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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data file required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,”“accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the
Exchange Act. (Check one):
Large
accelerated
filer o
Accelerated
filer o
Non-accelerated
filer þ
Smaller
reporting
company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest
practicable date.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH
FLOWS — (Continued)
(Unaudited)
Supplemental
cash flow information
At October 10, 2009 and January 3, 2009, accounts
payable included approximately $2.6 million and
$6.7 million, respectively, for capital expenditures. Of
the $6.7 million of capital expenditures included in
accounts payable at January 3, 2009, approximately
$6.4 million had been paid during the three quarters ended
October 10, 2009.
In addition to proceeds from asset sales of $94.4 million,
$25.9 million of long-term debt was assumed by the buyer of
the fresh-cut flowers subsidiaries, therefore providing a total
benefit to the Company of $120.3 million from asset sales.
During the fourth quarter of 2008, the fresh-cut flowers
subsidiaries borrowed $25.9 million and the Company’s
cash balance at January 3, 2009 reflected the cash proceeds
from this transaction. The debt ceased to be an obligation of
the Company upon the closing of the first phase of the Flowers
transaction during the first quarter of 2009.
During May 2009, the Company acquired all of the assets of
Distrifruit, a fresh fruit distributor located in Romania, in a
non-cash exchange of $10 million of trade receivables due
from the seller. Refer to Note 8 — Goodwill and
Intangible Assets for further information.
See Accompanying Notes to Condensed Consolidated Financial
Statements
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements of Dole Food
Company, Inc. and its consolidated subsidiaries
(“Dole” or the “Company”) include all
adjustments necessary, which are of a normal recurring nature,
to present fairly Dole’s financial position, results of
operations and cash flows. Dole operates under a 52/53-week
year. The quarters ended October 10, 2009 and
October 4, 2008 are sixteen weeks in duration. For a
summary of significant accounting policies and additional
information relating to Dole’s financial statements, refer
to the re-issued Notes to Consolidated Financial Statements
filed under cover of
Form 8-K
dated September 18, 2009.
Interim results are subject to seasonal variations and are not
necessarily indicative of the results of operations for a full
year. Dole’s operations are sensitive to a number of
factors including weather-related phenomena and their effects on
industry volumes, prices, product quality and costs. Operations
are also sensitive to fluctuations in foreign currency exchange
rates in both sourcing and selling locations as well as economic
crises and security risks.
On October 28, 2009, Dole completed a $446 million
initial public offering of its common stock and received net
proceeds of $415 million (see Note 3 for further
information).
Certain amounts in the prior year financial statements and
related footnotes have been reclassified to conform to the 2009
presentation. During the first quarter of 2009, Dole adopted a
new accounting and disclosure guidance related to noncontrolling
interests in subsidiaries (see Note 2 for further
information).
NOTE 2 —
RECENTLY
ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
Accounting Standards Codification — On
July 1, 2009, the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification
(“ASC” or “Codification”) became the single
source of authoritative accounting principles generally accepted
in the United States (“U.S. GAAP”) (other than
rules and interpretive releases of the U.S. Securities and
Exchange Commission). The Codification is topically based with
topics organized by ASC number and updated with Accounting
Standards Updates (“ASUs”). ASUs will replace
accounting guidance that historically was issued as FASB
Statements (“FAS”), FASB Interpretations
(“FIN”), FASB Staff Positions (“FSP”),
Emerging Issue Task Force (“EITF”) or other types of
accounting standards. The Codification became effective
October 10, 2009 for Dole and disclosures within this
Quarterly Report on
Form 10-Q
reflect the change. Since the Codification did not alter
existing U.S. GAAP, the adoption did not have any impact on
Dole’s consolidated financial statements.
During August 2009, the FASB issued Accounting Standards Update
(ASU)
No. 2009-05,
Fair Value Measurements and Disclosures (Topic
820) — Measuring Liabilities at Fair Value
(“ASU
2009-05”),
which provides clarification that in circumstances where a
quoted market price in an active market for an identical
liability is not available, a reporting entity must measure fair
value of the liability using one of the following techniques:
1) the quoted price of the identical liability when traded
as an asset in an active market; 2) quoted prices for
similar liabilities or similar liabilities when traded as
assets; or 3) another valuation technique, such as a
present value technique or the amount that the reporting entity
would pay to transfer the identical liability or would receive
to enter into the identical liability, that is consistent with
the provisions of ASC Topic 820, “Fair Value Measurements
and Disclosures” (“ASC 820”). ASU
2009-05 will
become effective during Dole’s fourth quarter of 2009. Dole
is evaluating the impact the adoption of this ASU will have on
its consolidated financial statements.
During June 2009, the FASB amended its guidance on accounting
for variable interest entities (“VIE”), which changes
the approach in determining the primary beneficiary of a VIE.
Among other things, the new guidance requires a qualitative
rather than a quantitative analysis to determine the primary
beneficiary of a VIE; requires continuous assessments of whether
an enterprise is the primary beneficiary of a VIE; enhances
disclosures about an enterprise’s involvement with a VIE;
and amends certain guidance for determining whether an entity is
a VIE. This accounting guidance is effective for annual periods
beginning after November 15, 2009. Dole is evaluating the
impact, if any, the adoption of this guidance will have on its
consolidated financial statements.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
During May 2009, the FASB issued new accounting and disclosure
guidance for recognized and non-recognized subsequent events.
This accounting guidance establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are
issued or are available to be issued. This guidance requires the
disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date. Dole adopted this
guidance during its second fiscal quarter and it had no impact
on Dole’s results of operations or financial position. In
the preparation of the condensed consolidated financial
statements contained in this Quarterly Report, Dole evaluated
subsequent events after the balance sheet date of
October 10, 2009 through November 19, 2009.
During December 2007, the FASB issued new accounting and
disclosure guidance related to noncontrolling interests in
subsidiaries. This guidance establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. Dole adopted the
provisions of this guidance as of the beginning of its 2009
fiscal year. This guidance is to be applied prospectively as of
the beginning of 2009 except for the presentation and disclosure
requirements which are to be applied retrospectively. The
condensed consolidated financial statements contained in this
Quarterly Report conform to the presentation required under this
guidance. Other than the change in presentation of
noncontrolling interests, the adoption had no impact on
Dole’s results of operations or financial position.
NOTE 3 —
INITIAL
PUBLIC OFFERING
On October 22, 2009, Dole priced a $446 million
initial public offering (“IPO”) of approximately
35.7 million common shares at $12.50 per share. On
October 23, 2009, Dole’s common stock began trading on
the New York Stock Exchange under the ticker symbol
“DOLE.” Upon the October 28, 2009 closing of the
IPO, Dole received net proceeds of $415 million, reflecting
$31 million of underwriting discount and offering expenses.
The net proceeds have been and will be used by Dole to pay down
indebtedness, as discussed more fully below. At the completion
of the offering, Dole’s chairman, David H. Murdock, and his
affiliates beneficially own approximately 51.7 million
common shares, or 59% of the Company’s outstanding common
shares.
Restructuring
Immediately prior to the IPO closing, Dole completed certain
restructuring transactions as a result of which
(1) Dole’s former parent holding company, DHM Holding
Company, Inc. (“Holdings”) was merged into Dole,
(2) some shares of Dole held by an affiliate of
Mr. Murdock were redeemed in exchange for (a) the 85%
interest in Westlake Wellbeing Properties, LLC (which owns the
Four Seasons Hotel Westlake Village) formerly owned by Holdings,
together with the assumption by such affiliate of
$30 million of a debt obligation of Holdings and
(b) approximately 1,600 acres of idle land in Honduras
owned by a Dole subsidiary, and (3) Dole paid the remaining
$85 million of the Holdings debt obligation in order to
eliminate a pre-existing cross-default and cross-acceleration
risk under which a default by Holdings on such debt could have
resulted in a cross-default and cross-acceleration under
Dole’s credit facilities and bond indentures. As a result
of the merger of Holdings into Dole, the federal net operating
loss carryforwards of Holdings will become available to Dole,
subject to normal statutory expiration periods. Holdings’
estimated federal net operating loss carryforwards were
approximately $166 million as of October 10, 2009.
Debt
Reduction
Dole used the net proceeds from the IPO to repay
$47 million of amounts outstanding under its revolving
credit facility, as well as making the $85 million debt
repayment discussed above, which, as noted, resulted in the
elimination of Dole’s pre-existing cross-default and
cross-acceleration risk related to the Holdings debt. In
addition, on October 28, 2009, Dole issued to the trustee
under the indenture governing Dole’s 13.875% Senior
Secured Notes due 2014 (“2014 Notes”) a notice of
redemption for $122.5 million of the 2014 Notes. On
October 29, 2009, Dole issued to the trustee under the
indenture governing Dole’s 8.875% Senior Notes due
2011 (“2011 Notes”) a notice of redemption for
$130 million of the 2011 Notes. These redemptions will be
paid for with net proceeds from Dole’s IPO.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
In connection with a trust offering occurring at the same time
as the IPO, an affiliate of Mr. Murdock entered into a
purchase agreement with a newly established Trust pursuant to
which Mr. Murdock has the option to deliver cash or shares
of Dole’s common stock on exchange of the Trust’s
securities beginning on November 1, 2012. A portion of the
net proceeds from such transaction was used to repay
indebtedness of an affiliate of Mr. Murdock that had
subjected Dole to an additional cross-default and
cross-acceleration risk. As a result of this transaction, and
the transactions relating to the former Holdings debt, all of
Dole’s pre-existing cross-default and cross-acceleration
risks arising from any indebtedness of Mr. Murdock or his
affiliates have been eliminated. These transactions do not
affect the customary cross-default and cross-acceleration
provisions between the different categories of Dole’s own
debt (see Note 9 for further information).
