aggregate market value of voting and non-voting
stock held by non-affiliates of the registrant was $0 as of the
last business day of the registrant’s most recently
completed second fiscal quarter.
The number of shares of Common Stock outstanding as of
March 23, 2007 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 2006, we had, on average, approximately
47,000 full-time permanent employees and
28,000 full-time seasonal or temporary employees,
worldwide. Dole is the world’s largest producer and
marketer of high-quality fresh fruit, fresh vegetables and
fresh-cut flowers. Dole markets a growing line of packaged and
frozen foods and is a produce industry leader in nutrition
education and research. 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, fresh
vegetables and fresh-cut flowers, 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
citrus and table grapes worldwide and an industry leader in
packaged fruit products,
ready-to-eat
salads and vegetables. Our most significant products hold the
number 1 or number 2 positions in the respective markets in
which we compete. For the fiscal year ended December 30,2006, we generated revenues of $6.2 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 our 57% unaided consumer
brand awareness, twice that of our nearest competitor, according
to a 2004 study by TNS-NFO, an international market research
firm. We utilize product quality, 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.
We source or sell 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 is characterized by
consistent underlying demand and favorable growth dynamics. In
recent years, the market for fresh produce has grown at a rate
above population growth, supported by ongoing trends including
greater consumer demand for healthy, fresh and convenient foods,
increased retailer square footage devoted to produce, and
increased 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. Total wholesale fresh produce sales in
the United States surpassed $97 billion in 2005, up from
approximately $35 billion in 1987, representing a 5.8%
compounded annual growth rate. In the U.S., wholesale fresh
produce sales are split roughly evenly between the retail and
foodservice channels.
Health conscious consumers are driving much of the growth in
demand for fresh produce. Over the past 20 years, the
benefits of natural, preservative free foods have become an
increasingly prominent element of the public dialogue on health
and nutrition. As a result, consumption of fresh fruit and
vegetables has increased markedly. According to the
U.S. Department of Agriculture, Americans consumed 45 more
pounds of fresh fruit and vegetables per capita in 2004 than
they did in 1987. Related to the focus on health and nutrition,
consumers are increasingly consuming organic foods.
Specifically, organic produce sales grew 11% to
$5.4 billion in 2006, according to the Organic Trade
Association. Organics now represent 5.5% of total retail produce
sales in the U.S.
Consumers are also demonstrating continued demand for
convenient,
ready-to-eat
products. Food manufacturers have responded 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. For example, the
U.S. market for fresh-cut produce has increased from an
estimated $5 billion in 1994 to a projected
$13.4 billion in 2005, according to the Produce Marketing
Association.
The North American packaged fruit industry is experiencing
steady 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 driven overall growth in
the packaged fruit category, while the consumption of
traditional canned fruit has declined as consumers have opted
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 fresh
produce category is also attractive to retailers due to its
higher margins. On most packaged fruit products, retailers
generate a
12-36% trade
margin. 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 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 the
respective markets in which we compete. We maintain
number 1 market share positions in North American bananas,
North American iceberg lettuce, celery, cauliflower, winter
fruits exported from Chile, and packaged fruit products,
including our line of plastic fruit cups called FRUIT BOWLS,
FRUIT BOWLS in Gel and our new fruit parfaits. In addition, we
believe that we are the only fully integrated fresh-cut flower
and bouquet supplier of our size in North America.
•
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 believe that opportunities exist
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 the largest dedicated refrigerated
containerized shipping fleet in the world, with 25 ships and
approximately 14,200 refrigerated containers. The investments in
our infrastructure should 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
70 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 34% of our Latin bananas in 2006.
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 continuing drive to transform
Dole 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 the respective
markets in which we compete. We intend to maintain those
positions and continue to expand our leadership both in new
product areas and with new customers. We have a history of
leveraging our strong brand to successfully enter, and in many
cases become the leading player in, value-added food categories.
For example, we attained the number 1 market share in the
plastic fruit cups category only 4 years after introducing
FRUIT BOWLS and FRUIT BOWLS in Gel. We intend to continue to
evaluate and to strategically introduce other branded products
in the value-added sectors of our business.
•
Focusing on Value-Added Products. Since 1995,
we have successfully shifted our product mix toward value-added
food categories and away from commodity fruits and vegetables.
For example, we have found 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 are generating healthy 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 50% and 55%
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.
•
Further Improving Operating Efficiency and Cash
Flow. We intend to continue to focus on profit
improvement initiatives and maximizing cash flow. We will
continue to:
•
analyze our current customer base and focus on profitable
relationships with strategically important customers;
•
leverage our purchasing power to reduce our costs of raw
materials;
•
make focused capital investments to improve
productivity; and
•
sell 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 Item 8, Financial Statements and Supplementary Data,
Note 14 — Business Segments, in this
Form 10-K.
Fresh
Fruit
Our fresh fruit business segment has four primary operating
divisions: bananas, fresh pineapple, European Ripening and
Distribution 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 65% of 2006 consolidated total
revenues.
Bananas
We are one of the world’s largest producers of bananas,
growing and selling more than 149 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 35% market share) and Japan (an
approximate 28% market share) and the number 2 brand in Europe
(an approximate 15% market share). In Latin America, our bananas
are primarily sourced in Honduras, Costa Rica, Ecuador,
Colombia, Guatemala and Peru and grown on approximately
36,500 acres of company-owned farms and approximately
82,000 acres of independent producers’ farms. Bananas
produced by us in Latin America are shipped primarily to North
America and Europe on our refrigerated and containerized
shipping fleet. In Asia, we source our bananas primarily in the
Philippines. Bananas accounted for approximately 40% of our
fresh fruit business segment revenues in 2006.
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 there is
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.
European
Ripening and Distribution
Our European Ripening & Distribution business
distributes DOLE and non-DOLE branded fresh produce in Europe.
This business operates 37 sales and distribution centers in
eleven 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 customer relationships in Europe.
European Ripening and Distribution accounted for approximately
38% of our fresh fruit business segment’s revenues in 2006.
Fresh
Pineapples
We are the number 2 global producer of fresh pineapples, growing
and selling more than 30 million boxes annually. We sell
our pineapples globally and source them from company operated
farms and independent growers in Latin America, Hawaii, the
Philippines and Thailand. We produce and sell two principal
types of pineapples: the sweet yellow pineapple and the Champaka
(or green) pineapple. The sweet yellow pineapple was introduced
in 1999 under the DOLE PREMIUM
SELECT®
label. We now market a substantial portion of this fruit under
the DOLE TROPICAL
GOLD®
label. The sweet yellow pineapple sells for a higher price than
the Champaka, which
translates into a higher margin for our customers and us. The
Champaka pineapple, which traditionally had been the most widely
available type of pineapple, is primarily sold to the
foodservice sector and is also used in our packaged products.
Our sweet yellow pineapple has had excellent market acceptance.
Unit volume grew by 12% in 2006 as compared with 2005. Our
primary competitor in fresh pineapples is Fresh Del Monte
Produce Inc. Pineapples accounted for approximately 9% of our
fresh fruit business segment’s revenues in 2006.
Dole
Chile
We began our Chilean operations in 1982 and have grown to become
the largest exporter of Chilean fruit. We export grapes, apples,
pears, stone fruit (e.g., peaches and plums) and kiwifruit from
approximately 3,800 Company owned or Company leased acres and
13,000 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 7% of
our fresh fruit business segment’s revenues in 2006.
Fresh
Vegetables
Our fresh vegetables business segment operates through two
divisions: commodity and value-added. We source our fresh
vegetables from company-owned and contracted farms. To satisfy
the increasing demand for our products, we have continued to
expand production and distribution capabilities of our fresh
vegetables segment. Our Yuma, Arizona production facility
transitioned from a five-month seasonal operation to a
year-round production operation in the fall of 2002 to
accommodate growth in this segment. We began construction of a
fourth salad plant in Bessemer City, North Carolina, in November
2005 and the plant became operational in January 2007. The North
Carolina plant will service 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 have continued to focus
on our value-added products, which now account for more than 50%
of revenues for this segment. The fresh vegetables business
segment accounted for approximately 18% of 2006 consolidated
total revenues.
Commodity
Vegetables
We source, harvest, cool, distribute and market more than 20
different types of fresh 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 vegetable products primarily in North America, Asia
and, to a lesser extent, Western Europe. In North America, we
are the number one provider 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, as a result of
which, Dole became the third largest producer of strawberries in
North America.
Value-Added
Our value-added vegetable products include
ready-to-eat
salads, broccoli florets and cauliflower florets. Our unit
market share of the
ready-to-eat
salads category reported by Information Resources, Inc.
(“IRI”) was approximately 34.7% for the
12-week
period ended December 30, 2006. Our value-added products
typically have more stable margins than commodity vegetables,
thereby helping to reduce our exposure to commodity price
fluctuations. New product development continues to be a key
driver in the growth of this segment. Our primary competitors in
this segment include Fresh Express, owned by Chiquita Brands
International, Inc., Ready Pac and Taylor Farms.
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 six 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 55% of the segment’s 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 been responsible for the
explosive growth in the plastic fruit cup category. The plastic
fruit cup category is now larger than the applesauce cup and
shelf-stable gelatin cup categories. In an effort to keep up
with this demand, we have made significant investments in our
Asian canneries. We have significantly increased our FRUIT BOWLS
capacity in the past four years. These investments should ensure
our position as an industry innovator and low cost producer. We
are now producing more plastic cups than traditional cans. Our
FRUIT BOWLS products had a 51% market share in the United States
during 2006 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 2006 as reported by IRI.
In June 2004, Dole acquired Wood Holdings, Inc. and its
operating company, J.R. Wood, Inc. (subsequently renamed Dole
Packaged Frozen Foods, Inc.), a frozen fruit producer and
manufacturer, in order to further leverage the DOLE brand and
strengthen our existing product portfolio. We began shipping
DOLE branded frozen fruit products in February of 2005, and it
is now the number one branded frozen fruit product in the United
States. 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
gaining expanded distribution in non-grocery channels. These
channels are growing faster than the grocery channel and the
cost of gaining new distribution in them is lower. We have
gained significant new distribution in these alternative
channels, particularly for our fruit cup business.
Our packaged foods segment accounted for approximately 15% of
2006 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 cold chain enables us to
deliver the freshest and healthiest flowers to the market.
Dole’s focus is on supply chain optimization to provide its
customers industry-leading service in the procurement of
flowers. Current management emphasis is on increasing customer
service, rationalizing operational costs, reducing SKUs and
automating processes. Our fresh-cut flowers segment accounted
for approximately 3% of 2006 consolidated revenues.
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, which improves product quality.
“Backhauling” services, transporting 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 2006 accounted for approximately 29% of
total revenues. No one customer accounted for more than 7% of
total 2006 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 30% 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 to service 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 and promotion support, together with trade spending,
to support awareness of new items to maintain and grow our
exceptional brand awareness, as well as to increase nutrition
and health awareness.
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 based
on 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 2006, we had on average approximately
47,000 full-time permanent employees and
28,000 full-time seasonal or temporary employees,
worldwide. Approximately 32% of our employees work under
collective bargaining agreements, some of which expire in 2007,
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.
Research
and Development
Our research and development programs concentrate on sustaining
the productivity of our agricultural lands, food safety, product
quality of existing products and the development of new
value-added products, as well as
agricultural research 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. Specialized machinery is developed for various phases
of agricultural production and packaging that reduces labor
costs, improves productivity and efficiency and increases
product quality. Agricultural research is conducted 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.
Trademark
Licenses
DOLE SOFT SERVE, a soft-serve, non-dairy dessert, is
manufactured and marketed by Precision Foods, Inc. under license
from us. 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.
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 equivalents 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.
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 where 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 new “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, on
March 8, 2007 and on March 20, 2007, Ecuador
formally requested the WTO Dispute Settlement Body
(“DSB”) to appoint a panel to review the matter. The
EU blocked Ecuador’s initial request for establishment of a
panel on March 8; however, the EU was unable to block
Ecuador’s second request under WTO rules. On March 20,2007, the DSB announced that it will establish a panel to rule
on Ecuador’s complaint. 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 outcome of these WTO
proceedings, but the WTO proceedings are only in their initial
stages and may take several years to conclude. The Company
encourages efforts to lower the tariff through negotiations with
the EU and is working actively to help achieve this result.
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, than in 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.
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.
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 $43 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 30, 2006, we had approximately $1.135 billion
in senior secured indebtedness and other structurally senior
indebtedness, $1.105 billion in senior unsecured
indebtedness, including outstanding senior notes and debentures,
and approximately $88.4 million in capital leases.
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 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 industry 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 30, 2006, approximately 32% of our employees
worked under various collective bargaining agreements. Some of
our collective bargaining agreements will expire in fiscal 2007,
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.
We own our executive office facility in Westlake Village,
California. We also maintain a divisional office in Miami,
Florida, which is owned by us. We also maintain a divisional
office in Monterey, California, which is leased from an
affiliate. We own offices in San Jose, Costa Rica, Bogota and
Santa Marta, Colombia and La Ceiba, Honduras. We also maintain
offices in Chile, Costa Rica and Ecuador, which are leased from
third parties. We maintain our European headquarters in Paris,
France and regional offices in Antwerp, Belgium, Athens, Greece,
Hamburg, Germany, Milan, Italy, Stockholm, Sweden and Cape Town,
South Africa, which are leased from third parties. We own our
offices in Madrid, Spain, Rungis, France, Lübeck, Germany
and Dartford, England.. We maintain offices in Japan, China, the
Philippines, Thailand, Hong Kong and South Korea, which are
leased from third parties. The inability to renew any of the
above office leases by us would not have a material adverse
effect on our operating results. We believe that our property
and equipment are generally well maintained, in good operating
condition and adequate for our present needs.
The following is a description of our significant properties.