Stock
Incentive Plan
In connection with the IPO, a stock incentive plan was approved
by Dole’s Board of Directors and stockholder, in which up
to 6 million shares of Dole common stock have been
authorized for issuance. Additionally, Dole’s Board of
Directors has approved the grant of: (1) 851,000 restricted
shares of common stock to certain employees and outside
directors, effective upon closing of the IPO; and
(2) 1,395,000 stock options to certain employees, effective
upon the pricing of the IPO, at the exercise price of $12.50 per
share which equals the fair value of the common stock on the
date of grant.
Supplemental
Pro Forma Information
If the merger and transfer transactions described above had been
completed at the beginning of each fiscal year presented within
the accompanying condensed consolidated statements of
operations, interest expense for the combined entity as a result
of the $85 million of Holdings debt assumed and paid by
Dole would have been increased by $2.9 million and
$5.3 million for the three quarters ended October 10,2009 and October 4, 2008, respectively. The net loss for
the three quarters ended October 10, 2009 would have
increased by $1.8 million, and net income for the three
quarters ended October 4, 2008 would have decreased by
$3.3 million. Accordingly, basic and diluted earnings per
share for the three quarters ended October 10, 2009 and
October 4, 2008, would have been lower by $0.04 and $0.06,
respectively. Such transactions have no impact on revenues on a
pro forma basis. Dole is currently evaluating the accounting
treatment to be included in its annual 2009 consolidated
financial statements for the merger and transfer transactions.
NOTE 4 —
OTHER
INCOME (EXPENSE), NET
Included in other income (expense), net in Dole’s condensed
consolidated statements of operations for the quarters and three
quarters ended October 10, 2009 and October 4, 2008
are the following items:
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Refer to Note 14 — Derivative Financial
Instruments for further discussion regarding Dole’s cross
currency swap.
NOTE 5 —
DISCONTINUED
OPERATIONS
During the second quarter of 2008, Dole approved and committed
to a formal plan to divest its fresh-cut flowers operations
(“Flowers transaction”). The first phase of the
Flowers transaction was completed during the first quarter of
2009 (refer to Note 13 — Assets
Held-For-Sale).
In addition, during the fourth quarter of 2007, Dole approved
and committed to a formal plan to divest its citrus and
pistachio operations (“Citrus”) located in central
California. The operating results of Citrus were included in the
fresh fruit operating segment. The sale of Citrus was completed
during the third quarter of 2008. In evaluating the two
businesses, Dole concluded that they each met the definition of
a discontinued operation, as defined in ASC Topic 205,
“Presentation of Financial Statements” (“ASC
205”). Accordingly, the results of operations of these
businesses have been reclassified for all periods presented.
The operating results of fresh-cut flowers and Citrus for the
quarters and three quarters ended October 10, 2009 and
October 4, 2008 are reported in the following tables:
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
NOTE 6 —
INCOME
TAXES
Dole recorded $15.7 million of income tax expense on
$77.7 million of pretax income from continuing operations
for the three quarters ended October 10, 2009. Income tax
expense included interest expense of $2.5 million (net of
associated income tax benefits of approximately
$0.5 million) related to Dole’s unrecognized tax
benefits. An income tax benefit of $60.1 million was
recorded for the three quarters ended October 4, 2008 which
included $60.9 million for the favorable settlement of the
federal income tax audit for the years 1995 to 2001 and interest
expense of $4.5 million (net of associated income tax
benefits of approximately $1.1 million) related to
Dole’s unrecognized tax benefits. Dole’s effective tax
rate varies significantly from period to period due to the
level, mix and seasonality of earnings generated in its various
U.S. and foreign jurisdictions.
Under ASC Topic 270, “Interim Reporting” (“ASC
270”), and ASC Topic 740, “Income Taxes”
(“ASC 740”), Dole is required to adjust its effective
tax rate for each quarter to be consistent with the estimated
annual effective tax rate. Jurisdictions with a projected loss
where no tax benefit can be recognized are excluded from the
calculation of the estimated annual effective tax rate. Applying
the provisions of ASC 270 and ASC 740 could result in a higher
or lower effective tax rate during a particular quarter, based
upon the mix and timing of actual earnings versus annual
projections.
For the periods presented, Dole’s income tax provision
differs from the U.S. federal statutory rate applied to
Dole’s pretax income primarily due to operations in foreign
jurisdictions that are taxed at a rate lower than the
U.S. federal statutory rate, offset by the accrual for
uncertain tax positions. In addition, income taxes for the three
quarters ended October 4, 2008 also benefited from the
settlement of the federal income tax audit for the
years 1995-2001.
Dole recognizes accrued interest and penalties related to its
unrecognized tax benefits as a component of income taxes in the
accompanying condensed consolidated statements of operations.
Accrued interest and penalties before tax benefits were
$29.8 million and $26.9 million at October 10,2009 and January 3, 2009, respectively, and are included as
a component of other long-term liabilities in the accompanying
condensed consolidated balance sheets.
Dole Food Company, Inc. or one or more of its subsidiaries files
income tax returns in the U.S. federal jurisdiction, and
various states and foreign jurisdictions. With few exceptions,
Dole is no longer subject to U.S. federal, state and local,
or
non-U.S. income
tax examinations by tax authorities for years prior to 2001.
Income Tax Audits: Dole believes its tax
positions comply with the applicable tax laws and that it has
adequately provided for all tax related matters. Matters raised
upon audit may involve substantial amounts and could result in
material cash payments if resolved unfavorably; however,
management does not believe that any material payments will be
made related to these matters within the next twelve months.
Management considers it unlikely that the resolution of these
matters will have a material adverse effect on Dole’s
results of operations.
Internal Revenue Service Audit: On
August 27, 2009, the IRS completed its examination of
Dole’s U.S. federal income tax returns for the years
2002-2005
and issued a Revenue Agent’s Report (“RAR”) that
includes various proposed adjustments, including with respect to
the 2003 going-private merger transactions. The IRS is proposing
that certain funding used in the going-private merger is
currently taxable and that certain related investment banking
fees are not deductible. The net tax deficiency associated with
the RAR is $122 million, plus interest. On October 27,2009, Dole filed a protest letter vigorously challenging the
proposed adjustments contained in the RAR and will pursue
resolution of these issues with the Appeals Division of the IRS.
Dole believes, based in part upon the advice of its tax
advisors, that its tax treatment of such transactions was
appropriate. Although the timing and ultimate resolution of any
issues arising from the IRS examination are highly uncertain, at
this time Dole does not anticipate that the total unrecognized
tax benefits will significantly change within the next twelve
months nor does Dole believe that any material tax payments will
be made related to these matters within the next twelve months.
On November 6, 2009, The Worker, Homeownership, and
Business Assistance Act of 2009 was signed into law allowing
companies to carry back net operating losses for up to five
years for losses incurred in taxable years
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
beginning or ending in either 2008 or 2009. Based on the
Company’s preliminary analysis, the impact of this new law
reduces the amount of tax on the proposed adjustments in the RAR
from $122 million to $91 million. As noted, however,
Dole is pursuing its objection to the proposed adjustments in
the RAR.
During May 2009, Dole acquired all of the assets of Distrifruit,
a distributor of fresh fruit located in Romania, in exchange for
trade receivables due from the seller. Dole acquired the assets
primarily to gain access to the Romanian market. At the
acquisition date, the total fair value of the assets acquired
was $10 million, consisting of $2.9 million of
inventory and property, plant and equipment, net and
$7.1 million of intangible assets. Dole finalized its
allocation of the acquisition during the third quarter of 2009
which resulted in recording $1.1 million of an
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
intangible asset associated with customer relationships and
$6.2 million of goodwill, including $0.2 million of
deferred taxes. The revenues and earnings of Distrifruit from
the acquisition date through October 10, 2009, as well as
for the 2009 and 2008 fiscal years, were not material.
Amortization expense of intangible assets totaled
$1.2 million and $1.4 million for the quarters ended
October 10, 2009 and October 4, 2008, respectively,
and $2.9 million and $3.4 million for the three
quarters ended October 10, 2009 and October 4, 2008,
respectively.
As of October 10, 2009, the estimated amortization expense
associated with Dole’s intangible assets for the remainder
of 2009 and in each of the next four fiscal years is as follows
(in thousands):
Fiscal Year
Amount
2009
$
875
2010
$
3,790
2011
$
3,790
2012
$
3,790
2013
$
1,611
Dole performed its annual impairment review of goodwill and
indefinite-lived intangible assets pursuant to ASC Topic 350,
“Intangibles — Goodwill and Other”
(“ASC 350”), during the second quarter of fiscal 2009.
This review indicated no impairment to goodwill or any of
Dole’s indefinite-lived intangible assets.
NOTE 9 —
NOTES PAYABLE
AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
2010
Debt Maturity and 2009 Debt Refinancing
Transactions
During the second quarter of 2009, Dole’s Board of
Directors authorized the repurchase of up to $95 million of
Dole’s $400 million 7.25% Senior Notes due June
2010 (“2010 Notes”). As of October 10, 2009, Dole
had repurchased $37 million of the 2010 Notes.