North
America
Our Hawaii pineapple operations for the fresh produce market are
located on the island of Oahu and total approximately
2,700 acres, which we own. In addition, we farm coffee and
cacao on 195 acres of owned land on the island of Oahu.
We own approximately 1,400 acres of farmland in California,
and lease approximately 12,900 acres of farmland in
California and another 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 Yuma, Arizona and
the following California cities: Marina, Gonzales and Huron.
Additionally, we have partnership interests in facilities in
Yuma, Arizona and Salinas, California, and leases in facilities
in the following California cities: Coachella, Oceanside, Oxnard
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 produce almonds from approximately 300 acres, pistachios
from approximately 2,000 acres, olives from approximately
900 acres and citrus from approximately 2,800 acres on
orchards in the San Joaquin Valley through agricultural
partnerships in which we have a controlling interest. We produce
grapes on approximately 570 acres of owned property in the
San Joaquin Valley.
Our Florida based fresh-cut flowers distribution operates from a
328,000 square foot building completed in 2001, which we
own. Approximately 200,000 square feet of this facility is
refrigerated. Our fresh-cut flowers business also operates
another cooling and distribution facility in the Miami area,
which we own. We also operate a leased facility in Los Angeles,
California.
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.
Latin
America
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 3,500 acres in Colombia, 34,500 acres in
Costa Rica, 3,800 acres in Ecuador and 12,000 acres in
Honduras, all related to banana production, although some of the
acreage is not presently under production.
We own approximately 6,600 acres of land in Honduras,
7,300 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.
Pineapple is grown primarily for the fresh produce market. We
own a juice concentrate plant in Honduras for pineapple and
citrus. Coconuts are produced on approximately 800 acres of
owned or leased land in Honduras.
We grow grapes, stone fruit, kiwi and pears on approximately
3,800 acres owned or leased by us in Chile. We own or
operate 11 packing and cold storage facilities, a corrugated box
plant and a wooden box plant in Chile. We also operate a
fresh-cut salad plant and a small local fruit distribution
company in Chile.
We also own and operate corrugated box plants in Colombia, Costa
Rica, Ecuador and Honduras.
We operate an Ecuadorian port (Bananapuerto). We indirectly own
35% of Bananapuerto 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. 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
13,300 refrigerated containers, 2,400 dry containers, 5,500
chassis and 4,000 generator sets.
We produce flowers on approximately 1,100 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.
Asia
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, blast freezer, cold storage,
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 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 leased land, not
all of which are currently under cultivation.
We produce bananas and asparagus from leased lands 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.
Additionally, we source products from over 1,200 Japanese
farmers through independent growing arrangements.
Europe
We operate eight banana ripening, produce and flower
distribution centers in Sweden, nine in France, six in Spain,
one in Portugal, four in Italy, one in Belgium, one in Austria
and four in Germany; with the exception of two owned facilities
in Sweden, three owned facilities in France, two owned
facilities in Spain, two owned facilities in Germany and one
owned facility in Italy, these facilities are leased. 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 the majority owner in a company
operating a port terminal and distribution facility in Livorno,
Italy. We own a banana ripening and fruit distribution facility
near Istanbul, Turkey.
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. During 2006,
we acquired the remaining 65% ownership in JP Fruit Distributors
Limited (renamed JP Fresh Limited). JP Fresh owns two banana
ripening and fruit distribution facilities located in Kent and
Somerset, England, and leases a distribution center in
Lancashire, England.
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 530 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.
Nineteen of these lawsuits (decreased from 35 as of
December 6, 2006) are currently pending in various
jurisdictions in the United States; the decrease results from
settlement of 16 lawsuits pending in Texas and Louisiana. Of the
19 U.S. lawsuits, 10 have been brought by foreign workers
who allege exposure to DBCP in countries where Dole did not have
operations during the relevant time period. A prior order
embargoing Dole’s trademark in Nicaragua was recently
revoked by the 4th District Court of Managua, Nicaragua.
One case pending in Los Angeles Superior Court with 13
Nicaraguan plaintiffs has a trial date of May 2, 2007
(changed from February 28, 2007). The remaining cases are
pending in Latin America and the Philippines, including 302
labor cases pending in Costa Rica under that country’s
national insurance program. Claimed damages in DBCP cases
worldwide total approximately $41 billion, with lawsuits in
Nicaragua representing approximately 87% 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, 187 (up from 178) 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-three 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; and
$809 million (six cases consolidated with 1,248 claimants)
on December 1, 2006. The Company has appealed all judgments
to the
Nicaragua Courts of Appeal, with the Company’s appeal of
the August 8, 2005 $98.5 million judgment currently
pending.
There are 27 active cases currently pending in civil courts in
Managua (15), Chinandega (10) and Puerto Cabezas (2), all
of which have been brought under Law 364 except for one of the
cases pending in Chinandega. In the 26 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 two cases 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 two decisions
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. In Venezuela, the claimants are attempting 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). 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 civil trial
courts’ 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.
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: The
European Commission (“EC”) is investigating alleged
violations of European Union competition (antitrust) laws by
banana and pineapple importers and distributors operating within
the European Economic Area. On June 2 and 3, 2005, the EC
conducted a search of certain of the Company’s offices in
Europe. During this same period, the EC also conducted similar
unannounced searches of other companies’ offices located in
the European Union. The Company is cooperating with the EC and
has responded to the EC’s information requests. Although no
assurances can be given concerning the course or outcome of that
EC investigation, the Company believes that it has not violated
the European Union 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 have now been consolidated into two separate
class action lawsuits: one by direct purchasers (customers); and
another by indirect purchasers (those who purchased bananas from
customers). Both consolidated class action lawsuits allege that
the defendants conspired to artificially raise or maintain
prices and control or restrict output of bananas. The Company
believes these lawsuits are without merit.
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 recently
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. No reserve has been provided for
this tax assessment.
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, one of which was
DOLE®.
Natural Selection Foods produced and packaged all spinach items
under the DOLE label (with the names “Spinach,”“Baby Spinach” and “Spring Mix”). 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.
FDA reports that, as of October 20, 2006, testing of other
environmental samples from all four ranches that supplied the
implicated lot of contaminated spinach is in progress.
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 is aware of 14 lawsuits that have been filed against
Natural Selection Foods and Dole, among others. 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. Dole expects that the company
or companies (and their insurance carriers) that grew the
implicated spinach for Natural Selection Foods also will be
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 30, 2006.
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.
Selling, marketing and general and
administrative expenses
453
460
422
319
89
418
Operating income
86
225
317
166
89
274
Interest expense — net
168
137
148
120
17
69
Other income (expense) —
net
15
(5
)
(9
)
(19
)
—
2
Income (loss) from continuing
operations before income taxes, minority interest expense and
equity earnings
(67
)
83
160
27
72
207
Income taxes
20
45
26
7
13
54
Minority interest expense, net of
income taxes
5
3
10
3
1
6
Equity in earnings of
unconsolidated subsidiaries, net of income taxes
—
(7
)
(10
)
(6
)
(3
)
(9
)
Income (loss) from continuing
operations, net of income taxes
(92
)
42
134
23
61
156
Income from discontinued
operations, net of income taxes
—
2
—
—
—
—
Gain on disposal of discontinued
operations, net of income taxes
3
—
—
—
—
—
Income (loss) before cumulative
effect of a change in accounting principle
(89
)
44
134
23
61
156
Cumulative effect of a change in
accounting principle
—
—
—
—
—
120
Net income (loss)
$
(89
)
$
44
$
134
$
23
$
61
$
36
Balance Sheet and Other
Information
Working capital
$
686
$
535
$
423
$
279
—
$
715
Total assets
4,608
4,410
4,322
3,988
—
3,037
Long-term debt
2,316
2,001
1,837
1,804
—
882
Total debt
2,364
2,027
1,869
1,851
—
1,125
Total shareholders’ equity
335
617
678
456
—
745
Cash dividends
164
77
20
—
8
34
Capital additions
119
146
102
102
4
234
Depreciation and amortization
149
150
145
107
25
107
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
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.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
2006
Overview
For the year ended December 30, 2006, Dole Food Company,
Inc. and its consolidated subsidiaries (“Dole” or the
“Company”) achieved record revenues of
$6.2 billion, reflecting growth of 6% compared to the prior
year. Higher revenues were reported in the Company’s fresh
fruit and packaged foods operating segments. The Company earned
operating income of $86 million in 2006, compared to
$225 million earned in 2005. A net loss of $89 million
was reported for 2006 compared to net income of $44 million
in 2005. Cash flows provided by operations were $16 million
during 2006, compared to $73 million of cash flows provided
by operations in 2005.
Revenues were largely driven by strong banana and pineapples
sales worldwide and higher volumes and pricing in Dole’s
packaged foods business. In addition, sales increased in the
European ripening and distribution operations due primarily to
the October 2006 acquisition of the remaining 65% ownership in
JP Fruit Distributors Limited (renamed JP Fruit) that the
Company did not previously own. Operating income decreased as a
result of higher costs affecting the European banana operations
due to the European Union’s new import tariff-only system
for bananas, which became effective in 2006. Operating income
was also impacted by lower packaged salad sales in the fresh
vegetables business, resulting primarily from the E. Coli
related incidents discussed in this document. The Company
also incurred restructuring costs in the fresh-cut flowers
operations and higher production, shipping and distribution
costs in all of its operating segments. Unfavorable foreign
currency exchange movements in Dole’s various sourcing
locations also impacted operating income.
Higher commodity costs, primarily fuel and tinplate, continued
to adversely impact operations. Throughout 2006 and 2005, the
Company has experienced significant cost increases in many of
the commodities it uses in production, including containerboard,
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 $38 million and $45 million for the
years ended December 30, 2006 and December 31, 2005,
respectively. In an effort to mitigate the exposure to further
commodity cost increases, the Company entered into fuel hedging
contracts and renegotiated certain commodity supply contracts.
During the third quarter of 2006, the Company initiated a plan
to restructure its fresh-cut flowers business in order to
implement changes that will create efficiencies, improve
performance and better align supply with demand. In connection
with this initiative, the Company expects to incur total costs
of approximately $29.8 million. For the year ended
December 30, 2006, the Company recorded a charge of
$29 million which consisted of $6.4 million of
restructuring costs and $22.6 million of non-cash
impairment charges related to the write-off of certain assets.
The Company also currently estimates that an additional
$0.8 million of land clearing costs and employee severance,
will be incurred and paid by the end of 2007. Refer to
Note 5 of the Consolidated Financial Statements for further
discussion of this restructuring.
Minority interest expense and
equity in earnings of unconsolidated subsidiaries, net of income
taxes
5,356
(3,382
)
(131
)
Income from discontinued
operations, net of income taxes
234
2,235
144
Gain on disposal of discontinued
operations, net of income taxes
2,814
—
—
Net income (loss)
(88,983
)
44,096
134,418
Revenues
For the year ended December 30, 2006, revenues increased 6%
to $6.2 billion from $5.8 billion in the prior year.
The most significant revenue drivers 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 Fruit. 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 in 2006.
For the year ended December 31, 2005, revenues increased
10% to $5.8 billion from $5.3 billion in the prior
year. The most significant revenue drivers were the acquisitions
of Dole Berry Company during the fourth quarter of 2004 and Dole
Packaged Frozen Foods during the second quarter of 2004. These
acquisitions increased 2005 revenues by approximately
$130 million and $76 million, respectively, over
revenues reported in 2004. Revenues also benefited from higher
worldwide sales of fresh fruit, primarily for bananas and
pineapples. Sales of fresh fruit also increased due to higher
sales in the Company’s European ripening and distribution
operations. In addition, revenues benefited from higher sales of
packaged salads and packaged foods products, primarily for FRUIT
BOWLS, canned pineapple and fruit in plastic jars. These
increases were partially offset by lower deciduous sales in
North America and Asia and lower citrus sales in Asia. Net
changes in foreign currency exchange rates versus the
U.S. dollar did not have a significant impact on
consolidated revenues in 2005.
Operating
Income
For the year ended December 30, 2006, operating income was
$85.6 million compared with $224.6 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. 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.
For the year ended December 31, 2005, operating income was
$224.6 million compared with $316.7 million in 2004.
The decrease was primarily due to higher production costs,
higher shipping and distribution costs and an increase in
selling and marketing expenses. Higher production costs were
driven by significantly higher commodity costs, particularly for
fuel and containerboard. These factors were partially offset by
higher European banana earnings and higher sales volumes and
pricing in the packaged foods business. Operating income in 2005
also increased due to an employee-related restructuring charge
of $8.8 million in Ecuador recorded in 2004. In addition,
unfavorable foreign currency exchange movements contributed to
lower operating results. If foreign currency exchange rates in
the Company’s significant foreign operations during 2005
remained unchanged from those experienced in 2004, the Company
estimates that its operating income would have been higher by
approximately $15 million. The $15 million is
primarily related to exchange rate movements in the
Company’s sourcing locations. Operating income in 2005
included realized foreign currency transaction losses of
$4 million, partially offset by the impact of hedges of
$2 million, and $5 million related to foreign currency
hedging incentives from the Colombian government.
Interest
Income and Other Income (Expense), Net
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 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 the prior year. In addition, the
Company’s British pound sterling capital lease vessel
obligation (“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.
For the year ended December 31, 2005, interest income
increased to $6 million from $4.2 million in 2004.
Higher interest income was primarily generated from interest
earned on an account receivable balance settled in 2005. Higher
interest rates associated with outstanding growers loans also
contributed to the increase.
Other income (expense), net improved to an expense of
$5.4 million in 2005 from an expense of $8.7 million
in 2004. The improvement was primarily due to the change in
unrealized foreign currency exchange gains of
$43.5 million. In 2005, the Company’s Yen loan and
vessel obligation generated foreign currency exchange gains of
$27.1 million and $9.5 million, respectively, compared
to a foreign currency exchange loss on the vessel obligation of
$6.9 million in 2004. These improvements were partially
offset by $41.1 million of additional expenses related to
the early extinguishment of debt.
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 debt facilities.
Interest expense for the year ended December 31, 2005 was
$142.5 million compared to $152.5 million in 2004. The
decrease was primarily related to lower overall effective
borrowing rates that resulted from the Company’s
refinancing and bond tender transactions during the second
quarter of 2005.
Income
Taxes
The Company recorded $20 million of income tax expense on
$66.7 million of pretax losses from continuing operations
for the year ended December 30, 2006, reflecting a (30%)
effective income tax rate for the year. Income tax expense
increased $13.4 million from $6.6 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
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, 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 certain tax-related contingencies.
Income tax expense for the year ended December 31, 2005
increased to $44.4 million from $25.5 million in 2004.
Excluding the impact of the repatriation of foreign earnings
under Section 965 of the Internal Revenue Code of
$37.8 million, income tax expense for the year ended
December 31, 2005 was $6.6 million, which reflects the
Company’s effective tax rate of 8% for the 2005 fiscal
year. The reduction in the effective income tax rate in 2005 of
8% from the 2004 rate of 16% is primarily due to a change in the
mix of taxable earnings, resulting in part from lower domestic
earnings. For the years ended 2005 and 2004, the effective
income tax rate differs from the U.S. federal statutory
rate primarily due to earnings from operations being taxed in
foreign jurisdictions at lower net effective rates than the
U.S. rate.
During October 2004, the American Jobs Creation Act of 2004 was
signed into law, adding Section 965 to the Internal Revenue
Code. Section 965 provides a special one-time deduction of
85% of certain foreign earnings that are repatriated under a
domestic reinvestment plan, as defined therein. The effective
federal tax rate on any qualified foreign earnings repatriated
under Section 965 equals 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 has been recorded as income taxes for the year ended
December 31, 2005.
For 2006, 2005 and 2004, 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.
Minority
Interest and Equity in Earnings of Unconsolidated
Subsidiaries
Minority interest expense for the year ended December 30,2006 increased to $5.5 million from $3.2 million in
2005. The increase was primarily related to 2006 seasonal
pistachio earnings, which volumes fluctuate every other year,
generated by several majority-owned partnerships.
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.
Minority interest expense for the year ended December 31,2005 decreased to $3.2 million from $10.2 million in
2004. The decrease was primarily due to the Company’s
purchase of the 40% minority interest in Saba Trading AB
(“Saba”) in December 2004.
Equity in earnings of unconsolidated subsidiaries for the year
ended December 31, 2005 decreased to $6.6 million from
$10.3 million in 2004. The decrease was primarily related
to the sale of the Company’s investment in a Guatemalan
joint venture during 2005.
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. 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 net income. In 2006
and 2005, EBIT is calculated by subtracting income from
discontinued operations, net of income taxes and gain on
disposal of discontinued operations, net of income taxes, and
adding interest expense and income taxes to net income.
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
only reflect results from continuing operations.
2006
2005
2004
(In thousands)
Revenues from external customers
Fresh fruit
$
3,989,490
$
3,717,020
$
3,535,666
Fresh vegetables
1,082,416
1,083,227
887,409
Packaged foods
938,336
854,230
691,780
Fresh-cut flowers
160,074
171,259
169,845
Corporate
1,148
1,049
31
$
6,171,464
$
5,826,785
$
5,284,731
EBIT
Fresh fruit
$
108,302
$
205,191
$
257,880
Fresh vegetables
(7,301
)
11,375
58,645
Packaged foods
91,392
87,495
64,191
Fresh-cut flowers
(57,001
)
(5,094
)
1,853
Total operating segments
135,392
298,967
382,569
Corporate
(32,713
)
(70,298
)
(70,262
)
Interest expense
174,715
142,452
152,503
Income taxes
19,995
44,356
25,530
Income (loss) from continuing
operations, net of income taxes
$
(92,031
)
$
41,861
$
134,274
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 Fruit. 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 Trading AB (“Saba”).
Fresh fruit EBIT decreased 47% to $108.3 million in 2006
from $205.2 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. 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, one of which was
DOLE®.
Natural Selection Foods produced and packaged all spinach items
under the DOLE label (with the names “Spinach,”“Baby Spinach” and “Spring Mix”). 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, sales in the packaged salad category have
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. The
Company does expect that future sales of packaged salads
category products will continue to be impacted as a result of
this event.
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 exchanges rates, primarily in the
Company’s 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.
2005
Compared with 2004
Fresh Fruit: Fresh fruit revenues increased 5%
to $3.7 billion in 2005 from $3.5 billion in 2004. The
increase in fresh fruit revenues was primarily due to higher
worldwide sales of bananas and pineapples and higher sales in
the European ripening and distribution operations. Higher
worldwide banana sales resulted from improved volumes in North
America and Asia, and higher pricing in Europe and North
America. Stronger pineapple sales reflected
improved volumes sold in North America, Europe and Asia and
higher local pricing in Asia. These benefits were partially
offset by lower sales volume of citrus in Asia and lower sales
of deciduous fruit in North America and Asia.
Fresh fruit EBIT decreased 20% to $205.2 million in 2005
from $257.9 million in 2004. EBIT decreased primarily as a
result of higher product costs that impacted bananas and fresh
pineapple operations worldwide and deciduous fruit. EBIT was
also impacted by higher fuel costs which increased shipping and
distribution costs worldwide and by higher selling, marketing
and general and administrative costs. These factors were
partially offset by improved banana pricing in Europe and the
absence of an $8.8 million restructuring charge in Ecuador
recorded during 2004. If foreign currency exchanges rates in the
Company’s significant fresh fruit foreign operations during
2005 had remained unchanged from those experienced in 2004, the
Company estimates that fresh fruit EBIT would have been higher
by approximately $7 million. Fresh fruit EBIT in 2005
included realized foreign currency transaction losses of
$6 million and $9 million of unrealized foreign
currency exchange gains related to the vessel obligation.
Fresh Vegetables: Fresh vegetables revenues
for 2005 increased 22% to $1.1 billion from
$887.4 million in 2004. The increase was primarily due to
the October 2004 acquisition of Dole Berry Company as well as
higher sales volumes in commodity vegetables and packaged
salads. Dole Berry Company generated revenues of approximately
$131 million in 2005. These benefits were partially offset
by lower pricing of commodity vegetables mainly for mixed
vegetables, celery, broccoli and lettuce.
Fresh vegetables EBIT for 2005 decreased to $11.4 million
from $58.6 million in 2004. The decrease in EBIT was
primarily related to lower commodity vegetable earnings and
lower packaged salad earnings. Commodity vegetable earnings were
lower as a result of higher growing costs, higher fuel costs,
and higher harvest and packing costs. EBIT was also affected by
lower packaged salads earnings as a result of higher product,
labor, manufacturing and freight costs. Dole Berry
Company’s EBIT was a loss of $2.7 million during 2005.
Packaged Foods: Packaged foods revenues for
2005 increased 23% to $854.2 million from
$691.8 million in 2004. The increase in revenues was a
result of higher North American sales of FRUIT BOWLS, canned
solid pineapple and juice, and fruit in plastic jars due in part
to higher pricing. Revenues grew in Asia due to higher sales of
concentrate and tropical fruit mix. Revenues also benefited from
the June 2004 acquisition of Dole Packaged Frozen Foods, which
increased sales by $76 million compared to prior year.
Packaged foods EBIT in 2005 increased 36% to $87.5 million
from $64.2 million in 2004. The increase in EBIT was
primarily due to a more favorable product mix and higher
revenues in North America, partially offset by higher shipping
and distribution costs and higher selling, general and
administrative expenses.
Fresh-cut Flowers: Fresh-cut flowers revenues
in 2005 increased to $171.3 million from
$169.8 million in 2004. The increase was primarily due to
increased sales to the retail market partially offset by
decreased sales volumes to the wholesale market.
EBIT in the fresh-cut flowers segment in 2005 decreased to a
loss of $5.1 million from earnings of $1.9 million in
2004. EBIT decreased primarily as a result of higher product
costs due to the weakening of the U.S. dollar against the
Colombian peso. If the Colombian peso exchange rate during 2005
had remained unchanged from that experienced in 2004, the
Company estimates that its fresh-cut flowers EBIT would have
been higher by approximately $9 million. EBIT was also
impacted by additional third-party flower purchases and higher
shipping costs, partially offset by lower general and
administrative expenses. In addition, 2005 EBIT included
approximately $5 million of foreign currency exchange
hedging incentives offered by the Colombian government. The
Colombian government offered these incentives to banana and
flower growers in the exporting sector.
Corporate: Corporate EBIT includes general and
administrative costs not allocated to the operating segments.
Corporate EBIT in both 2005 and 2004 was a loss of
$70.3 million. Corporate EBIT for 2005 included
$43.8 million of expenses incurred in connection with the
early retirement of debt and related refinancing and
$27.1 million of unrealized foreign currency exchange gains
associated with the Yen loan. EBIT did not change significantly
in 2005 compared to 2004, as lower general and administrative
costs were offset by the $43.8 million refinancing charge
and $27.1 million of unrealized foreign currency exchange
gains.
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.
Capital Lease Obligations:The Company’s
capital lease obligations include $85.6 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 30, 2006 and therefore will change as foreign
currency exchange rates fluctuate.
Operating Lease Commitments:The Company has
obligations under non-cancelable and 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 $153 million, $130 million
and $101.4 million (net of sublease income of
$16.4 million, $15.9 million and $15.1 million)
for 2006, 2005 and 2004, respectively.
Included in operating lease commitments is a residual value
guarantee obligation under an aircraft lease agreement. The
Company’s maximum potential undiscounted future payment
under this residual value guarantee amounts to approximately
$8.2 million. This payment would occur if the fair value of
the aircraft is less than $20 million at the termination of
the lease in 2010. 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. Prices under these
agreements are generally fixed and contract terms range from one
to seventeen years.
Total purchases under these agreements were $474.5 million,
$433.4 million and $340.1 million for 2006, 2005 and
2004, 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 five years. Purchases under these contracts for 2006,
2005 and 2004 were approximately $207.6 million,
$227.3 million and $181.8 million, respectively.
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 30, 2006.
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 2006, the Company
contributed $3 million to its qualified U.S. pension
plan, which included voluntary contributions above the minimum
requirements for the plan. Under the Internal Revenue Service
funding requirements, no contribution will be required for 2007.
However, the Company expects to make contributions of
$6.6 million to its U.S. qualified plan during 2007.
The Company also has nonqualified U.S. and international pension
and OPRB plans. For the year ended December 30, 2006, the
Company made payments of $15.7 million related to these
pension and OPRB plans.
The Company has numerous collective bargaining agreements with
various unions covering approximately 32% of the Company’s
hourly full-time and seasonal employees. Of the unionized
employees, 9% are covered under a collective bargaining
agreement that will expire within one year and the remaining 91%
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.
SOURCES AND USES OF CASH:
2006
2005
2004
(In thousands)
Cash flow provided by (used in):
Operating activities
$
15,921
$
72,589
$
217,392
Investing activities
(117,000
)
(164,323
)
(281,584
)
Financing activities
142,832
69,937
107,571
Foreign currency impact
1,849
(8,608
)
2,356
Increase (decrease) in cash
$
43,602
$
(30,405
)
$
45,735
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, minority interest expense and equity
earnings, unrealized foreign currency exchange gains or losses
and purchase accounting expenses.
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
$15.9 million in 2006 compared to cash flows provided by
operating activities of $72.6 million in 2005. The decrease
was primarily due to lower earnings 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. Cash flows from operations decreased in
2005 to $72.6 million due primarily to an increase in net
working capital of $122.7 million, driven primarily by
higher accounts receivable and a greater investment in
inventory, partially offset by higher accounts payable. The
increase in accounts receivable was driven mainly by higher
sales. The increase in inventory was primarily attributable to
higher anticipated sales of packaged foods products in 2006.
Higher accounts payable was primarily the result of higher
inventory-related purchases and the timing of payments to
suppliers.
Investing Activities: Cash flows used in
investing activities decreased to $117 million in 2006 from
$164.3 million in the prior year. 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 Fruit 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. The purchase of JP Fruit and 2006 capital
expenditures were funded by operating cash flows and through
additional borrowings.
Financing Activities: Cash flows provided by
financing activities increased to $142.8 million in 2006
from $69.9 million in 2005. The increase in cash of
$72.9 million was primarily due to higher net borrowings
incurred in 2006 of $339.4 million versus 2005 net
borrowings of $150 million to fund current year operations.
This increase was offset by higher dividend payments of
$86.4 million and a net return of capital payment of
$31 million to the Company’s parent, Dole Holding
Company, LLC (“DHC”) during 2006.
At December 30, 2006, 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 Contribution and Return of Capital: 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 would be
forgiven within the next year. The Company has accounted for the
intercompany loan as a distribution of additional paid-in
capital.
Debt Refinancing: In April 2005, the Company
amended and restated its senior secured credit agreement,
repaying its then existing term loans through new term loan
borrowings and a revolving credit facility. In June 2005, the
Company executed a technical amendment, which changed the
scheduled amortization payment dates of the term loans. In
December 2005, the Company executed a second amendment, which
permitted the Company to reinvest proceeds from the sale of any
of its principal properties into a new principal property and
also allowed DHM Holding Company, Inc. to borrow under project
financing facilities. The second amendment also modified both
the minimum consolidated interest coverage ratio and the maximum
leverage ratio.
Also during 2005, the Company repurchased $325 million
aggregate principal amount of its Company’s outstanding
debt securities. The Company repurchased $50 million of its
2009 Notes and $275 million of its 2011 Notes.
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 30, 2006, the ABL revolver borrowing base
was $294.8 million and the amount outstanding under the ABL
revolver was $167.6 million. After taking into account
approximately $18 million of outstanding letters of credit
issued under the ABL revolver, the Company had approximately
$109.2 million available for borrowings as of
December 30, 2006. Amounts outstanding under the term loan
facilities were $967.7 million at December 30, 2006.