On September 25, 2009, Dole completed the sale and issuance
of $315 million aggregate principal amount of
8% Senior Secured Notes due 2016 at a discount of
$6.2 million. The 2016 Notes were sold to qualified
institutional investors pursuant to Rule 144A under the
Securities Act of 1933 (“Securities Act”) and to
persons outside the United States in compliance with
Regulation S under the Securities Act. The sale was exempt
from the registration requirements of the Securities Act.
Interest on the 2016 Notes will be paid semiannually in arrears
on April 1 and October 1 of each year, beginning on
April 1, 2010. The 2016 Notes will mature on
October 1, 2016. The 2016 Notes have the benefit of a lien
on certain U.S. assets of Dole that is junior to the liens
of Dole’s senior secured credit facilities (revolving
credit and term loan facilities) and pari passu with the liens
of the 2014 Notes, and are senior obligations ranking equally
with Dole’s existing senior debt.
On September 25, 2009, Dole irrevocably deposited the net
proceeds of the 2016 Notes offering with the trustee under the
indenture governing Dole’s 2010 Notes, and issued to the
trustee a notice of redemption for all of the outstanding
$363 million principal amount. The amounts deposited with
the trustee of $302.5 million are reported as current
restricted deposits in the accompanying condensed consolidated
balance sheet as of October 10, 2009. On October 26,2009, Dole used the net proceeds from the 2016 Notes offering,
together with cash on hand and borrowings under the revolving
credit facility, to redeem all of the outstanding 2010 Notes.
On March 18, 2009, Dole completed the sale and issuance of
$350 million aggregate principal amount of the 2014 Notes
at a discount of $25 million. The 2014 Notes were sold to
qualified institutional buyers pursuant to Rule 144A under
the Securities Act and to persons outside the United States in
compliance with Regulation S under the Securities Act. The
sale was exempt from the registration requirements of the
Securities Act. Interest on the 2014 Notes will be paid
semiannually in arrears on March 15 and September 15 of each
year, beginning on September 15, 2009. The 2014 Notes have
the benefit of a lien on certain U.S. assets of Dole that
is junior to the liens of Dole’s senior secured credit
facilities (revolving credit and term loan facilities), and are
senior obligations of Dole ranking equally with Dole’s
existing senior debt. Dole used the net proceeds from this
offering, together with cash on hand and borrowings under the
revolving credit facility, to repay the 8.625% notes due
May 2009.
In connection with these refinancing transactions, Dole amended
its senior secured credit facilities. The amendments, among
other things, permitted the issuance of new secured debt
securities, increased the interest rate on the term and
revolving credit facilities, and added a leverage maintenance
covenant.
Debt
Issuance Costs
In connection with the issuance of the 2016 Notes, Dole incurred
debt issuance costs of $7 million. In connection with the
issuance of the 2014 Notes and the amendment of Dole’s
senior secured credit facilities, Dole incurred debt issuance
costs of $18.3 million. Debt issuance costs are capitalized
and amortized into interest expense over the term of the
underlying debt.
Dole wrote off $5.2 million of deferred debt issuance costs
during the first quarter of 2009 resulting from the amendment of
its senior secured credit facilities. The amendment was
accounted for as an extinguishment of debt in accordance with
ASC Topic 470, “Debt.” The write-off was recorded in
other income (expense), net in the condensed consolidated
statement of operations for the three quarters ended
October 10, 2009.
Dole amortized deferred debt issuance costs of $1.9 million
and $4.1 million during the quarter and three quarters
ended October 10, 2009, respectively. Dole amortized
deferred debt issuance costs of $1.2 million and
$3.2 million during the quarter and three quarters ended
October 4, 2008.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Term
Loans and Revolving Credit Facility
As of October 10, 2009, the term loan facilities consisted
of $174.4 million of Term Loan B and $626.2 million of
Term Loan C. The term loan facilities bear interest, at
Dole’s option, at a rate per annum equal to either
(i) a base rate plus 3.5% to 4%; or (ii) LIBOR
(subject to a minimum of 3%) plus 4.5% to 5%, in each case,
based upon Dole’s senior secured leverage ratio. The
weighted average variable interest rate at October 10, 2009
for Term Loan B and Term Loan C was 8%. The term loan facilities
require quarterly principal payments, plus a balloon payment due
in 2013. Dole has an interest rate swap to hedge future changes
in interest rates and a cross currency swap to effectively lower
the U.S. dollar fixed interest rate to a Japanese yen fixed
interest rate on Term Loan C. Refer to Note 14 —
Derivative Financial Instruments for additional information
related to these instruments.
As of October 10, 2009, the asset based revolving credit
facility (“ABL revolver”) borrowing base was
$330.1 million. There were no borrowings under the ABL
revolver at October 10, 2009. The ABL revolver bears
interest, at Dole’s option, at a rate per annum equal to
either (i) a base rate plus 2% to 2.5%, or (ii) LIBOR
plus 3% to 3.5%, in each case, based upon Dole’s historical
borrowing availability under this facility. The ABL revolver
matures in April 2011. After taking into account approximately
$91.6 million of outstanding letters of credit issued under
the ABL revolver, Dole had approximately $238.5 million
available for borrowings as of October 10, 2009. In
addition, Dole had approximately $96.5 million of letters
of credit and bank guarantees outstanding under its
$100 million pre-funded letter of credit facility as of
October 10, 2009.
Capital
Lease Obligations
At October 10, 2009 and January 3, 2009, included in
capital lease obligations were $62.5 million and
$58.5 million, respectively, of vessel financing related to
two vessel leases denominated in British pound sterling. The
increase in the capital lease obligation was due to the
strengthening of the British pound sterling against the
U.S. dollar during 2009, which resulted in Dole recognizing
$6 million of unrealized losses. These unrealized losses
were recorded as other income (expense), net in the condensed
consolidated statement of operations for the three quarters
ended October 10, 2009.
Covenants
Provisions under the senior secured credit facilities and the
indentures governing Dole’s senior notes and debentures
require Dole to comply with certain covenants. These covenants
include limitations on, among other things, indebtedness,
investments, loans to subsidiaries, employees and third parties,
the issuance of guarantees and the payment of dividends. The ABL
revolver also contains a “springing covenant,” which
would not be effective unless the availability under the ABL
revolver were to fall below $35 million for any eight
consecutive business days. To date, the springing covenant had
never been effective and Dole does not currently anticipate that
the springing covenant will become effective.
In addition, as a result of the March 2009 amendment to
Dole’s senior secured credit facilities, Dole is now
subject to a first priority senior secured leverage ratio that
must be at or below 3.25 to 1.00 as of the last day of the
fiscal quarters ending March 28, 2009 through
October 10, 2009 and steps down to 3.00 to 1.00 as of the
last day of the fiscal quarter ending January 2, 2010. At
October 10, 2009, the first priority senior secured
leverage ratio was less than 2.05 to 1.00.
A breach of a covenant or other provision in any debt instrument
governing Dole’s current or future indebtedness could
result in a default under that instrument and, due to customary
cross-default and cross-acceleration provisions, could result in
a default under Dole’s other debt instruments. Upon the
occurrence of an event of default under the senior secured
credit facilities or other debt instrument, the lenders or
holders of such other debt instruments could elect to declare
all amounts outstanding to be immediately due and payable and
terminate all commitments to extend further credit. If Dole were
unable to repay those amounts, the lenders could
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
proceed against the collateral granted to them, if any, to
secure the indebtedness. If the lenders under Dole’s
current indebtedness were to accelerate the payment of the
indebtedness, Dole cannot give assurance that its assets or cash
flow would be sufficient to repay in full its outstanding
indebtedness, in which event Dole likely would seek
reorganization or protection under bankruptcy or other, similar
laws. As a result of the IPO and related transactions, all
potential cross-defaults and cross-acceleration provisions that
existed between Dole’s debt instruments and indebtedness of
Holdings and its affiliates have been eliminated.
Dividends
On June 22, 2009, Dole declared a dividend of
$15 million to its parent, Holdings. Dole paid
$7.5 million on June 23, 2009, $2.5 million on
July 20, 2009, $3.5 million on August 18, 2009
and the remaining $1.5 million on August 31, 2009.
Dole does not at present have the ability to declare future
dividends, pursuant to the terms of its senior secured credit
facilities.
NOTE 10 —
EMPLOYEE
BENEFIT PLANS
The components of net periodic benefit cost for Dole’s
U.S. and international pension plans and other
postretirement benefit (“OPRB”) plans were as follows:
Dole has three reportable operating segments: fresh fruit, fresh
vegetables and packaged foods. These reportable segments are
managed separately due to differences in their products,
production processes, distribution channels and customer bases.
Management evaluates and monitors segment performance primarily
through, among other measures, earnings before interest expense
and income taxes (“EBIT”). EBIT is calculated by
adding interest expense and income taxes to income from
continuing operations. Management believes that segment EBIT
provides useful information for analyzing the underlying
business results as well as allowing investors a means to
evaluate the financial results of each segment in relation to
Dole as a whole. EBIT is not defined under U.S. GAAP and
should not be considered in isolation or as a substitute for net
income or cash flow measures prepared in accordance with
U.S. GAAP or as a measure of Dole’s profitability.
Additionally, Dole’s computation of EBIT may not be
comparable to other similarly titled measures computed by other
companies, because not all companies calculate EBIT in the same
manner.