In addition, the Company had approximately $82.4 million of
letters of credit and bank guarantees outstanding under its
pre-funded letter of credit facility at December 30, 2006.
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
facilities, the Company’s subsidiaries have uncommitted
lines of credit of approximately $156 million at various
local banks, of which $108.6 million was available at
December 30, 2006. 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 2007 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 believes that available borrowings under the
revolving credit facility and subsidiaries’ uncommitted
lines of credit, together with its existing cash balance of
$92.4 million at December 30, 2006, 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 30, 2006, guarantees
of $1.7 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.
In connection with the April 2006 refinancing transaction, the
Company obtained a $100 million pre-funded letter of credit
facility. As of December 30, 2006, letters of credit and
bank guarantees outstanding under this facility totaled
$82.4 million. In addition, the Company issues letters of
credit and bonds through major banking institutions, insurance
companies and its ABL revolver as required by certain regulatory
authorities, vendor and other operating agreements. As of
December 30, 2006, total letters of credit and bonds
outstanding under these arrangements were $60.5 million.
As part of its normal business activities, the Company and its
subsidiaries also provide guarantees to various regulatory
authorities, primarily in Europe, in order to comply with
foreign regulations when operating businesses overseas. These
guarantees relate to customs duties and banana import license
fees that were granted to the European Union member states’
agricultural authority. These guarantees are obtained from
commercial banks in the
form of letters of credit or bank guarantees, primarily issued
under the Company’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 $152.9 million of its
subsidiaries’ obligations to their suppliers and other
third parties as of December 30, 2006.
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
$228 million at December 30, 2006 and remain within
its covenants. At December 30, 2006, 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 2006, 2005 and 2004 were approximately
$156.5 million, $148 million and $146.6 million,
respectively. Net grower advances receivable were
$39.4 million and $44.3 million at December 30,2006 and December 31, 2005, 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
$144.8 million, $137.9 million and $133.3 million
in 2006, 2005 and 2004, respectively, and amortization expense
of approximately $4.5 million, $11.9 million and
$11.6 million in fiscal 2006, 2005 and 2004, 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 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. The amount of the
net deferred income tax asset that is considered realizable
could, however, be adjusted if estimates of future taxable
income are adjusted.
Refer to Note 6 of the Consolidated Financial Statements
for additional information about the Company’s income taxes.
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 is subject to examination by
taxing authorities in the various jurisdictions in which it
files tax returns. 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 its results of operations.
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 2006 and 2005 pension expense was
determined using an expected rate of return on U.S. plan
assets of 8.25% and 8.50%, respectively. The Company’s 2007
pension expense will be determined using an expected rate of
return on U.S. plan assets of 8%. At December 30,2006, the Company’s U.S. pension plan investment
portfolio was invested approximately 59% in equity securities,
39% in fixed income securities and 2% in alternative
investments. 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 5.75% in both 2006 and 2005 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
$8.6 million and increase the annual expense by
$0.6 million.
The Company’s foreign pension plans’ weighted average
discount rate was 6.61% and 9.08% for 2006 and 2005,
respectively. A 25 basis point decrease in the assumed
discount rate of the foreign plans would increase the projected
benefit obligation by approximately $4.4 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 benefits.
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 new “tariff
only” import regime for bananas. The 2001 Understanding on
Bananas between the European Communities and the
U.S. 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 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. 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, on
March 8, 2007 and March 20, 2007, Ecuador formally
requested the WTO Dispute Settlement Body (“DSB”) to
appoint a panel to review the matter. The EU blocked
Ecuador’s initial request for establishment of a panel on
March 8; however, the EU was unable to block Ecuador’s
second request under WTO rules. On March 20, 2007, the DBS
announced that it will establish a panel to rule on
Ecuador’s complaint. 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 outcome of these WTO
proceedings, but the WTO proceedings are only in their initial
stages and may take several years to conclude. The
Company encourages efforts to lower the tariff through
negotiations with the EU and is working actively to help achieve
this result.
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.
However, the facility has not yet been fully rebuilt. The
financial impact to the Company’s fresh fruit operations
includes 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
includes 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.
During 2006, the Company incurred direct incremental expenses of
$1.8 million related to Hurricane Katrina, bringing the
total charge to $11.9 million of which $4.7 million is
associated with cargo related expenses and $7.2 million is
associated with property related expenses. The total charge
includes direct incremental expenses of $5.6 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. In addition, the Company
collected $7.3 million in 2006 from insurance carriers
related to cargo and property damage bringing the total cash
collected to $13.3 million. In December 2006, the Company
settled its cargo claim for $9.2 million resulting in a
gain of $4.5 million which is included as a component of
cost of products sold in the consolidated statement of
operations. The Company is continuing to work with its insurers
to evaluate the extent of the costs incurred under the property
claim and to determine the extent of the insurance coverage for
that damage.
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 this restructuring, DFF
ceased its farming operations in Ecuador, closed one farm in
Colombia and will close another in Colombia in 2007, and
downsized other Colombian farms. DFF expects to incur total
costs of approximately $29.8 million related to this
initiative, of which $7.2 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.
For the year ended December 30, 2006, total restructuring
and impairment costs incurred amounted to approximately
$6.4 million and $22.6 million, respectively. The
$6.4 million of restructuring costs relate to approximately
1,700 employees who have been severed as of December 30,2006 and another 800 that will be severed by the end of fiscal
2007. As of December 30, 2006, $4.3 million of
restructuring costs had been paid. 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
$29 million total costs incurred during the year ended
December 30, 2006, $24 million has been included in
cost of products sold and $5 million in selling, marketing,
and general and administrative expenses, in the consolidated
statement of operations. The Company also currently estimates
that an additional $0.8 million of land clearing costs and
employee severance will be incurred and paid by the end of 2007.
During the first quarter of 2006, the commercial relationship
substantially ended between the Company’s wholly-owned
subsidiary, Saba Trading AB (“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. Other than the expected charges described below, the
loss of this customer’s business is not expected to be
material to the Company’s ongoing earnings. 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. As of December 30, 2006, the remaining amounts
of accrued employee severance costs and contractual lease
obligations were $3.5 million and $1.1 million,
respectively. The Company currently estimates that these
remaining costs will be paid by the end of 2007. In addition,
during the third quarter of 2006, Saba settled a contractual
claim against this customer.
In connection with the Company’s ongoing farm optimization
programs in Asia, approximately $6.7 million of
crop-related costs were written-off during the third quarter of
2006. The $6.7 million non-cash charge has been included in
cost of products sold in the consolidated statement of
operations.
Supplemental
Financial Information
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
(in thousands):
Income from discontinued
operations, net of income taxes
(234
)
(2,235
)
(144
)
Gain on disposal of discontinued
operations, net of income taxes
(2,814
)
—
—
Interest expense
174,715
142,452
152,503
Income taxes
19,995
44,356
25,530
Depreciation and amortization
148,700
149,134
144,411
EBITDA
$
251,379
$
377,803
$
456,718
EBITDA margin
4.1
%
6.5
%
8.6
%
Capital expenditures
$
119,335
$
146,306
$
101,667
“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 net income. In 2006 and 2005,
EBIT is calculated by subtracting income from discontinued
operations, net of income taxes and gain on disposal of
discontinued operations, net of income taxes, and adding
interest expense and income taxes to net income. EBITDA margin
is defined as the ratio of EBITDA, as defined, relative to net
revenues. EBITDA is reconciled to net income 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 Notes
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. With the exception of the
South African rand forward contracts, all of the Company’s
derivative instruments have been 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. The fair value of all
instruments designated as effective hedges of December 30,2006 has been included as a component of accumulated other
comprehensive loss in shareholders’ equity. The Company has
not utilized derivatives for trading or other speculative
purposes
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
Generally, the Company’s short-term debt is at variable
interest rates, while its long-term debt, with the exception of
amounts outstanding under the Company’s senior secured
credit facilities and vessel lease obligations, is at fixed
interest rates.
As of December 30, 2006, the Company had $1.11 billion
of fixed-rate debt and $2.8 million of fixed-rate capital
lease obligations with a combined weighted-average interest rate
of 8.2% and a fair value of $1.05 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 $35.5 million.
As of December 30, 2006, the Company had the following
variable-rate arrangements: $1.17 billion of variable-rate
debt with a weighted-average interest rate of 7.2% and
$85.6 million of variable-rate capital lease obligations
with a weighted-average interest rate of 5.1%. 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 $12.6 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 5.5% and 5.4% as of December 30, 2006. The fair
value of the interest rate swap at December 30, 2006 was a
liability of $6.4 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 $20.7 million at December 30, 2006.
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
2006, the Company had approximately $550 million of annual
sales denominated in Japanese yen, $1.3 billion of annual
sales denominated in euro, and $320 million of annual sales
denominated in Swedish krona. If U.S. dollar exchange rates
versus the Japanese yen, euro and Swedish krona during 2006 had
remained unchanged from 2005, the Company’s revenues and
operating income would have been higher by approximately
$15 million and $11 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 $43 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 2006 had remained unchanged from 2005, the Company’s
operating income would have been higher by approximately
$22 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
$54 million, excluding the impact of foreign currency
exchange hedges.
At December 30, 2006, the Company had British pound
sterling denominated capital lease obligations. The British
pound sterling denominated capital lease of $85.6 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 2006, the Company
recognized $10.6 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 $8.8 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 losses of
$17.6 million in 2006. 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 2007 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.
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
$16.7 million and a 10% increase in the price of bunker
fuel would lower operating income by approximately
$11.7 million.
The Company enters into bunker fuel hedges to reduce its risk
related to price fluctuations on anticipated bunker fuel
purchases. At December 30, 2006, bunker fuel hedges had an
aggregate outstanding notional amount of 129,300 metric tons.
The fair value of the bunker fuel hedges at December 30,2006 was a liability of $2.5 million.
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 30, 2006 and
December 31, 2005, and the related consolidated statements
of operations, shareholders’ equity, and cash flows for the
years ended December 30, 2006, December 31, 2005, and
January 1, 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 30, 2006 and December 31, 2005,
and the results of its operations and its cash flows for the
years ended December 30, 2006, December 31, 2005, and
January 1, 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 12 to the consolidated financial
statements, the Company adopted, effective December 30,2006, a new accounting standard for retirement benefits.
At December 30, 2006 and December 31, 2005, accounts
payable included approximately $18 million and
$23.7 million, respectively, for capital expenditures.
The consolidated statement of cash flows for the year ended
January 1, 2005 excludes a $6.3 million non-cash
dividend of land to Dole Holding Company, LLC. Refer to
Note 13 for additional details.
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.
Revenue is recorded net of expected returns, sales discounts and
volume rebates. Estimated sales discounts and expected returns
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 revenue. 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, as well as the cost
of other marketing and advertising arrangements with customers,
are classified as a reduction in revenue. Advertising and
marketing costs, included in selling, marketing and general and
administrative expenses, amounted to $70.6 million,
$71.3 million and $62.1 million during the years ended
December 30, 2006, December 31, 2005 and
January 1, 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 30, 2006, December 31, 2005 and
January 1, 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.
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.
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 30,2006 and December 31, 2005, 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 principally 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 30, 2006, December 31, 2005 and
January 1, 2005. No individual customer accounted for
greater than 10% of accounts receivable as of December 30,2006 or December 31, 2005.
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 facilities, 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 and debentures, management believes the fair market values
of the Company’s financial instruments are not materially
different from their recorded amounts as of December 30,2006 and December 31, 2005.
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 2006 and 2005) was
approximately $1.05 billion and $1.11 billion as of
December 30, 2006 and December 31, 2005, 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 30,2006 and December 31, 2005, 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. 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 30, 2006 and December 31, 2005.
Guarantees:The Company makes guarantees as
part of its normal business activities. These guarantees include
guarantees of the indebtedness of some of its key fruit
suppliers and other entities integral to the Company’s
operations, as well as minimum price guarantees and guarantees
of minimum volume purchases.
The Company adopted Financial Accounting Standards Board
(“FASB”) Interpretation No. 45
(“FIN 45”), Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, on a prospective basis
for all guarantees issued or modified after December 31,2002. Following the adoption of FIN 45, at the inception of
any new guarantee, the Company recognizes a liability equal to
the fair value of the guarantee. The fair value of the guarantee
is generally determined by calculating a probability-weighted
present value of expected cash flows. The liability is generally
reduced ratably over the term of the guarantee. Depending on the
nature of the underlying arrangement the offsetting entry is
either expensed or deferred and amortized. The Company has not
historically experienced any significant losses associated with
these guarantees. Liabilities relating to guarantees were not
material at December 30, 2006 and December 31, 2005.
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 reported amounts
of assets and liabilities as well as the disclosures of
contingent assets and liabilities as of the date of these
financial statements. Management’s use of estimates also
affects the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
Reclassifications: Certain prior year amounts
have been reclassified to conform with the 2006 presentation.
These reclassifications had no impact on previously reported net
income or shareholders’ equity.
Recently
Adopted Accounting Pronouncements
During September 2006, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 108
(“SAB 108”), Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements, which provides interpretive
guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. SAB 108 is effective
for the first fiscal year ending after November 15, 2006.
The adoption of SAB 108 did not materially impact the
Company’s financial position or results of operations.
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 has 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.
In 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 does not expect that the implementation FAS 159
will have a material effect on the Company’s results of
operations or financial position.