Revenues from external customers and EBIT for the reportable
operating segments and corporate were as follows:
Unrealized gain (loss) on foreign denominated instruments
(8,725
)
8,375
(7,144
)
3,305
Operating and other expenses
(18,675
)
(13,993
)
(39,750
)
(32,603
)
Corporate
(55,384
)
(12,382
)
(81,581
)
(49,415
)
Interest expense
(69,955
)
(52,616
)
(157,743
)
(137,358
)
Income taxes
1,307
(75
)
(15,704
)
60,125
Income (loss) from continuing operations
$
(53,436
)
$
(2,342
)
$
69,708
$
149,296
Dole’s equity earnings in unconsolidated subsidiaries,
which have been included in EBIT in the table above, relate
primarily to the fresh fruit operating segment. EBIT includes
unrealized foreign exchange gains and losses and gains on asset
sales.
Total assets for the three reportable operating segments,
corporate and fresh-cut flowers were as follows:
Dole is a guarantor of indebtedness of some of its key fruit
suppliers and other entities integral to Dole’s operations.
At October 10, 2009, guarantees of $1.8 million
consisted primarily of amounts advanced under third-party bank
agreements to independent growers that supply Dole with product.
Dole has not historically experienced any significant losses
associated with these guarantees.
Dole issues letters of credit and bank guarantees through its
ABL revolver and its pre-funded letter of credit facilities,
and, in addition, separately through major banking institutions.
Dole also provides insurance-company-issued bonds. These letters
of credit, bank guarantees and insurance company bonds are
required by certain
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
regulatory authorities, suppliers and other operating
agreements. As of October 10, 2009, total letters of
credit, bank guarantees and bonds outstanding under these
arrangements were $224.3 million, of which
$96.5 million was issued under Dole’s pre-funded
letter of credit facility.
Dole 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.
Dole guaranteed $193.6 million of its subsidiaries’
obligations to their suppliers and other third parties as of
October 10, 2009.
Dole has change of control agreements with certain key
executives, under which severance payments and benefits would
become payable in the event of specified terminations of
employment in connection with a change of control (as defined)
of Dole.
Dole is involved from time to time in claims and legal actions
incidental to its operations, both as plaintiff and defendant.
Dole has established what management currently believes to be
adequate reserves for pending legal matters. These reserves are
established as part of an ongoing worldwide assessment of claims
and legal actions that takes into consideration such items as
changes in the pending case load (including resolved and new
matters), opinions of legal counsel, individual developments in
court proceedings, changes in the law, changes in business
focus, changes in the litigation environment, changes in
opponent strategy and tactics, new developments as a result of
ongoing discovery, and past experience in defending and settling
similar claims. In the opinion of management, after consultation
with outside counsel, the claims or actions to which Dole is a
party are not expected to have a material adverse effect,
individually or in the aggregate, on Dole’s financial
condition or results of operations.
DBCP Cases: A significant portion of
Dole’s potential legal exposure relates to lawsuits pending
in the United States and in several foreign countries, alleging
injury as a result of exposure to the agricultural chemical DBCP
(1,2-dibromo-3-chloropropane). DBCP was manufactured by several
chemical companies including Dow and Shell and registered by the
U.S. government for use on food crops. Dole and other
growers applied DBCP on banana farms in Latin America and the
Philippines and on pineapple farms in Hawaii. Specific periods
of use varied among the different locations. Dole halted all
purchases of DBCP, including for use in foreign countries, when
the U.S. EPA cancelled the registration of DBCP for use in
the United States in 1979. That cancellation was based in part
on a 1977 study by a manufacturer which indicated an apparent
link between male sterility and exposure to DBCP among factory
workers producing the product, as well as early product testing
done by the manufacturers showing testicular effects on animals
exposed to DBCP. To date, there is no reliable evidence
demonstrating that field application of DBCP led to sterility
among farm workers, although that claim is made in the pending
lawsuits. Nor is there any reliable scientific evidence that
DBCP causes any other injuries in humans, although plaintiffs in
the various actions assert claims based on cancer, birth defects
and other general illnesses.
Currently there are 237 lawsuits, in various stages of
proceedings, alleging injury as a result of exposure to DBCP or
seeking enforcement of Nicaragua judgments. In addition, there
are 72 labor cases pending in Costa Rica under that
country’s national insurance program.
Twenty-three of the 237 lawsuits are currently pending in
various jurisdictions in the United States. On June 17,2009, Los Angeles Superior Court Judge Chaney issued written
Findings of Fact and Conclusions of Law, formally ordering
dismissal with prejudice of the two remaining lawsuits brought
on behalf of Nicaraguan plaintiffs who had falsely claimed they
were sterile as a result of exposure to DBCP on Dole-contracted
Nicaraguan banana farms, finding that the plaintiffs, and
certain of their attorneys, fabricated their claims, engaged in
a long-running conspiracy to commit a fraud on the court, used
threats of violence to frighten witnesses and suppress the
truth, and conspired with corrupt Nicaraguan judges, depriving
Dole and the other companies of due process. On June 9,2009, the First Circuit Court of Hawaii dismissed the Patrickson
case, which had involved ten plaintiffs from Honduras, Costa
Rica, Ecuador and Guatemala, finding that their DBCP claims were
time-barred by the statute of limitations. On October 30,2009, the Los Angeles Superior Court dismissed seven lawsuits
involving plaintiffs from the Ivory Coast, where Dole did not
operate when DBCP was in use. These lawsuits were dismissed
after plaintiffs’ counsel
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
had, on July 17, 2009, filed a motion to withdraw as
counsel of record in response to a witness who has come forward
alleging fraud, which motion has now been granted. Previously,
the U.S. District Court for the Central District of
California had dismissed an eighth lawsuit also brought by
plaintiffs from the Ivory Coast. The remaining lawsuits are
pending in Latin America and the Philippines. Claimed damages in
DBCP cases worldwide total approximately $44.4 billion,
with lawsuits in Nicaragua representing approximately 88% of
this amount. Typically in these cases Dole is a joint defendant
with the major DBCP manufacturers. Except as described below,
none of these lawsuits has resulted in a verdict or judgment
against Dole.
One case pending in Los Angeles Superior Court with 12
Nicaraguan plaintiffs initially resulted in verdicts which
totaled approximately $5 million in damages against Dole in
favor of six of the plaintiffs. As a result of the court’s
March 7, 2008 favorable rulings on Dole’s post-verdict
motions, including, importantly, the court’s decision
striking down punitive damages in the case on
U.S. Constitutional grounds, the damages against Dole were
reduced to $1.58 million in total compensatory awards to
four of the plaintiffs; and the court granted Dole’s motion
for a new trial as to the claims of one of the plaintiffs. On
July 7, 2009, the California Second District Court of
Appeals issued an order to show cause why this
$1.58 million judgment should not be vacated and judgment
be entered in defendants’ favor on the grounds that the
judgment was procured through fraud. Plaintiffs were to provide
their response to the order to show cause to the trial court
within 30 days of the issuance of the order. In that order,
the Court of Appeals stated that the trial court need not hold
an evidentiary hearing to decide whether the judgment was
procured by fraud, but instead can rely on the record that was
presented in support of Dole’s request to have the case
sent back to the trial court. Since the Court of Appeals’
order, the four plaintiffs who prevailed against Dole, and the
one as to whom a new trial was granted, responded to the
Court’s order to show cause. They moved to dismiss
Dole’s petition to set aside the judgment based on fraud.
The Court has set a hearing date of November 19, 2009 on
that motion. Dole believes this motion is without merit. The
Court has also set a hearing on Dole’s petition to set
aside the judgment based on fraud for January 25, 2010.
In Nicaragua, 197 cases are currently filed (of which 20 are
active) in various courts throughout the country, all but one of
which were brought pursuant to Law 364, an October 2000
Nicaraguan statute that contains substantive and procedural
provisions that Nicaragua’s Attorney General formally
opined are unconstitutional. In October 2003, the Supreme Court
of Nicaragua issued an advisory opinion, not connected with any
litigation, that Law 364 is constitutional. Thirty-two cases
have resulted in judgments in Nicaragua: $489.4 million
(nine cases consolidated with 468 claimants) on
December 11, 2002; $82.9 million (one case with 58
claimants) on February 25, 2004; $15.7 million (one
case with 20 claimants) on May 25, 2004; $4 million
(one case with four claimants) on May 25, 2004;
$56.5 million (one case with 72 claimants) on June 14,2004; $64.8 million (one case with 86 claimants) on
June 15, 2004; $27.7 million (one case with 39
claimants) on March 17, 2005; $98.5 million (one case
with 150 claimants) on August 8, 2005; $46.4 million
(one case with 62 claimants) on August 20, 2005;
$809 million (six cases consolidated with 1,248 claimants)
on December 1, 2006; $38.4 million (one case with 192
claimants) on November 14, 2007; and $357.7 million
(eight cases with 417 claimants) on January 12, 2009, which
Dole recently learned of unofficially. Except for the latest
one, Dole has appealed all judgments, with Dole’s appeal of
the August 8, 2005 $98.5 million judgment and of the
December 1, 2006 $809 million judgment currently
pending before the Nicaragua Court of Appeal. Dole will appeal
the $357.7 million judgment once it has been served.
Of the 20 active cases currently pending in civil courts in
Nicaragua, all have been brought under Law 364 except for one.
In all of the active cases where the proceeding has reached the
appropriate stage (7 of 20 cases), Dole has sought to have the
cases returned to the United States. In three of the cases where
Dole has sought return to the United States, the courts have
denied Dole’s request and Dole has appealed that decision.
Dole’s requests remain pending in the other four cases.
The claimants’ attempted enforcement of the
December 11, 2002 judgment for $489.4 million in the
United States resulted in a dismissal with prejudice of
that action by the United States District Court for the Central
District of California on October 20, 2003. The claimants
have voluntarily dismissed their appeal of that
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
decision, which was pending before the United States Court of
Appeals for the Ninth Circuit. Defendants’ motion for
sanctions against plaintiffs’ counsel is still pending
before the Court of Appeals in that case. A Special Master
appointed by the Court of Appeals has recommended that
plaintiffs’ counsel be ordered to pay defendants’ fees
and costs up to $130,000 each to Dole and the other two
defendants; and following such recommendation, the Court of
Appeals has appointed a special prosecutor. The Court held oral
argument on the recommendation of the special prosecutor and a
follow up hearing on such recommendation was held on
October 15, 2009.
There was one case pending in the U.S. District Court in
Miami, Florida seeking enforcement of the August 8, 2005
$98.5 million Nicaraguan judgment. On September 4,2009, the Court completed an evidentiary hearing to consider
Dole’s request that the Court deny enforcement of this
judgment, contending that Nicaragua’s judicial system does
not provide due process or an impartial judiciary, which also
lacks transparency and is corrupt. U.S. District Judge Pual
C. Huck was already aware of the evidence of fraud detailed in
Judge Chaney’s June 17, 2009 written Findings of Fact
and Conclusions of Law. On October 20, 2009, Judge Huck
issued an order denying enforcement, citing separate and
independent grounds for non-recognition: the Nicaragua trial
court did not have jurisdiction over the defendant companies;
the judgment did not arise out of proceedings that comported
with the international concept of due process; the judgment was
rendered under a system which does not provide impartial
tribunal or procedures compatible with the requirements of due
process of law; and the cause of action or claim for relief on
which the judgment is based is repugnant to the public policy of
Florida. Final judgment in favor of Dole (and the other
defendant companies) was entered November 10, 2009, and the
Court ordered the case closed.
Claimants have also sought to enforce the Nicaraguan judgments
in Colombia, Ecuador and Venezuela. In Venezuela, the claimants
have attempted to enforce five of the Nicaraguan judgments in
that country’s Supreme Court: $489.4 million
(December 11, 2002); $82.9 million (February 25,2004); $15.7 million (May 25, 2004);
$56.5 million (June 14, 2004); and $64.8 million
(June 15, 2004). The Venezuela Supreme Court has dismissed
two of these enforcement actions, the one for $15.7 million
and one for $56.5 million, because plaintiffs failed to
properly serve the defendants. An action filed to enforce the
$27.7 million Nicaraguan judgment (March 17,2005) in the Colombian Supreme Court was dismissed. In
Ecuador, the claimants attempted to enforce the five Nicaraguan
judgments issued between February 25, 2004 through
June 15, 2004 in the Ecuador Supreme Court. The First,
Second and Third Chambers of the Ecuador Supreme Court issued
rulings refusing to consider those enforcement actions on the
ground that the Supreme Court was not a court of competent
jurisdiction for enforcement of a foreign judgment. The
plaintiffs subsequently refiled those five enforcement actions
in the civil court in Guayaquil, Ecuador. Two of these
subsequently filed enforcement actions have been dismissed by
the 3rd Civil Court — $15.7 million
(May 25, 2004) — and the 12th Civil
Court — $56.5 million (June 14,2004) — in Guayaquil; plaintiffs have sought
reconsideration of those dismissals. The remaining three
enforcement actions are still pending.
Dole believes that none of the Nicaraguan judgments will be
enforceable against any Dole entity in the U.S. or in any
other country, because Nicaragua’s Law 364 is
unconstitutional and violates international principles of due
process. Among other things, Law 364 is an improper
“special law” directed at particular parties; it
requires defendants to pay large, non-refundable deposits in
order to even participate in the litigation; it provides a
severely truncated procedural process; it establishes an
irrebuttable presumption of causation that is contrary to the
evidence and scientific data; and it sets unreasonable minimum
damages that must be awarded in every case.
On October 23, 2006, Dole announced that Standard Fruit de
Honduras, S.A. reached an agreement with the Government of
Honduras and representatives of Honduran banana workers. This
agreement establishes a Worker Program that is intended by the
parties to resolve in a fair and equitable manner the claims of
male banana workers alleging sterility as a result of exposure
to DBCP. The Honduran Worker Program will not have a material
effect on Dole’s financial condition or results of
operations. The official start of the Honduran Worker Program
was announced on January 8, 2007. On August 15, 2007,
Shell Oil Company was included in the Worker Program.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
As to all the DBCP matters, Dole has denied liability and
asserted substantial defenses. While Dole believes there is no
reliable scientific basis for alleged injuries from the
agricultural field application of DBCP, Dole continues to seek
reasonable resolution of pending litigation and claims in the
U.S. and Latin America. For example, as in Honduras, Dole
is committed to finding a prompt resolution to the DBCP claims
in Nicaragua, and is prepared to pursue a structured worker
program in Nicaragua with science-based criteria. Los Angeles
Superior Court Judge Chaney had previously appointed a mediator
to explore possible settlement of all DBCP cases currently
pending before the court.
Although no assurance can be given concerning the outcome of the
DBCP cases, in the opinion of management, after consultation
with legal counsel and based on past experience defending and
settling DBCP claims, the pending lawsuits are not expected to
have a material adverse effect on Dole’s financial
condition or results of operations.
European Union Antitrust Inquiry: On
October 15, 2008, the European Commission, or EC, adopted a
Decision against Dole Food Company, Inc. and Dole Fresh Fruit
Europe OHG and against other unrelated banana companies, finding
violations of the European competition (antitrust) laws. The
Decision imposes €45.6 million in fines on Dole.
The Decision follows a Statement of Objections, issued by the EC
on July 25, 2007, and searches carried out by the EC in
June 2005 at certain banana importers and distributors,
including two of Dole’s offices.
Dole received the Decision on October 21, 2008 and appealed
the Decision to the European Court of First Instance in
Luxembourg on December 24, 2008.
Dole made an initial $10 million (€7.6 million)
provisional payment towards the €45.6 million fine on
January 22, 2009. As agreed with the European Commission
(DG Budget), Dole provided the required bank guaranty for the
remaining balance of the fine to the EC by the deadline of
April 30, 2009. The bank guaranty renews annually during
the appeals process (which may take several years) and carries
interest of 6.15% (accrued from January 23, 2009). If the
European Court of First Instance fully agrees with Dole’s
arguments presented in its appeal, Dole will be entitled to the
return of all monies paid, plus interest.
On November 28 and 29, 2007, the EC conducted searches of Dole
offices in Italy and Spain, as well as of other companies’
offices located in these countries. Dole continues to cooperate
with the EC’s requests for information.
Although no assurances can be given, and although there could be
a material adverse effect on Dole, Dole believes that it has not
violated the European competition laws. No accrual for the
Decision has been made in the accompanying consolidated
financial statements, since Dole cannot determine at this time
the amount of probable loss, if any, incurred as a result of the
Decision.
Honduran Tax Case: In 2005, Dole received a
tax assessment from Honduras of approximately $137 million
(including the claimed tax, penalty, and interest through the
date of assessment) relating to the disposition of all of
Dole’s interest in Cerveceria Hondurena, S.A. in 2001. Dole
believes the assessment is without merit and filed an appeal
with the Honduran tax authorities, which was denied. As a result
of the denial in the administrative process, in order to negate
the tax assessment, on August 5, 2005, Dole proceeded to
the next stage of the appellate process by filing a lawsuit
against the Honduran government in the Honduran Administrative
Tax Trial Court. The Honduran government sought dismissal of the
lawsuit and attachment of assets, which Dole challenged. The
Honduran Supreme Court affirmed the decision of the Honduran
intermediate appellate court that a statutory prerequisite to
challenging the tax assessment on the merits is the payment of
the tax assessment or the filing of a payment plan with the
Honduran courts; Dole has challenged the constitutionality of
the statute requiring such payment or payment plan. Although no
assurance can be given concerning the outcome of this case, in
the opinion of management, after consultation with legal
counsel, the pending lawsuits and tax-related matters are not
expected to have a material adverse effect on Dole’s
financial condition or results of operations.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
NOTE 13 —
ASSETS
HELD-FOR-SALE
Dole continuously reviews its assets in order to identify those
assets that do not meet Dole’s future strategic direction
or internal economic return criteria. As a result of this
review, Dole has identified and is in the process of selling
specific businesses and long-lived assets. In accordance with
ASC 205, Dole has reclassified these assets as
held-for-sale.
Total assets
held-for-sale
by segment were as follows:
At October 10, 2009, assets
held-for-sale
consist of $13.9 million in receivables, $10.2 million
in inventories, $0.7 million in other current assets, and
$117 million in property, plant and equipment, net of
accumulated depreciation.
Total liabilities
held-for-sale
by segment were as follows:
Dole received total cash proceeds of approximately
$118.1 million on assets sold during the three quarters
ended October 10, 2009, which are related to Dole’s
asset sale program. The total realized gain recorded from the
asset sale program was $34.4 million for the three quarters
ended October 10, 2009, which included $1.3 million
related to the fresh-cut flowers discontinued operation.
Realized gains related to continuing operations for the three
quarters ended October 10, 2009, of $33.1 million, are
shown as a separate component of operating income in the
condensed consolidated statement of operations.