During September 2006, the 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 is effective for the
Company at the beginning of fiscal 2007 and requires
retrospective application for all financial statements
presented. The Company has been accruing for planned major
maintenance activities associated with its vessel fleet under
the
accrue-in-advance
method. The Company will adopt the deferral method of accounting
for planned major maintenance activities associated with its
vessel fleet, beginning in 2007. When adopted in fiscal 2007,
the impact of the adoption of this FSP will increase retained
earnings as of the beginning of fiscal years 2006 and 2005 by
approximately $5.9 million and $6.5 million,
respectively. Net income will also decrease for the years ended
December 30, 2006 and December 31, 2005 by
approximately $0.6 million and $0.5 million,
respectively. Net income for the year ended January 1, 2005
will increase by approximately $0.5 million.
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
requires companies to disclose the fair value of financial
instruments according to a fair value hierarchy as defined in
the standard. FAS 157 is effective for the Company at the
beginning of fiscal 2008 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.
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. FIN 48 is effective as
of January 1, 2007 and the cumulative effects of applying
FIN 48 will be recorded as an adjustment to retained
earnings as of January 1, 2007. The Company is currently in
the process of determining the impact the adoption of
FIN 48 will have on its financial position and results of
operations.
Note 3 —
Business Dispositions
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 Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (“FAS 144”), the
disposition 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 statement of cash flows do not reflect the
reclassification of Pac Truck as a discontinued operation.
The operating results of Pac Truck for fiscal 2006, 2005 and
2004, which were included in the “Other” operating
segment, are reported in the following table:
2006
2005
2004
(In thousands)
Revenues
$
47,851
$
43,826
$
31,471
Income before income taxes
$
397
$
355
$
105
Income taxes
$
163
$
164
$
(39
)
Income from discontinued
operations, net of income taxes
$
234
$
191
$
144
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 addition, the Company recorded
$4.8 million in income from continuing operations related
to 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 (renamed JP Fruit Limited) that the Company
did not already own for $42.5 million in cash. JP Fruit
imports and sells fresh produce in the United Kingdom. The
acquisition of JP Fruit 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 Fruit have been included in the
Company’s consolidated results of operations from
October 6, 2006, the effective date of acquisition. The
Company is considering expressions of interest by potential
partners with respect to the ownership and operation of JP Fruit.
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 third-party appraisals.
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.
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. The Company acquired its 60% majority
ownership in Saba in 1998. The acquisition of Saba’s
remaining shares resulted in the allocation of
$33.5 million to goodwill, which has been included in the
Company’s fresh fruit segment. Saba is the leading importer
and distributor of fruit, vegetables and flowers in Scandinavia.
Coastal
Berry
In October 2004, the Company acquired Coastal Berry Company, LLC
and two affiliated companies (renamed Dole Berry Company,
LLC) for $7 million in cash. In connection with the
acquisition, the Company also repaid approximately
$10 million of Dole Berry Company’s debt and capital
lease obligations. This acquisition resulted in approximately
$8.5 million of goodwill, which has been included in the
Company’s fresh vegetables segment and is fully deductible
for tax purposes over a
15-year
period. Dole Berry Company is a leading California producer of
fresh berries (including strawberries, raspberries and
blackberries).
Wood
Holdings, Inc.
In June 2004, the Company acquired all of the outstanding
capital stock of Wood Holdings, Inc. (renamed Dole Packaged
Frozen Foods, Inc.), a privately held frozen fruit producer and
manufacturer. The total purchase price, including transaction
expenses, was $174.3 million in cash. The acquisition
resulted in goodwill of $47.8 million, which has been
included in the Company’s packaged foods segment and is
fully deductible for
tax purposes over a
15-year
period. The results of operations for Dole Packaged Frozen
Foods, Inc. have been included in the Company’s
consolidated results of operations from June 8, 2004, the
effective date of acquisition.
Pro forma financial information for the above acquisitions is
not presented, as it is not material.
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 this
restructuring, DFF ceased its farming operations in Ecuador,
closed one farm in Colombia and will close another in Colombia
in 2007, and downsized other Colombian farms. DFF expects to
incur total costs of approximately $29.8 million related to
this initiative, of which $7.2 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.
For the year ended December 30, 2006, total restructuring
and impairment costs incurred amounted to approximately
$6.4 million and $22.6 million, respectively. The
$6.4 million of restructuring costs relate to approximately
1,700 employees who have been severed as of December 30,2006 and another 800 that will be severed by the end of fiscal
2007. As of December 30, 2006, $4.3 million of
restructuring costs had been paid. 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
$29 million total costs incurred during the year ended
December 30, 2006, $24 million has been included in
cost of products sold and $5 million in selling, marketing,
and general and administrative expenses, in the consolidated
statement of operations. The Company also currently estimates
that an additional $0.8 million of land clearing costs and
employee severance will be incurred and paid by the end of 2007.
During the first quarter of 2006, the commercial relationship
substantially ended between the Company’s wholly- owned
subsidiary, Saba Trading AB (“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. Other than the expected charges described below, the
loss of this customer’s business is not expected to be
material to the Company’s ongoing earnings. 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. As of
December 30, 2006, the remaining amounts of accrued
employee severance costs and contractual lease obligations were
$3.5 million and $1.1 million, respectively. The
Company currently estimates that these remaining costs will be
paid by the end of 2007. In addition, during the third quarter
of 2006, Saba settled a contractual claim against this customer.
In connection with the Company’s ongoing farm optimization
programs in Asia, approximately $6.7 million of
crop-related costs were written-off during the third quarter of
2006. The $6.7 million non-cash charge has been included in
cost of products sold in the consolidated statement of
operations.
Income tax expense (benefit) was as follows (in thousands):
2006
2005
2004
Current
Federal, state and local
$
27,626
$
52,020
$
13,373
Foreign
17,637
25,838
13,717
45,263
77,858
27,090
Deferred
Federal, state and local
(19,611
)
(17,506
)
(909
)
Foreign
(5,657
)
(15,996
)
(651
)
(25,268
)
(33,502
)
(1,560
)
$
19,995
$
44,356
$
25,530
Pretax earnings attributable to foreign operations were
$30.7 million, $199.2 million and $203.1 million
for the years ended December 30, 2006, December 31,2005 and January 1, 2005, respectively. Undistributed
earnings of foreign subsidiaries, which are intended to be
indefinitely invested, totaled $2 billion at
December 30, 2006. 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 provides a special one-time deduction of
85% of certain foreign earnings that are repatriated under a
domestic reinvestment plan, as defined therein. The effective
federal tax rate on any qualified repatriated foreign earnings
under Section 965 equals 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 has been recorded as
income tax expense for year ended December 31, 2005.
Income tax expense for the year ended December 30, 2006 was
$20 million, which reflects the Company’s effective
tax rate of (30%) for the 2006 fiscal year.
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
(in thousands):
The Company has gross federal, state and foreign net operating
loss carryforwards of $136.7 million, $1.1 billion and
$163.9 million, respectively, at December 30, 2006. In
addition, the Company has a gross U.S. capital loss
carryover of $4.5 million at December 30, 2006. The
Company has recorded deferred tax assets of $47.8 million
for federal net operating loss carryforwards, which, if unused,
will expire between 2023 and 2025. The Company has recorded
deferred tax assets of $49.4 million for state net
operating loss carryforwards, which, if unused, will start to
expire in 2007. The Company has recorded deferred tax assets of
$49 million for foreign net operating loss carryforwards
which are subject to varying expiration rules. The Company has
recorded a deferred tax asset of $1.8 million for its
U.S. capital loss carryover, which, if unused, will expire
in 2010. Tax credit carryforwards of $20.6 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 $2.0 million
with varying expiration dates. The Company has recorded a
U.S. deferred tax asset of $21.5 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 and capital 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.
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. The Company is
subject to examination by taxing authorities in the various
jurisdictions in which it files tax returns. Matters raised upon
audit may involve substantial amounts and could result in
material cash payments if resolved unfavorably; however, the
Company does not believe that any material payments will be made
related to these matters within the next twelve months. In
addition, the Company considers it unlikely that the resolution
of these matters will have a material adverse effect on its
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 and is pursuing resolution of these issues
with the Appeals Division of the IRS. The Company believes that
its U.S. federal income tax returns were completed in
accordance with applicable laws and regulations and disagrees
with the proposed adjustments. The Company also believes that it
is adequately reserved with respect to this matter. Management
does not believe that any material payments will be made related
to these matters within the next twelve months. In addition,
management considers it unlikely that the resolution of these
matters will have a material adverse effect on its results of
operations.
During 2006, the Company began a review of its non-core assets
with the intention to dispose of those that fell outside of the
Company’s future strategic direction or that did not meet
internal economic return criteria. As a result, the Company is
in the process of selling certain long-lived assets, mainly land
parcels located in central California. 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 30, 2006, included in the Company’s
consolidated 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.
Note 9 —
Property,
Plant and Equipment
Major classes of property, plant and equipment were as follows
(in thousands):
Depreciation is computed principally 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
3 to 50
Machinery and equipment
2 to 35
Vessels and containers
3 to 20
Vessels and equipment under
capital leases
Shorter of useful life
or life of lease
Depreciation expense for property, plant and equipment totaled
$144.2 million, $137.9 million and $133.3 million
for the years ended December 30, 2006, December 31,2005 and January 1, 2005, respectively.
The additions to goodwill during the year ended
December 30, 2006 relate to the acquisition of JPFD. Refer
to Note 4 — Business Acquisitions for further
details.
The additions to goodwill during the year ended
December 31, 2005 relate primarily to a purchase price
adjustment associated with the 2004 acquisition of Dole Packaged
Frozen Foods. The purchase price adjustment is attributable to a
change in the expected reimbursement of certain tax liabilities
payable to the selling shareholders as a result of the
transaction.
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 these 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
(in thousands):
Amortization expense of identifiable intangibles totaled
$4.5 million, $11.9 million and $11.6 million for
the years ended December 30, 2006, December 31, 2005
and January 1, 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
2007
$
4,378
2008
4,378
2009
4,378
2010
4,378
2011
4,378
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, during the second quarter of fiscal
2006. This review indicated no impairment to goodwill or any of
the Company’s indefinite-lived intangible assets.
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.
Note 11 —
Notes Payable
and Long-Term Debt
Notes payable and long-term debt consisted of the following
amounts (in thousands):
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 Company may, at its option,
use the cash proceeds from an equity offering to redeem up to
35% of the aggregate principal amount of the 2010 Notes, at a
redemption price of 107.25%, plus accrued and unpaid interest
prior to June 15, 2006; or at specified premiums after
June 15, 2007. The 2010 Notes were issued at par.
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. At its option,
the Company may use the cash proceeds from an equity offering to
redeem up to 35% of the aggregate principal amount of the 2011
notes, at a redemption price of 108.875%, plus accrued and
unpaid interest, prior to March 15, 2006; or at specified
premiums after March 15, 2007.
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.
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 2005, the Company amended and restated its senior
secured credit agreement, repaying its then existing term loans
through new term loan borrowings and a revolving credit
facility. In June 2005, the Company executed a technical
amendment, which changed the scheduled amortization payment
dates of the term loans. In December 2005, the Company executed
a second amendment, which permitted the Company to reinvest
proceeds from the sale of any of its principal properties into a
new principal property, and also allowed DHM Holding Company,
Inc. to borrow under project financing facilities. The second
amendment also modified both the minimum consolidated interest
coverage ratio and the maximum leverage ratio.
Also 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.
In April 2006, the Company completed another 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 2013.
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.
Revolving
Credit Facilities and Term Loans
As of December 30, 2006, the term loan facilities consisted
of $223.3 million of Term Loan B and
$744.4 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 30, 2006 for Term Loan B and Term Loan C
were LIBOR plus 2%, or 7.5%.
As of December 30, 2006, the ABL revolver borrowing base
was $294.8 million and the amount outstanding under the ABL
revolver was $167.6 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 30, 2006, the
weighted average variable interest rate for the ABL revolver was
LIBOR plus 1.5%, or 7%. After taking into account approximately
$18 million of outstanding letters of credit issued under
the ABL revolver, the Company had approximately
$109.2 million available for borrowings as of
December 30, 2006. In addition, the Company had
approximately $82.4 million of letters of credit and bank
guarantees outstanding under its pre-funded letter of credit
facility as of December 30, 2006.
A commitment fee, which fluctuated between 0.25% and 0.375%, was
paid based on the total unused portion of the letter of credit
and revolving credit facilities. The Company paid a total of
$1 million, $0.7 million and $1.2 million in
commitment fees for the years ended December 30, 2006,
December 31, 2005 and January 1, 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 facilities 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 30, 2006, included in capital lease obligations
is $85.6 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
$2.8 million of capital lease obligations relate primarily
to machinery and equipment and 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 financial performance
measures, as well as 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 30, 2006, the Company was in
compliance with all applicable covenants.
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 30,2006, December 31, 2005 and January 1, 2005, the
Company amortized deferred debt issuance costs of
$4.4 million, $5.9 million and $8.9 million,
respectively.
The Company wrote off $8.1 million, $10.7 million and
$2.7 million of deferred debt issuance costs during the
years ended December 30, 2006, December 31, 2005 and
January 1, 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. In 2004, the
write-off of debt issuance costs resulted from the prepayment of
term loan facilities of $106.5 million.
Maturities
of Notes Payable and Long-Term Debt
Maturities with respect to notes payable and long-term debt as
of December 30, 2006 were as follows (in thousands):
Fiscal Year
Amount
2007
$
48,584
2008
14,335
2009
364,089
2010
413,534
2011
213,373
Thereafter
1,310,266
Total
$
2,364,181
Other
In addition to amounts available under the revolving credit
facilities, the Company’s subsidiaries have uncommitted
lines of credit of approximately $156 million at various
local banks, of which $108.6 million was available at
December 30, 2006. These lines of credit lines 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 2007 while others do not have a commitment
expiration date. These arrangements may be cancelled at any time
by the Company or the banks.
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 is to fund the normal cost plus a
15-year
amortization of the unfunded liability. However, as a result of
the Pension Protection Act of 2006 (see discussion below), the
Company will be required to fund minimum levels beginning in
2008 through 2014 in order to comply with its provisions. Most
of the Company’s international pension plans and all of its
OPRB plans are unfunded.