Fresh
Fruit
During the first quarter of 2009, Dole completed the sale of a
portion of its Latin American banana operations. Dole received
net proceeds from the sale of $25.7 million and recorded a
gain on the sale of $6.7 million. To date, Dole has
collected $20.4 million in cash ($2 million in 2008
and $18.4 million in 2009) and has a $5.3 million
receivable which will be collected through January 2010. During
the second quarter of 2009, Dole sold a wood box plant in Chile
for $0.6 million. During the third quarter of 2009, Dole
sold two farms in Costa Rica and a box plant in Ecuador. Dole
received net proceeds from these sales of $39.5 million and
recorded a gain on the sale of $16.4 million. Related to
the net proceeds of $39.5 million, Dole collected
$31.7 million in cash and recorded a $7.8 million
receivable which will be collected in December 2010. For the
three quarters ended October 10, 2009, total realized gains
on these sales were approximately $23 million.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
During the third quarter of 2009, Dole entered into sale
agreements to sell certain operating properties in Latin America
for approximately $60.5 million. These properties consist
of box plants in Costa Rica, Honduras and Chile. The assets and
liabilities of the box plants were reclassified to
held-for-sale
during the third quarter of 2009. The sales of the box plants in
Costa Rica and Honduras closed on October 30, 2009, and the
sale of the box plant in Chile is expected to close by the end
of November 2009. In addition, Dole reclassified a farm and
warehouse facility in Chile to assets
held-for-sale
during the third quarter of 2009.
The sale of the box plants does not meet the definition of a
discontinued operation as defined in ASC 205 as the company has
existing supply contracts and continual involvement in the
business.
Fresh
Vegetables
During the first quarter of 2009, Dole completed the sale of
1,100 acres of property located in California. Dole
received net cash proceeds of $44.5 million and recorded a
gain on the sale of $9.2 million.
Packaged
Foods
During the first half of 2009, Dole sold approximately
160 acres of peach orchards located in California for
approximately $1.9 million and recorded a gain on the sale
of $0.9 million.
Fresh-Cut
Flowers — Discontinued Operation
During January 2009, the first phase of the Flowers transaction
was completed. Dole retains a portion of the real estate of the
former flowers divisions to be sold in subsequent phases of the
transaction. Net proceeds from the sale totaled approximately
$29.3 million. Of this amount, $21 million was
collected in cash and the remaining $8.3 million was
recorded as a receivable, which will be repaid during January
2011. Dole recorded a gain on the sale of $1.3 million,
which is included as a component of gain on disposal from
discontinued operations, net of income taxes in the condensed
consolidated statement of operations for the three quarters
ended October 10, 2009.
NOTE 14 —
DERIVATIVE
FINANCIAL INSTRUMENTS
Dole is exposed to foreign currency exchange rate fluctuations,
bunker fuel price fluctuations and interest rate changes in the
normal course of its business. As part of its risk management
strategy, Dole uses derivative instruments to hedge certain
foreign currency, bunker fuel and interest rate exposures.
Dole’s objective is to offset gains and losses resulting
from these exposures with losses and gains on the derivative
contracts used to hedge them, thereby reducing volatility of
earnings. Dole does not hold or issue derivative financial
instruments for trading or speculative purposes.
Dole entered into an interest rate swap in 2006 to hedge future
changes in interest rates. This agreement effectively converted
$320 million of borrowings under Term Loan C, which was
variable-rate debt, to a fixed-rate basis through 2011. The
interest rate swap fixed the interest rate at 7.2%. The paying
and receiving rates under the interest rate swap were 5.5% and
0.5% as of October 10, 2009, with an outstanding notional
amount of $320 million.
Dole executed a cross currency swap during 2006 to synthetically
convert $320 million of Term Loan C into Japanese yen
denominated debt in order to effectively lower the
U.S. dollar fixed interest rate of 7.2% to a Japanese yen
interest rate of 3.6%. Payments under the cross currency swap
were converted from U.S. dollars to Japanese yen at an
exchange rate of ¥111.9.
During the second quarter of 2009, Dole amended its cross
currency and interest rate swap agreements. The amendments
removed early termination provisions which would have allowed
the counterparty to settle the swaps at certain specified dates
prior to maturity. In addition, the rate at which payments under
the cross currency swap
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
were converted from U.S. dollars to Japanese yen increased
to ¥114.9 from ¥111.9. In connection with these
amendments, Dole also entered into a collateral arrangement
which requires Dole to provide collateral to its counterparties
when the fair market value of the cross currency and interest
rate swaps exceeds a combined liability of $35 million. The
measurement date for the collateral required at October 10,2009 was October 6, 2009, and the fair value of the swaps
at the measurement date was a liability of approximately
$110 million. Dole provided cash collateral of
$40.4 million, which was recorded as restricted deposits in
the accompanying condensed consolidated balance sheet, and the
remaining $35 million of collateral was issued through
letters of credit.
At October 10, 2009, the exchange rate of the Japanese yen
to U.S. dollar was ¥88.4. The value of the cross
currency swap will fluctuate based on changes in the
U.S. dollar to Japanese yen exchange rate and market
interest rates until maturity in 2011, at which time it will
settle in cash at the then current exchange rate.
All of Dole’s derivative instruments, with the exception of
the interest rate swap, are not designated as hedging
instruments as defined by ASC Topic 815, “Derivatives and
Hedging” (“ASC 815”). The interest rate swap is
accounted for as a cash flow hedge under ASC 815 and
accordingly, unrealized gains or losses are recorded as a
component of accumulated other comprehensive income (loss)
(“AOCI”) in the condensed consolidated balance sheets.
Dole is currently reviewing all outstanding derivative
instruments to determine which may be designated as hedging
instruments as defined by ASC 815, and expects to make such
designations by the end of this fiscal year.
At October 10, 2009, the gross notional value and fair
value of Dole’s derivative instruments were as follows:
Derivative Assets (Liabilities)
Average Strike
Notional
Balance Sheet
Fair
Price
Amount
Classification
Value
(In thousands)
Derivatives designated as hedging instruments:
Other long-term
Interest rate swap
$
320,000
liabilities
$
(23,244
)
Derivatives not designated as hedging instruments:
Foreign currency hedges (buy/sell):
Chilean peso/U.S. dollar
CLP 674
3,739
Receivables, net
$
812
Philippine peso/U.S. dollar
PHP 48.2
20,428
Receivables, net
740
U.S. dollar/Swedish krona
SEK 6.97
3,068
Receivables, net
32
U.S. dollar/Japanese yen
JPY 95.9
246,908
Accrued liabilities
(9,021
)
U.S. dollar/Euro
EUR 1.45
208,520
Accrued liabilities
(1,036
)
U.S. dollar/Canadian dollar
CAD 1.10
28,905
Accrued liabilities
(589
)
Cross currency swap — current portion
Receivables, net
2,070
Other long-term
Cross currency swap
320,000
liabilities
(77,245
)
Bunker fuel hedges
$282
(per metric ton)
6,672
(metric tons
)
Receivables, net
839
Total derivatives not designated as hedging instruments
(83,398
)
Total
$
(106,642
)
Settlement of the foreign currency and bunker fuel hedges will
occur during 2009 and 2010.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
The effect of the interest rate swap on the condensed
consolidated balance sheet and statement of operations for the
quarter and three quarters ended October 10, 2009 was as
follows:
Loss
Recognized in
AOCI as of
Losses Reclassified into Income
October 10,
Income Statement
Quarter
Three Quarters
2009
Classification
Ended
Ended
(In thousands)
Derivatives designated as hedging instruments:
Interest rate swap
$
2,220
Interest expense
$
3,517
$
7,524
Unrecognized losses of $15.1 million related to the
interest rate swap are expected to be realized into earnings
over the next twelve months. These losses will be primarily
offset by gains related to the cross currency swap. During the
three quarters ended October 10, 2009, there were no
amounts recorded as a result of hedge ineffectiveness.
Net unrealized gains (losses) and realized gains (losses) on
derivatives not designated as hedging instruments for the
quarters and three quarters ended October 10, 2009 and
October 4, 2008 were as follows:
Quarter Ended
Unrealized Gains
Realized Gains
(Losses)
(Losses)
Income Statement
October 10,
October 4,
October 10,
October 4,
Classification
2009
2008
2009
2008
(In thousands)
Derivatives not designated as hedging instruments:
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
NOTE 15 —
FAIR
VALUE MEASUREMENTS
Dole’s financial instruments primarily comprise short-term
trade and grower receivables, trade payables, notes receivable
and notes payable, as well as long-term grower receivables,
capital lease obligations, term loans, a revolving loan, and
notes and debentures. For short-term instruments, the carrying
amount approximates fair value because of the short maturity of
these instruments. For the long-term financial instruments,
excluding Dole’s secured and unsecured notes and
debentures, and term loans, the carrying amount approximates
fair value since they bear interest at variable rates or fixed
rates which approximate market.
Dole adopted the fair value measurements and disclosures
guidance, ASC 820, as of December 30, 2007 for financial
assets and liabilities measured on a recurring basis. Dole
adopted ASC 820 for all nonfinancial assets and liabilities at
the beginning of fiscal year 2009. ASC 820 establishes a fair
value hierarchy that prioritizes observable and unobservable
inputs to valuation techniques used to measure fair value. These
levels, in order of highest to lowest priority are described
below:
Level 1: Quoted prices (unadjusted) in active
markets that are accessible at the measurement date for
identical assets or liabilities.
Level 2: Observable prices that are based on
inputs not quoted on active markets, but corroborated by market
data.
Level 3: Unobservable inputs that are not
corroborated by market data.
The following table provides a summary of the assets and
liabilities measured at fair value on a recurring basis under
the ASC 820 hierarchy:
Fair Value Measurements at
Reporting Date Using
Significant
Significant
Other Observable
Unobservable
October 10,
Inputs
Inputs
2009
(Level 2)
(Level 3)
(In thousands)
Assets and Liabilities Measured on a Recurring Basis
For Dole, the assets and liabilities that are required to be
recorded at fair value on a recurring basis are the derivative
instruments. The fair values of Dole’s derivative
instruments are determined using Level 2 inputs, which are
defined as “significant other observable inputs.” The
fair values of the foreign currency exchange contracts, bunker
fuel contracts, interest rate swap and cross currency swap were
estimated using internal discounted cash flow calculations based
upon forward foreign currency exchange rates, bunker fuel
futures, interest-rate yield curves or quotes obtained from
brokers for contracts with similar terms less any credit
valuation adjustments. Dole recorded a credit valuation
adjustment at October 10, 2009 which reduced the derivative
liability balances. The
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
credit valuation adjustment was $2.5 million and
$16.3 million at October 10, 2009 and January 3,2009, respectively. The net change in the credit valuation
adjustment resulted in a loss of $13.8 million during the
three quarters ended October 10, 2009. Of this loss,
$2.1 million was recorded as interest expense and
$11.7 million was recorded as other income (expense), net.
For the quarter ended October 10, 2009, the net change in
the credit valuation adjustment resulted in a loss of
$0.6 million. Of this loss, $0.4 million was recorded
as interest expense and $0.2 million was recorded as other
income (expense), net.
The following table provides a summary of the assets measured at
fair value on a nonrecurring basis for the three quarters ended
October 10, 2009 under the ASC 820 hierarchy:
Fair Value Measurements at
Reporting Date Using
Significant
Significant
Other Observable
Unobservable
October 10,
Inputs
Inputs
2009
(Level 2)
(Level 3)
(In thousands)
Assets Measured on a Nonrecurring Basis
Distrifruit net assets
$
10,037
$
—
$
10,037
In addition to assets and liabilities that are recorded at fair
value on a recurring basis, Dole is required to record assets
and liabilities at fair value on a nonrecurring basis.
Nonfinancial assets such as goodwill, indefinite-lived
intangible assets and long-lived assets are measured at fair
value when there is an indicator of impairment and recorded at
fair value only when an impairment is recognized. Dole did not
measure any assets or liabilities at fair value on a
nonrecurring basis during the quarter ended October 10,2009.
The goodwill and indefinite-lived intangible asset impairment
analysis was performed in the second quarter of 2009 using a
combination of discounted cash flow models and market multiples.
The fair value of the Distrifruit business was determined based
on a discounted cash flow model. The discounted cash flow models
used estimates and assumptions including pricing and volume
data, anticipated growth rates, profitability levels, tax rates
and discount rates.
Credit
Risk
The counterparties to the foreign currency and bunker fuel
forward contracts and the interest rate and cross currency swaps
consist of a number of major international financial
institutions. Dole has established counterparty guidelines and
regularly monitors its positions and the financial strength of
these institutions. While counterparties to hedging contracts
expose Dole to credit-related losses in the event of a
counterparty’s non-performance, the risk would be limited
to the unrealized gains on such affected contracts. Dole does
not anticipate any such losses.
Fair
Value of Debt
Dole estimates the fair value of its secured and unsecured notes
and debentures based on current quoted market prices. The term
loans are traded between institutional investors on the
secondary loan market, and the fair values of the term loans are
based on the last available trading price. The carrying value
and estimated fair values of Dole’s debt is summarized
below:
Less: Net income attributable to noncontrolling interests
(830
)
(531
)
(2,704
)
(1,857
)
Net income (loss) attributable to Dole Food Company, Inc.
$
(53,821
)
$
(21,318
)
$
69,144
$
130,491
Weighted average common shares outstanding — Basic and
Diluted(1)
51,710
51,710
51,710
51,710
Earnings Per Share — Basic and Diluted
Income (loss) from continuing operations
$
(1.03
)
$
(0.05
)
$
1.35
$
2.89
Income (loss) from discontinued operations
0.01
(0.42
)
0.02
(0.39
)
Gain on disposal of discontinued operations
—
0.06
0.02
0.06
Less: Net income attributable to noncontrolling interests
(0.02
)
—
(0.05
)
(0.04
)
Net income (loss) attributable to Dole Food Company, Inc.
$
(1.04
)
$
(0.41
)
$
1.34
$
2.52
(1)
Basic and diluted weighted average common shares outstanding
reflect the effect of the restructuring transactions in
connection with the IPO (see Note 3 for further
information).
NOTE 17 —
GUARANTOR
FINANCIAL INFORMATION
Dole’s wholly-owned domestic subsidiaries
(“Guarantors”) have fully and unconditionally
guaranteed, on a joint and several basis, Dole’s
obligations under the indentures related to the 2010 Notes, the
2011 Notes, Dole’s 8.75% debentures due 2013, the 2014Notes and the 2016 Notes (the “Guarantees”). Each
Guarantee is subordinated in right of payment to the
Guarantors’ existing and future senior debt, including
obligations under the senior secured credit facilities, and will
rank pari passu with all senior subordinated indebtedness of the
applicable Guarantor.
The accompanying guarantor consolidating financial information
is presented on the equity method of accounting for all periods
presented. Under this method, investments in subsidiaries are
recorded at cost and adjusted for Dole’s share in the
subsidiaries’ cumulative results of operations, capital
contributions and distributions and other changes in equity.
Elimination entries relate to the elimination of investments in
subsidiaries and associated intercompany balances and
transactions as well as cash overdraft and income tax
reclassifications.
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 Dole’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 Dole’s actual results to
differ materially from those expressed or implied herein are set
forth in Item 1A of Part II of this Quarterly Report
on
Form 10-Q
and Item 7A of Dole’s Annual Report on
Form 10-K
for the fiscal year ended January 3, 2009 and 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; quotas, tariffs and other governmental actions and
international conflict.
Overview
Significant highlights for Dole Food Company, Inc. and its
consolidated subsidiaries (“Dole” or the
“Company”) were as follows:
•
Dole successfully completed a $446 million initial public
offering of 35.7 million common shares on October 22,2009. Dole’s common stock began trading on the New York
Stock Exchange under the ticker symbol “DOLE” on
October 23, 2009. Dole received net proceeds of
$415 million, reflecting $31 million of underwriting
discount and offering expenses and has used and plans to use the
net proceeds to pay down indebtedness.
•
Dole completed the sale and issuance of $315 million
8% Senior Secured Notes due October 2016 at a discount of
$6 million. On October 26, 2009, the net proceeds from
the offering, together with cash on hand and borrowings under
Dole’s revolving credit facility were used to redeem all
$363 million outstanding of Dole’s 7.25% Senior
Notes due June 2010.
•
Dole reduced its total net debt outstanding by $43 million
during the third quarter of 2009. Total net debt is defined as
total debt less cash and cash equivalents and current restricted
deposits. Over the last six quarters, Dole reduced its total net
debt outstanding by $523 million, or 22%, as a result of
monetizing non-core assets, cost cutting initiatives and
improved earnings. Net debt at the end of the third quarter of
2009 was $1.86 billion and there were no borrowings
outstanding under the asset based revolving credit facility
(“ABL revolver”).
•
Cash flows provided by operating activities for the three
quarters ended October 10, 2009 were $282.9 million
compared to cash flows used in operating activities of
$27.3 million for the same period in 2008. Cash flows
provided by operating activities improved primarily due to
better working capital management and higher operating income.
•
Net revenues for the third quarter of 2009 were
$1.9 billion compared to $2.3 billion in the third
quarter of 2008. Net revenues for the first three quarters of
2009 were $5.2 billion compared to $6 billion for the
first three quarters of 2008. The decrease was primarily due to
the fourth quarter 2008 sale of our JP Fresh and Dole France
ripening and distribution subsidiaries (“divested
businesses”). In addition, lower sales in our remaining
European ripening and distribution business, fresh vegetables
and packaged food segments and unfavorable foreign currency
exchange movements in selling locations also impacted revenues.
•
Operating income in the third quarter of 2009 was
$44.2 million compared to $34.6 million in the third
quarter of 2008, an increase of 28%. Third quarter 2009
operating income included a net $3.9 million benefit due to
gains on asset sales and unrealized hedging losses, compared
with a net $12.7 million benefit due to asset sales and
unrealized hedging gains for the same period in 2008. Operating
income during the first three quarters of 2009 totaled
$275.6 million, an increase of 32% over the first three
quarters of 2008.
•
Adjusted EBITDA in the third quarter of 2009 was
$84.5 million compared to $71.4 million in the third
quarter of 2008, an increase of 18%. Adjusted EBITDA for the
first three quarters of 2009 was $349 million compared to
$309 million for the same period in 2008, an increase of
13%.
During the third quarter of 2009, Dole sold a box manufacturing
plant in Latin America. Subsequent to the close of the third
quarter, three additional box plants were sold. Total proceeds
from these asset sales, which will be used to pay down debt, are
expected to be approximately $100 million.
•
There were also favorable developments in legal proceedings:
•
On October 30, 2009, the Los Angeles Superior Court
dismissed the remaining seven DBCP lawsuits brought on behalf of
plaintiffs from the Ivory Coast, where Dole did not operate when
DBCP was in use. This now ends all eight of the lawsuits
originally brought against Dole (and other
defendants) — the United States District Court for the
Central District of California had previously dismissed the
first of these lawsuits.