As of December 31, 2006, all pension benefits for
U.S. salaried employees are frozen. 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. Retroactive
application of this accounting rule is prohibited; therefore,
2006 is presented as required under FAS 158 and 2005 is
presented as required under the accounting rules prior to
FAS 158. The adoption in 2006 had no effect on the
computation of net periodic benefit expense for pensions and
postretirement benefits.
Pension
Protection Act of 2006
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 Company is determining what impact the
new requirements will have on future cash flow. This estimate
will be affected by future contributions, investment returns on
plan assets, and interest rates. The Company must begin funding
this shortfall during 2008, and must complete the funding by
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
$5 million and $5.6 million as of December 30,2006 and December 31, 2005, respectively. The net periodic
benefit costs for 2006 and 2005 were reduced by approximately
$0.3 million and $0.5 million, respectively, due to
the expected subsidy.
Plan
Amendments
During 2005, the Company modified its existing postretirement
medical plan by offering to certain retirees a medical plan
under which Dole would be the secondary payer to Medicare,
rather than the primary payer for these benefits. In addition,
the Company’s prescription drug coverage will be provided
through a self-insured program rather than a fully insured
program. These changes resulted in a reduction of the projected
benefit obligation for OPRB plans of approximately
$6.7 million in 2005.
Amounts recognized in accumulated other comprehensive loss at
December 30, 2006 are as follows:
U.S Pension
International
Plans
Pension Plans
OPRB Plans
(In thousands)
Net actuarial loss (gain)
$
37,941
$
15,018
$
(847
)
Prior service cost (benefit)
2
407
(6,374
)
Net transition obligation
—
183
—
Income taxes
(15,535
)
(1,068
)
1,053
Total
$
22,408
$
14,540
$
(6,168
)
The majority of the Company’s pension plans were
underfunded at December 30, 2006, having accumulated
benefit obligations exceeding the fair value of plan assets. The
accumulated benefit obligation for all defined benefit pension
plans was $406.6 million and $366.5 million at
December 30, 2006 and December 31, 2005, 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:
Effective December 30, 2006, the Company adopted the
provisions of FAS 158. The incremental effects of applying
FAS 158 on individual lines in the Company’s
consolidated balance sheet are as follows:
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 $0.8 million.
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 30, 2006 and
December 31, 2005 are as follows:
International
U.S. Pension Plans
Pension Plans
OPRB Plans
2006
2005
2006
2005
2006
2005
Rate assumptions:
Discount rate
5.75
%
5.75
%
10.17
%
8.94
%
5.74
%
5.75
%
Compensation increase
2.50
%
4.20
%
7.02
%
6.75
%
4.95
%
4.50
%
Rate of return on plan assets
8.25
%
8.50
%
7.12
%
12.33
%
—
—
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 2006 and
2005 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 30,
December 31,
Fiscal Year
2006
2005
Health care costs trend rate
assumed for next year
8
%
9
%
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
2010
2010
A one-percentage-point change in assumed health care cost trend
rates would have the following impact on the Company’s OPRB
plans (in thousands):
One-Percentage-Point
One-Percentage-Point
Increase
Decrease
Increase (decrease) in service and
interest cost
$
330
$
(285
)
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.
Alternative investments such as private equity and distressed
debt 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. For the year ended
December 30, 2006, the average remaining service period
used to amortize unrecognized actuarial gains (losses) for its
domestic plans was approximately 10 years.
Plan
Contributions and Estimated Future Benefit
Payments
During 2006, the Company contributed $3 million to its
qualified U.S. pension plan, which included voluntary
contributions above the minimum requirements for the plan. Under
the Internal Revenue Service funding requirements, no
contribution will be required during 2007. However, the Company
expects to make contributions of $6.6 million to its
U.S. qualified plan in 2007. Future contributions to the
U.S. pension plan in excess of the minimum funding
requirements 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
$14.8 million in 2007.
The following table presents estimated future benefit payments
(in thousands):
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 $9.4 million,
$9.6 million and $12 million in the years ended
December 30, 2006, December 31, 2005 and
January 1, 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 $3.7 million, $3.6 million and
$3.6 million in the years ended December 30, 2006,
December 31, 2005 and January 1, 2005, respectively.
Note 13 —
Shareholders’
Equity
The Company’s authorized share capital as of
December 30, 2006 and December 31, 2005 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, a direct wholly-owned subsidiary of DHM
Holding Company, Inc. (“HoldCo”).
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.
During the year ended January 1, 2005, the Company paid
cash dividends of $20 million to DHC. In addition, the
Company entered into a transaction with a related party to
exchange similarly valued land. The Company subsequently leased
the land to a subsidiary of HoldCo, Westlake Wellbeing
Properties, LLC, to be used in the construction of a hotel, spa
and wellbeing center by such subsidiary. Due to its terms, the
lease was treated for accounting purposes as a distribution of
land and reflected as a non-cash dividend of $6.3 million
to DHC in the consolidated financial statements. The non-cash
dividend represents the tax-adjusted value of land used in the
construction of the hotel, spa and wellbeing center.
The Company’s ability to declare future dividends is
limited under the terms of its senior secured credit facilities
and bond indentures. As of December 30, 2006, the Company
had no ability to declare and pay future dividends or other
similar distributions.
Capital
Contributions and Return of Capital
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 within the next year. 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 primary reportable operating segments:
fresh fruit, fresh vegetables, packaged foods, and fresh-cut
flowers. The fresh fruit segment contains several operating
segments that produce and market primarily fresh fruit to
wholesale, retail and institutional customers worldwide. The
fresh vegetables segment contains operating segments that
primarily produce and market commodity vegetables and
ready-to-eat
packaged salads to wholesale, retail and institutional customers
mostly in North America, Europe and Asia. Both the fresh fruit
and fresh vegetable segments sell produce grown by a combination
of Company-owned and independent farms. The packaged foods
segment contains several operating segments that produce and
market packaged foods, including fruit, juices and snack foods.
The Company’s fresh-cut flowers segment sources, imports
and markets fresh-cut flowers, grown mainly in Colombia,
primarily to wholesale florists and supermarkets in the United
States. 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 earnings before interest expense and income taxes
(“EBIT”). EBIT is calculated by adding interest
expense and income taxes to net income. In 2006
and 2005, EBIT is calculated by subtracting income from
discontinued operations, net of income taxes and gain on
disposal of discontinued operations, net of income taxes, and
adding interest expense and income taxes to net income (loss).
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.
Accounting policies for the reportable operating segments and
corporate are the same as those described in the summary of
significant accounting policies (Note 2).
In the tables below, revenues from external customers and EBIT
only reflect results from continuing operations. Total assets
and tangible long-lived assets for 2005 include the balances of
Pac Truck, which was disposed of in 2006. Depreciation and
amortization and capital additions for 2006, 2005 and 2004
include activity related to Pac Truck.
The results of operations and financial position of the four
reportable operating segments and corporate were as follows:
Results
of Operations:
2006
2005
2004
(In thousands)
Revenues from external customers
Fresh fruit
$
3,989,490
$
3,717,020
$
3,535,666
Fresh vegetables
1,082,416
1,083,227
887,409
Packaged foods
938,336
854,230
691,780
Fresh-cut flowers
160,074
171,259
169,845
Corporate
1,148
1,049
31
$
6,171,464
$
5,826,785
$
5,284,731
EBIT
Fresh fruit
$
108,302
$
205,191
$
257,880
Fresh vegetables
(7,301
)
11,375
58,645
Packaged foods
91,392
87,495
64,191
Fresh-cut flowers
(57,001
)
(5,094
)
1,853
Total operating segments
135,392
298,967
382,569
Corporate
(32,713
)
(70,298
)
(70,262
)
Interest expense
174,715
142,452
152,503
Income taxes
19,995
44,356
25,530
Income (loss) from continuing
operations, net of income taxes
$
(92,031
)
$
41,861
$
134,274
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 30, 2006, 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 $153 million, $130 million and $101.4 million
(net of sublease income of $16.4 million,
$15.9 million and $15.1 million) for the years ended
December 30, 2006, December 31, 2005 and
January 1, 2005, respectively.
The Company’s corporate aircraft lease agreement includes a
residual value guarantee. The maximum exposure, which would
occur if the fair value of the aircraft is less than
$20 million at the termination of the lease in 2010, is
approximately $8.2 million.
As of December 30, 2006, the Company’s aggregate
cancelable and non-cancelable minimum lease commitments,
including residual value guarantees, before sublease income,
were as follows (in thousands):
Fiscal Year
Cancelable
Non-Cancelable
Total
2007
$
10,625
$
110,055
$
120,680
2008
10,850
99,693
110,543
2009
10,884
86,648
97,532
2010
11,213
45,697
56,910
2011
11,447
27,205
38,652
Thereafter
52,823
69,802
122,625
Total
$
107,842
$
439,100
$
546,942
Total expected future sublease income is $39.8 million.
The Company’s cancelable leases relate primarily to land
leases in the Philippines, where foreign land ownership is
prohibited under current law.
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.
Prices under these agreements are generally fixed and contract
terms range from one to seventeen years. Total purchases under
these agreements were $474.5 million, $433.4 million
and $340.1 million for the years ended December 30,2006, December 31, 2005 and January 1, 2005,
respectively.
At December 30, 2006, aggregate future payments under such
purchase commitments (based on December 30, 2006 pricing
and volumes) are as follows (in thousands):
Fiscal Year
Amount
2007
$
466,817
2008
278,489
2009
223,068
2010
164,463
2011
113,404
Thereafter
181,991
$
1,428,232
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 five years. Purchases under these contracts for the
years ended December 30, 2006, December 31, 2005 and
January 1, 2005 were approximately $207.6 million,
$227.3 million and $181.8 million, respectively.
Under these contracts, the Company was committed at
December 30, 2006, to purchase packing supplies, assuming
current price levels, as follows (in thousands):
Fiscal Year
Amount
2007
$
231,884
2008
183,596
2009
61,918
2010
45,918
2011
10,983
Thereafter
13,518
$
547,817
The Company has numerous collective bargaining agreements with
various unions covering approximately 32% of the Company’s
hourly full-time and seasonal employees. Of the unionized
employees, 9% are covered under a collective bargaining
agreement that will expire within one year and the remaining 91%
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
(“FAS 133”), Accounting for Derivative
Instruments and Hedging Activities, as amended, 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. The Company’s hedges consist of cash flow
hedges. 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. Foreign currency exchange gains and
losses associated with hedges and bunker fuel hedges discussed
below are recorded as a component of cost of products sold in
the consolidated statements of operations. Gains and losses
related to the interest rate swap discussed below 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 30, 2006, 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, Colombian peso, Philippine peso and South African
Rand. 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. The change in the fair value of these contracts relating
to hedge ineffectiveness was not significant.
In addition, 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
income in shareholders’ equity. The Company has
historically not attempted to hedge this equity risk.
The Company recorded a gain of $0.9 million,
$2 million and a loss of $11.6 million related to the
settlement of foreign currency exchange contracts for the years
ended December 30, 2006, December 31, 2005 and
January 1, 2005, respectively. In addition, in 2006 and
2005, the South African rand hedges and certain Colombian peso
hedges, respectively, did not receive hedge accounting treatment
under FAS 133. The unrealized gain associated with these
Colombian peso hedges was $0.5 million at December 31,2005.
At December 30, 2006, the gross notional value and
unrecognized gains (losses) of the Company’s foreign
currency hedges were as follows (in thousands):
Gross Notional Value
Unrecognized
Participating
Gains
Average Strike
Settlement
Forwards
Forwards
Total
(Losses)
Price
Year
Foreign Currency
Hedges(Buy/Sell):
U.S Dollar/Japanese yen
$
72,476
$
73,950
$
146,426
$
2,873
JPY 114.5
2007
U.S Dollar/Euro
168,524
—
168,524
(1,046
)
EUR 1.30
2007
U.S Dollar/Canadian Dollar
19,050
—
19,050
537
CAD 1.13
2007
Chilean peso/U.S. Dollar
9,609
9,323
18,932
95
CLP 532.1
2007
Colombian peso/U.S. Dollar
17,506
14,094
31,600
279
COP 2,269.7
2007
Philippine peso/U.S. Dollar
—
34,434
34,434
788
PHP 50.10
2007
Euro/South African Rand
—
5,388
5,388
—
EUR/ZAR 9.43
2007
South African Rand/Euro
—
5,388
5,388
—
EUR/ZAR 9.45
2007
Total
$
287,165
$
142,577
$
429,742
$
3,526
The unrecognized gains and losses at December 30, 2006 are
expected to be recognized into earnings during 2007.
At December 31, 2005the Company had outstanding hedges
denominated in the Japanese yen, Chilean peso, Colombian peso
and Thai baht. The unrecognized gain associated with these
hedges was $0.5 million at December 31, 2005.
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 30, 2006,
the gross notional value and unrecognized losses (in thousands)
of the Company’s bunker fuel hedges were as follows:
The unrecognized losses at December 20, 3006 are expected
to be recognized into earnings during 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. At December 30, 2005, the
fair value of the bunker fuel hedges was an asset of
$0.5 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.
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 5.37% as of December 30, 2006,
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 at
December 30, 2006 was a liability of $6.4 million. For
the years ended December 30, 2006 and December 31,2005, $(3.6) million and $1 million, respectively,
were recognized as interest expense in the consolidated
statements of operations related to 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 $20.7 million at December 30,2006. Realized gains related to settlements of the cross
currency swap in 2006 amounted to $4.1 million. This gain
is recorded through other income (expense) in the consolidated
statement of operations.
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 30, 2006, guarantees
of $1.7 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.
In connection with the April 2006 refinancing transaction, the
Company obtained a $100 million pre-funded letter of credit
facility. As of December 30, 2006, letters of credit and
bank guarantees outstanding under this facility totaled
$82.4 million. In addition, the Company issues letters of
credit and bonds through major banking institutions, insurance
companies and its ABL revolver as required by certain regulatory
authorities, vendor and other operating agreements. As of
December 30, 2006, total letters of credit and bonds
outstanding under these arrangements were $60.5 million.
As part of its normal business activities, the Company and its
subsidiaries also provide guarantees to various regulatory
authorities, primarily in Europe, in order to comply with
foreign regulations when operating businesses overseas. These
guarantees relate to customs duties and banana import license
fees that were granted to the European Union member states’
agricultural authority. These guarantees are obtained from
commercial banks in the form of letters of credit or bank
guarantees, primarily issued under the Company’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 $152.9 million of its
subsidiaries’ obligations to their suppliers and other
third parties as of December 30, 2006.
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 530 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.
Nineteen of these lawsuits (decreased from 35 as of
December 6, 2006) are currently pending in various
jurisdictions in the United States; the decrease results from
settlement of 16 lawsuits pending in Texas and Louisiana. Of the
19 U.S. lawsuits, 10 have been brought by foreign workers
who allege exposure to DBCP in countries where Dole did not have
operations during the relevant time period. A prior order
embargoing Dole’s trademark in Nicaragua was recently
revoked by the 4th District Court of Managua, Nicaragua.
One case pending in Los Angeles Superior Court with 13
Nicaraguan plaintiffs has a trial date of May 2, 2007
(changed from February 28, 2007). The remaining cases are
pending in Latin America and the Philippines, including 302
labor cases pending in Costa Rica under that country’s
national insurance program. Claimed damages in DBCP cases
worldwide total approximately $41 billion, with lawsuits in
Nicaragua representing approximately 87% 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, 187 (up from 178) 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-three 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; and
$809 million (six cases consolidated with 1,248 claimants)
on December 1, 2006. The Company has appealed all judgments
to the Nicaragua Courts of Appeal, with the Company’s
appeal of the August 8, 2005 $98.5 million judgment
currently pending.
There are 27 active cases currently pending in civil courts in
Managua (15), Chinandega (10) and Puerto Cabezas (2), all
of which have been brought under Law 364 except for one of the
cases pending in Chinandega. In the 26 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 two cases 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 two decisions
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. In Venezuela, the claimants are attempting 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). 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 civil trial
courts’ 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.
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: The
European Commission (“EC”) is investigating alleged
violations of European Union competition (antitrust) laws by
banana and pineapple importers and distributors operating within
the European Economic Area. On June 2 and 3, 2005, the EC
conducted a search of certain of the Company’s offices in
Europe. During this same period, the EC also conducted similar
unannounced searches of other companies’ offices located in
the European Union. The Company is cooperating with the EC and
has responded to the EC’s information requests. Although no
assurances can be given concerning the course or
outcome of that EC investigation, the Company believes that it
has not violated the European Union 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 have now been consolidated into two separate
class action lawsuits: one by direct purchasers (customers); and
another by indirect purchasers (those who purchased bananas from
customers). Both consolidated class action lawsuits allege that
the defendants conspired to artificially raise or maintain
prices and control or restrict output of bananas. The Company
believes these lawsuits are without merit.
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 recently
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. No reserve has been provided for
this tax assessment.
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, one of which was
DOLE®.
Natural Selection Foods produced and packaged all spinach items
under the DOLE label (with the names “Spinach,”“Baby Spinach” and “Spring Mix”). 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. FDA reports that, as
of October 20, 2006, testing of other environmental samples
from all four ranches that supplied the implicated lot of
contaminated spinach is in progress.
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 is aware of 14 lawsuits that have been filed
against Natural Selection Foods and Dole, among others. 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. Dole expects that the company
or companies (and their insurance carriers) that grew the
implicated spinach for Natural Selection Foods also will be
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
In September 1998, the Company acquired 60% of Saba. On
December 30, 2004, the Company acquired the remaining 40%
minority interest of Saba (Note 4). Prior to the
Company’s acquisition of the minority interest, the 40%
minority interest was held by two Swedish entities. As part of
its normal operations, Saba routinely sold fresh fruit,
vegetables and flowers to entities in which these minority
shareholders are principal owners. Revenues from these entities
were $349.6 million for the year ended January 1, 2005.
David H. Murdock, the Company’s Chairman and Chief
Executive Officer, owns Castle & Cooke, Inc.
(“Castle”) as well as a transportation equipment
leasing company, a private dining club, a private country club
and a hotel. During the years ended December 30, 2006,
December 31, 2005 and January 1, 2005, the Company
paid Mr. Murdock’s companies an aggregate of
approximately $7.6 million, $7.3 million and
$5.3 million, respectively, primarily for the rental of
truck chassis, generator sets and warehousing services. Castle
purchased approximately $1.1 million, $4 million and
$0.4 million of products from the Company during the years
ended December 30, 2006, December 31, 2005 and
January 1, 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 30, 2006, December 31, 2005 and
January 1, 2005, the Company’s proportionate share of
the direct and indirect costs for this aircraft was
$1.9 million, $1.9 million and $2.3 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, $0.7 million and $1 million from
Castle during 2006, 2005 and 2004, respectively. The Company
paid approximately $0.2 million and $0.3 million to
Castle for property losses in 2005 and 2004, 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 payable of $5.6 million to Castle at
December 30, 2006 and outstanding net accounts receivable
of $0.2 million from Castle at December 31, 2005. The
net accounts payable balance of $5.6 million includes
$5.2 million related to partnership land parcels held for
sale, as discussed below.
As discussed in Note 20, the Company sold some land parcels
located in Central California to Castle during the first quarter
of 2007. The land parcels are owned by two partnerships in which
the Company is the majority owner. As of December 30, 2006,
the partnerships owe Castle $5.2 million related to the
reimbursement of entitlement costs made by Castle on behalf of
the partnership.
During September 2004, the Company and Castle entered into a
tax-free real estate exchange agreement in which the Company
transferred properties located in California and Hawaii for
Castle’s property located in Westlake Village, California
having substantially the same fair market value. Since the
exchange of land was between two entities under common control,
no gain was recognized on the exchange. Refer to Note 13
for further information.
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 had taken
occupancy of the building in 2006 and recorded $0.6 million
of rent expense.
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 at the beginning of the fourth quarter
of 2005. However, the facility has not yet been fully rebuilt.
The financial impact to the Company’s fresh fruit
operations includes 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 includes 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.
During 2006, the Company incurred direct incremental expenses of
$1.8 million related to Hurricane Katrina, bringing the
total charge to $11.9 million of which $4.7 million is
associated with cargo related expenses and $7.2 million is
associated with property related expenses. The total charge
includes direct incremental expenses of $5.6 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. In addition, the Company
collected $7.3 million in 2006 from insurance carriers
related to cargo and property damage bringing the total cash
collected to $13.3 million. In December 2006, the Company
settled its cargo claim for $9.2 million resulting in a
gain of $4.5 million which is included as a component of
cost of products sold in the consolidated statement of
operations. The Company is continuing to work with its insurers
to evaluate the extent of the costs incurred under the property
claim and to determine the extent of the insurance coverage for
that damage.
Note 20 —
Subsequent Events
During March 2007, the Company entered into an agreement to sell
land parcels located in central California to Castle. At
December 30, 2006, the land parcels had been reclassified
to assets held for sale in the consolidated balance sheet. The
land parcels are owned by two partnerships in which the Company
is a majority owner. The sale closed during the first quarter of
2007 for $40.8 million (payable 75% in cash and 25% by
promissory note). The Company estimates its share of the gain to
be approximately $8 million. Since the sale involves the
transfer of assets between two parties under common control, the
gain on the sale will be recorded as an increase to additional
paid-in capital.
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 30, 2006.
Income (loss) from continuing
operations, net of income taxes
17,133
32,101
17,513
(24,886
)
Income from discontinued
operations, net of income taxes
21
227
91
1,896
Net income (loss)
17,154
32,328
17,604
(22,990
)
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.
During the fourth quarter of 2005, the Company resolved a
contingency related to the 2001 disposition of the
Company’s interest in Cervecería Hondureña, S.A.
As a result, the Company realized income of $2 million, net
of income taxes, which has been recorded as income from
discontinued operations. In addition, the Company recorded
$4.8 million in income from continuing operations related
to the collection of a fully reserved receivable balance and
interest income.
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A.
Controls
and Procedures
An evaluation was carried out as of December 30, 2006 under
the supervision and with the participation of Dole’s
management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure
controls and procedures, as defined in
Rule 15d-15(e)
under the Securities Exchange Act. Based upon this evaluation,
Dole’s Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were
effective as of December 30, 2006. No change in our
internal control over financial reporting identified in
connection with this evaluation that occurred during our fourth
quarter of 2006 has materially affected, or is reasonably likely
to materially affect, Dole’s internal control over
financial reporting.
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 15, 2007, 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 and Chief Executive
Officer. Mr. Murdock, 83, joined Dole as
Chairman of the Board and Chief Executive Officer in July 1985.
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, 63, 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, 43, 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
Global Head of Clinical Trials.
Richard J. Dahl, President, Chief Operating Officer and
Director. Mr. Dahl, 55, became Dole’s
Senior Vice President and Chief Financial Officer in July 2003,
Dole’s President and Chief Operating Officer in July 2004,
and a director of Dole in April 2003. Mr. Dahl joined Dole
as Vice President and Chief Financial Officer in June 2002,
after serving as President and Chief Operating Officer of
Pacific Century Financial Corporation and Bank of
Hawaii. Prior to Pacific Century, Mr. Dahl held various
positions at Ernst & Young. Mr. Dahl is also a
director of IHOP, Inc. Mr. Dahl is Chairman of the Finance
Committee of Dole’s Board of Directors.
David A. DeLorenzo,
Director. Mr. DeLorenzo, 60, 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. Mr. DeLorenzo is Chairman of the
Audit Committee of Dole’s Board of Directors.
Scott A. Griswold, Executive Vice President, Corporate
Development, and Director. Mr. Griswold, 53,
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, 34,
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,
43, 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.
Joseph S. Tesoriero, Vice President and Chief Financial
Officer. Mr. Tesoriero, 53, 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, 61, 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, Richard
J. Dahl 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, David A. DeLorenzo, who is not independent. The other
members of the Audit Committee are Scott A. Griswold, Justin M.
Murdock and Edward C. Roohan.
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
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 CEO annually reviews the performance of each of the other
Named Executive Officers. The 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 CEO’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 higher than the median of the group and data is
size-regressed to adjust the compensation data for differences
in revenue. Revenues range from $1 billion to
$19 billion. The companies comprising the group are as
follows and represent the relevant companies found in
Hewitt’s database:
Anheuser-Busch Companies, Inc.
Del Monte Foods Co.
Kellogg Company
Sara Lee Corporation
Campbell Soup Company
General Mills, Inc.
McCormick & Co., Inc.
Sensient Technologies Corp.
ConAgra Foods, Inc.
H.J. Heinz Company
Molson Coors Brewing Co.
UST Inc.
Corn Products International Inc.
The Hershey Company
Reynolds American Inc.
Wm. Wrigley Jr. Company
Based on the Committee’s analysis of the competitive
review, it targeted 2006 total compensation for the Chairman and
Chief Executive Officer (the “CEO”) at approximately
$3.3 million. Base Salary and Annual Incentives for the CEO
are set slightly below the median of the similar compensation
for chief executive officers at other comparably sized
companies, taking into consideration 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. Targeted 2006
total compensation was set at $2.6 million for the COO.
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.
Base
Salary
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 “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 certain cash-flow
goals are met. 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 107.
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 2006 — 2008
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 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
2006-2008
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. Payment under the Growth Plan
for the
2004-2006
Incentive Period, was made in early 2007 based on the level of
revenue achievement, as follows: the CEO received $437,950; the
COO received $195,925; the General Counsel received $195,925;
and the CFO received $50,134.
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 COO nor the CFO had accrued any benefit under the
benefit pension plan prior to the freeze. The General Counsel,
assuming he is employed to age 65 (or later), has an annual
retirement benefit of approximately $5,747. The CEO 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.
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 108.
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 108.
Perquisites
Perquisites for the Named Executive Officers (except the CEO)
are the reimbursement of $5,000 per year for financial
planning and a company-paid annual executive physical not to
exceed $6,000. The COO, General Counsel and CFO are provided
with company cars, insurance costs and maintenance. The CEO, COO
and General Counsel receive an annual car allowance of $5,000.
The Company pays dues on behalf of the COO for membership in a
club and on behalf of the CEO, an annual subscription to the
Metropolitan Opera.
The company airplane (co-leased by an affiliate of Dole) is used
by the CEO 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 113.
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,
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 111
for further explanation.
The Committee reviews and approves changes in total compensation
to the Named Executive Officers from the CEO. The CEO 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 30, 2006.
Chairman & Chief Executive
Officer Dole Food Company, Inc.
Richard J. Dahl
2006
$
750,000
$
0
$
195,925
$
54,402
$
355,939
$
1,356,266
President & Chief
Operating Officer
Dole Food Company, Inc.
C. Michael Carter
2006
$
562,500
$
450,000
$
195,925
$
63,095
$
300,893
$
1,572,413
Executive Vice President, General
Counsel & Corporate Secretary Dole Food
Company, Inc.
Joseph S. Tesoriero
2006
$
425,000
$
100,000
$
50,134
$
7,665
$
112,248
$
695,047
Vice President & Chief
Financial Officer
Dole Food Company, Inc.
(1)
2006 salaries reflect Dole’s fiscal year containing
52 weeks.
(2)
Bonus amounts shown reflect cash payments made in 2007 with
respect to performance for 2006 under Dole’s One-Year
Incentive Plan (the “One-Year Plan”), which is
discussed in further detail on page 104.
(3)
Amounts shown reflect awards earned for the 2004 —
2006 incentive period (paid in 2007) under the Sustained
Profit Growth Plan (the “Growth Plan”). Further
explanation can be found on page 104.
(4)
The amounts shown reflect the actuarial decrease or increase in
the present value of Mr. Murdock’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
Name Executive Officer’s deferred compensation balance.
(5)
The amounts shown include the following: (1) an amount of
$21,795 for an annual subscription to the 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 108) 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. Murdock $0, 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) the cost of an
annual executive physical (amounts are included 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; (6) 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 (7) annual
dues of $2,850 for club membership for Mr. Dahl.
Estimated Future Payout Under Non-Equity Incentive Awards
Name
Grant Date
Incentive Period
Threshold
Target
Maximum
David H. Murdock
1/1/2006
2006 Fiscal Year (1)(2)
$
142,500
$
950,000
$
2,850,000
1/1/2006
2006-2008(3)(4)(5)
$
498,750
$
1,425,000
$
4,275,000
Richard J. Dahl
1/1/2006
2006 Fiscal Year(1)(2)
$
112,500
$
750,000
$
2,250,000
1/1/2006
2006-2008(3)(4)(5)
$
393,750
$
1,125,000
$
3,375,000
C. Michael Carter
1/1/2006
2006 Fiscal Year(1)(2)
$
67,500
$
450,000
$
1,350,000
1/1/2006
2006-2008(3)(4)(5)
$
234,063
$
668,750
$
2,006,250
Joseph S. Tesoriero
1/1/2006
2006 Fiscal Year(1)(2)
$
41,438
$
276,250
$
828,750
1/1/2006
2006-2008(3)(4)(5)
$
171,063
$
488,750
$
1,466,250
(1)
Under Dole’s One-Year Management Incentive Plan (the
“One-Year Plan”), target bonuses for the Named
Executive Officers, as a percentage of base salary, range from
65% to 100%, depending on Dole’s performance relative to
financial performance targets set in early 2006. Bonuses 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. The Committee may exercise discretion, either
upwards or downwards, in determining awards to Named Executive
Officers.
(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
2006 — 2008 consists of a combination of revenue and
return on shareholder investment as the driver of the financial
performance factors used in determining the contingent awards
for the Named Executive Officers. The performance matrix has
been established for the 2007 — 2009 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.
(5)
Under the Growth Plan, contingent award amounts for target and
maximum are based on annual salary at the beginning of the
Incentive Period.
THE
PERFORMANCE MATRIX AND THE FINANCIAL PERFORMANCE FACTORS WITH
RESPECT TO FUTURE CONTINGENT AWARDS MAY VARY AS DETERMINED BY
THE CORPORATE COMPENSATION AND BENEFITS COMMITTEE OF DOLE’S
BOARD OF DIRECTORS.
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 will 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
$
1,371,792
$
93,973
Chairman & Chief
Executive Officer
SERP
8.5
$
764,454
$
52,368
Dole Food Company, Inc.
C. Michael Carter
Plan 29
1.25
$
28,445
$
0
Executive Vice President,
SERP
1.25
$
27,639
$
0
General Counsel &
Corporate Secretary
Dole Food Company, Inc.
(1)
Both Mr. Dahl and Mr. Tesoriero joined Dole after the
defined benefit plans were frozen. Neither Mr. Dahl nor
Mr. Tesoriero are shown in the table as neither executive
has an accrued benefit under the qualified or nonqualified
defined benefits plans
(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.
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 2006, the interest
rate was 6.6%. The interest rate in 2007 has been set at 7.25%.
Such rate is declared annually by the Compensation Committee and
is based on the Company’s cost of long-term debt.
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. By irrevocable
election, an executive may elect to receive a lump sum payment
or annual installments up to ten years. 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 both interim
guidance and proposed comprehensive regulations on 409A. This
guidance includes transition rules that will apply through
December 31, 2007.
There are no investment options available under the Excess
Savings Plan.
Payments
upon Termination or Change in Control
David
H. Murdock
Involuntary
Termination
Voluntary
Normal
Without
For Cause
Change in
Death &
Executive Payments Upon Separation
Termination
Retirement
Cause
Termination
Control
Disability
One-Year Management Incentive
Plan(1)
$
0
$
950,000
$
0
$
0
$
950,000
$
950,000
Sustained Profit Growth Plan(2)
$
437,950
$
0
$
2,058,333
$
0
$
2,058,333
$
2,058,333
Health & Welfare Benefits,
Fringe Benefits and other perquisites
Health & Welfare Benefits,
Fringe Benefits and other perquisites
$
0
$
0
$
1,700
$
0
$
30,000
$
0
Cash Severance
$
0
$
0
$
158,648
$
0
$
4,500,000
$
0
Excise Tax and
Gross-Up
$
0
$
0
$
0
$
0
$
3,216,221
$
0
C.
Michael Carter
Involuntary
Termination
Voluntary
Normal
Without
For Cause
Change in
Death &
Executive Payments Upon Separation
Termination
Retirement
Cause
Termination
Control
Disability
One-Year Management Incentive
Plan(1)
$
0
$
450,000
$
0
$
0
$
450,000
$
450,000
Sustained Profit Growth Plan(2)
$
195,925
$
957,750
$
957,750
$
0
$
935,749
$
935,749
Health & Welfare Benefits,
Fringe Benefits and other perquisites
$
0
$
0
$
2,260
$
0
$
30,000
$
0
Cash Severance
$
0
$
0
$
190,383
$
0
$
3,150,000
$
0
Excise Tax and
Gross-Up
$
0
$
0
$
0
$
0
$
1,989,847
$
0
Joseph
S. Tesoriero
Involuntary
Termination
Voluntary
Normal
Without
For Cause
Change in
Death &
Executive Payments Upon Separation
Termination
Retirement
Cause
Termination
Control
Disability
One-Year Management Incentive
Plan(1)
$
0
$
276,250
$
0
$
0
$
276,250
$
276,250
Sustained Profit Growth Plan(2)
$
50,134
$
365,417
$
365,417
$
0
$
365,417
$
365,417
Health & Welfare Benefits,
Fringe Benefits and other perquisites
$
0
$
0
$
2,092
$
0
$
30,000
$
0
Cash Severance
$
0
$
0
$
85,816
$
0
$
2,103,750
$
0
Excise Tax and
Gross-Up
$
0
$
0
$
0
$
0
$
1,351,708
$
0
(1)
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.
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 109 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, state and federal
income taxes, as well as the FICA tax 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 in 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.
Deferred
Compensation
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 2006, each
non-employee director who defers his or her annual retainer or
fees through this program has an interest rate of 120% of the
applicable federal rate applied. In 2007, the interest rate for
this plan will be the same as is used for management’s
Excess Savings Plan, 7.25%. None of the non-employee directors
have elected to defer the annual retainer or fees in 2007.
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 & Chief Executive Officer, Richard J. Dahl,
President & 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, and Roberta Wieman,
Executive Vice President & Chief of Staff, are not
included in this table because they are employees of the Company
and do not receive any compensation for their service as
Directors. Compensation for Messrs. Murdock, Dahl and
Carter may be found in the Summary Compensation Table on
Page 106.
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
In September 1998, the Company acquired 60% of Saba. On
December 30, 2004, the Company acquired the remaining 40%
minority interest of Saba. Prior to the Company’s
acquisition of the minority interest, the 40% minority interest
was held by two Swedish entities. As part of its normal
operations, Saba routinely sold fresh fruit, vegetables and
flowers to entities in which these minority shareholders are
principal owners. Revenues from these entities were
$349.6 million for the year ended January 1, 2005.
David H. Murdock, the Company’s Chairman and Chief
Executive Officer, owns Castle & Cooke, Inc.
(“Castle”) as well as a transportation equipment
leasing company, a private dining club, a private country club
and a hotel. During the years ended December 30, 2006,
December 31, 2005 and January 1, 2005, the Company
paid Mr. Murdock’s companies an aggregate of
approximately $7.6 million, $7.3 million and
$5.3 million, respectively, primarily for the rental of
truck chassis, generator sets and warehousing services. Castle
purchased approximately $1.1 million, $4 million and
$0.4 million of products from the Company during the years
ended December 30, 2006, December 31, 2005 and
January 1, 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 30, 2006, December 31, 2005 and
January 1, 2005, the Company’s proportionate share of
the direct and indirect costs for this aircraft was
$1.9 million, $1.9 million and $2.3 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, $0.7 million and $1 million from
Castle during 2006, 2005 and 2004, respectively. The Company
paid approximately $0.2 million and $0.3 million to
Castle for property losses in 2005 and 2004, 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 payable of $5.6 million to Castle at
December 30, 2006 and outstanding net accounts receivable
of $0.2 million from Castle at December 31, 2005. The
net accounts payable balance of $5.6 million includes
$5.2 million related to partnership land parcels held for
sale, as discussed below.
As discussed in Note 20 to the Consolidated Financial
Statements, the Company sold some land parcels located in
Central California to Castle. The land parcels are owned by two
partnerships in which the Company is the majority owner. As of
December 30, 2006, the partnerships owe Castle
$5.2 million related to the reimbursement of entitlement
costs made by Castle on behalf of the partnership.
During September 2004, the Company and Castle entered into a
tax-free real estate exchange agreement in which the Company
transferred properties located in California and Hawaii for
Castle’s property located in Westlake Village, California
having substantially the same fair market value. Since the
exchange of land was between two entities under common control,
no gain was recognized on the exchange. Refer to Note 13 of
the Notes to Consolidated Financial Statements for further
information.
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 had taken
occupancy of the building in 2006 and recorded $0.6 million
of rent expense.
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 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 those companies is within the discretion of
their respective boards of directors.
On December 15, 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 Global
Head of Clinical Trials and Chief Scientific Officer of one of
its subsidiaries.
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 $3,626,000 and $3,250,000 for services
related to the audit of the annual consolidated financial
statements and reviews of the quarterly condensed consolidated
financial statements for 2006 and 2005, respectively.
(b)
Audit-related fees include $211,000 and $593,000 of
Section 404 advisory services for 2006 and 2005
respectively. Audit-related fees for 2006 and 2005 also include
$216,000 and $195,000, 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 2006 and 2005 were $348,000 and $351,000, respectively.
(d)
There were no other services billed to the Company in 2006 and
2005.
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.
Amended and Restated Certificate
of Incorporation of Dole Food Company, Inc. (incorporated by
reference to Exhibit 3.1 to Dole’s Quarterly Report on
Form 10-Q
for the quarterly period ended March 22, 2003, File
No. 1-4455).
3.1(b)†
Articles of Incorporation of
Oceanic Properties Arizona, Inc., dated as of January 12,
1988. Articles of Amendment to the Articles of Incorporation of
Oceanic Properties Arizona, Inc., dated as of November 16,
1990, changed the company’s name to Castle & Cooke
Arizona, Inc. Articles of Amendment to the Articles of
Incorporation of Castle & Cooke Arizona, Inc., dated as
of December 21, 1995, changed the company’s name to
Calazo Corporation.
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
Castle & Cooke Sierra Vista, Inc., dated as of
June 8, 1992. Certificate of Amendment of Articles of
Incorporation of Castle & Cooke Sierra Vista, Inc.,
dated as of March 18, 1996, changed the company’s name
to Dole Arizona Dried Fruit and Nut Company.
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.
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
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.
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.
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
Castle & Cooke Fresh Fruit, Inc., dated as of
October 27, 1983. Certificate of Amendment of Articles of
Incorporation of Castle & Cooke Fresh Fruit Company,
dated as of May 9, 1997, changed the company’s name to
Dole Holdings 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.
3.1(bt)*
Articles of
Organization-Conversion of Dole Packaged Foods, LLC, dated as of
December 30, 2005.
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).
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).
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).
Schedule of executive officers
having Form 1 Change of Control Agreement (incorporated by
reference to Exhibit 10.7 to Dole’s Current Report on
Form 8-K
dated February 4, 2005, File
No. 1-4455).
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 C. Michael Carter and
Richard J. Dahl, 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.
/s/ David
H. Murdock
David
H. Murdock
Chairman of the Board and Chief
Executive Officer and Director
Amended and Restated Certificate
of Incorporation of Dole Food Company, Inc. (incorporated by
reference to Exhibit 3.1 to Dole’s Quarterly Report on
Form 10-Q
for the quarterly period ended March 22, 2003, File
No. 1-4455).
3.1(b)†
Articles of Incorporation of
Oceanic Properties Arizona, Inc., dated as of January 12,
1988. Articles of Amendment to the Articles of Incorporation of
Oceanic Properties Arizona, Inc., dated as of November 16,
1990, changed the company’s name to Castle & Cooke
Arizona, Inc. Articles of Amendment to the Articles of
Incorporation of Castle & Cooke Arizona, Inc., dated as
of December 21, 1995, changed the company’s name to
Calazo Corporation.
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
Castle & Cooke Sierra Vista, Inc., dated as of
June 8, 1992. Certificate of Amendment of Articles of
Incorporation of Castle & Cooke Sierra Vista, Inc.,
dated as of March 18, 1996, changed the company’s name
to Dole Arizona Dried Fruit and Nut Company.
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.
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
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.
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.
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
Castle & Cooke Fresh Fruit, Inc., dated as of
October 27, 1983. Certificate of Amendment of Articles of
Incorporation of Castle & Cooke Fresh Fruit Company,
dated as of May 9, 1997, changed the company’s name to
Dole Holdings 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.
3.1(bt)*
Articles of
Organization-Conversion of Dole Packaged Foods, LLC dated as of
December 30, 2005
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).
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).
Schedule of executive officers
having Form 1 Change of Control Agreement (incorporated by
reference to Exhibit 10.7 to Dole’s Current Report on
Form 8-K
dated February 4, 2005, File
No. 1-4455).
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).