•
On October 20, 2009, the United States District Court for
the Southern District of Florida issued an order denying
recognition and enforcement of the $98.5 million Nicaragua
judgment against Dole and another U.S. company, citing
separate and independent grounds for non-recognition: the
Nicaragua trial court did not have jurisdiction over the
defendant companies; the judgment did not arise out of
proceedings that comported with the international concept of due
process; the judgment was rendered under a system which does not
provide impartial tribunals or procedures compatible with the
requirements of due process of law; and the cause of action or
claim for relief on which the judgment is based is repugnant to
the public policy of Florida. Final judgment in favor of Dole
(and the other defendant companies) was entered
November 10, 2009.
Non-GAAP Financial
Measures
The following is a reconciliation of Adjusted EBITDA to the most
directly comparable Generally Accepted Accounting Principle
(GAAP) financial measure:
Depreciation and amortization from continuing operations
37,564
42,203
92,386
106,644
Net unrealized (gain) loss on derivative instruments
40,401
(3,395
)
33,271
2,732
Foreign currency exchange (gain) loss on vessel obligations
(1,032
)
(7,245
)
5,951
(9,320
)
Net unrealized (gain) loss on foreign denominated instruments
8,716
(8,024
)
7,355
(3,469
)
Gain on asset sales
(16,359
)
(2,491
)
(33,152
)
(14,134
)
Adjusted EBITDA
$
84,502
$
71,397
$
348,966
$
308,982
EBIT and Adjusted EBITDA are measures commonly used by financial
analysts in evaluating the performance of companies. EBIT is
calculated by adding back interest expense and income taxes to
income (loss) from continuing operations. Adjusted EBITDA is
calculated by adding depreciation and amortization from
continuing operations to EBIT, by adding the net unrealized loss
or subtracting the net unrealized gain on certain derivative
instruments to and from EBIT, respectively, (foreign currency
and bunker fuel hedges and the cross currency swap), by adding
the foreign currency loss or subtracting the foreign currency
gain on the vessel obligations to and from EBIT, respectively,
by adding the net unrealized loss or subtracting the net
unrealized gain on foreign denominated
instruments to and from EBIT, respectively, and by subtracting
the gain on asset sales from EBIT. During the first quarter of
2007, all of the Company’s foreign currency and bunker fuel
hedges were designated as effective hedges of cash flows as
defined by FASB ASC Topic 815, and these designations were
changed during the second quarter of 2007. Beginning in the
second quarter of 2007, all unrealized gains and losses related
to these instruments have been recorded in the consolidated
statement of operations. During 2008, Dole initiated an asset
sale program in order to reduce the leverage of the Company with
proceeds generated from the sale of non-core assets during the
2008 fiscal year and the three quarters ended October 10,2009. Dole’s capital lease obligations related to its
vessel leases are denominated in currencies that are different
than the functional currencies of the subsidiaries that hold
these leases. In addition, Dole has loans and deposits
denominated in currencies that are different than the functional
currencies of the subsidiaries that hold these instruments. The
currency gains and losses recorded on the vessel obligations and
the unrealized currency gains and losses recorded on foreign
denominated instruments have been excluded from Adjusted EBITDA
because management excludes these amounts when evaluating the
performance of Dole.
EBIT and Adjusted EBITDA are not calculated or presented in
accordance with U.S. GAAP and EBIT and Adjusted EBITDA are
not a substitute for net income attributable to Dole Food
Company, Inc., net income, income from continuing operations,
cash flows from operating activities or any other measure
prescribed by U.S. GAAP. Further, EBIT and Adjusted EBITDA
as used herein are not necessarily comparable to similarly
titled measures of other companies. However, Dole has included
EBIT and Adjusted EBITDA herein because management believes that
EBIT and Adjusted EBITDA are useful performance measures for
Dole. In addition, EBIT and Adjusted EBITDA are presented
because Dole’s management believes that these measures are
frequently used by securities analysts, investors and others in
the evaluation of the Company. Management internally uses EBIT
and Adjusted EBITDA for decision making and to evaluate
Dole’s performance.
Adjusted EBITDA has limitations as an analytical tool and should
not be considered in isolation from, or as an alternative to
operating income, cash flow or other combined income or cash
flow data prepared in accordance with U.S. GAAP. Because of
its limitations, Adjusted EBITDA presented throughout this
Form 10-Q
should not be considered as measures of discretionary cash
available to invest in business growth or reduce indebtedness.
Dole compensates for these limitations by relying primarily on
its U.S. GAAP results and using Adjusted EBITDA only
supplementally.
Results
of Operations
Selected results of operations for the quarters and three
quarters ended October 10, 2009 and October 4, 2008
were as follows:
Income (loss) from discontinued operations, net of income taxes
445
(21,760
)
832
(20,263
)
Gain on disposal of discontinued operations, net of income taxes
—
3,315
1,308
3,315
Net income (loss) attributable to Dole Food Company, Inc.
(53,821
)
(21,318
)
69,144
130,491
Revenues
For the quarter ended October 10, 2009, revenues decreased
14% to $1.9 billion from $2.3 billion for the quarter
ended October 4, 2008. The primary reason for the decrease
was the divestiture of Dole’s ripening and
distribution businesses in the United Kingdom and France.
Excluding third quarter 2008 sales from Dole’s divested
businesses, sales decreased 9%. Fresh fruit sales decreased
mainly due to lower sales in the remaining European ripening and
distribution businesses, and lower sales of bananas in Europe.
Fresh vegetables sales decreased due to lower volumes and
pricing. Packaged foods sales decreased due to lower volumes
sold in North America. These decreases were partially offset by
higher sales of fresh pineapples in North America and Asia and
higher sales of bananas in North America.
For the three quarters ended October 10, 2009, revenues
decreased 12% to $5.2 billion from $6 billion for the
three quarters ended October 4, 2008. Excluding sales for
the first three quarters of 2008 from Dole’s divested
businesses, sales decreased 7%. The decrease in revenues was
primarily due to the same factors that impacted the third
quarter except for higher sales of bananas in Asia partially
offset by lower sales of fresh pineapples in Asia. Net
unfavorable foreign currency exchange movements in Dole’s
selling locations resulted in lower revenues of approximately
$187 million for the three quarters ended October 10,2009.
Operating
Income
For the quarter ended October 10, 2009, operating income
was $44.2 million compared to $34.6 million for the
quarter ended October 4, 2008. Included in third quarter of
2009 operating income is a net benefit of $3.9 million from
gains on asset sales and unrealized hedging activities. For the
same period in 2008, Dole had net gains on asset sales and
unrealized hedging activities of $12.7 million. Fresh fruit
operating income benefited from improved banana performance in
Europe primarily due to lower shipping and distribution costs.
In addition, fresh pineapple earnings worldwide improved as a
result of lower product and shipping costs. Fresh vegetables
reported higher earnings due to improved plant utilization and
lower distribution costs in the value-added business. Packaged
foods reported higher earnings as a result of improved pricing,
lower product costs attributable to lower commodity costs (fuel
and plastic), lower shipping and distribution costs and
favorable foreign currency movements in Thailand and the
Philippines, where products are sourced. If foreign currency
exchange rates in Dole’s significant foreign operations
during the third quarter of 2009 had remained unchanged from
those experienced during the third quarter of 2008, Dole
estimates that its operating income would have been lower by
approximately $12 million. These improvements were
partially offset by lower earnings in Dole’s North America
banana operations primarily due to higher product costs as a
result of adverse weather conditions in Latin America. In
addition, operating results were lower in Dole’s European
ripening and distribution business, the Chilean deciduous fruit
operations and Dole’s North America fresh-packed vegetables
business.
For the three quarters ended October 10, 2009, operating
income increased to $275.6 million from $209.6 million
for the three quarters ended October 4, 2008. Fresh fruit
operating income increased primarily as a result of improved
banana earnings in Europe and Asia and lower product costs in
both the Chilean deciduous fruit and Asia fresh pineapple
businesses. Fresh vegetables reported higher earnings due to
improved operating performance in the value-added business.
Packaged foods earnings improved worldwide as a result of lower
product costs as well as lower selling and general and
administrative expenses. If foreign currency exchange rates in
Dole’s significant foreign operations during the three
quarters ended October 10, 2009 had remained unchanged from
those experienced during the three quarters ended
October 4, 2008, Dole estimates that its operating income
would have been lower by approximately $10 million.
Other
Income (Expense), Net
For the quarter ended October 10, 2009, other income
(expense), net was an expense of $34.6 million compared to
income of $10.9 million in the prior year. The change was
primarily due to an increase in unrealized losses of
$21.2 million generated on Dole’s cross currency swap
and $14.1 million generated on Dole’s foreign
denominated borrowings and a reduction in the foreign currency
exchange gain on Dole’s vessel obligation.
For the three quarters ended October 10, 2009, other income
(expense), net was an expense of $45.7 million compared to
income of $5.9 million for the three quarters ended
October 4, 2008. The change was due to an increase in
unrealized losses of $12.8 million for Dole’s foreign
denominated borrowings, $14.6 million for Dole’s cross
currency swap, and a $15.3 million increase in the foreign
currency exchange loss on Dole’s vessel obligation. In
addition, debt issuance costs of $5.2 million were
written-off associated with the March 2009 amendment of
Dole’s senior secured credit facilities.
Interest
Expense
Interest expense for the quarter ended October 10, 2009 was
$70 million compared to $52.6 million for the quarter
ended October 4, 2008. Interest expense for the three
quarters ended October 10, 2009 was $157.7 million
compared to $137.4 million for the three quarters ended
October 4, 2008. Interest expense for both periods
increased primarily as a result of higher borrowing rates
resulting from Dole’s March 2009 refinancing transactions.
Income
Taxes
Dole recorded $15.7 million of income tax expense on
$77.7 million of pretax income from continuing operations
for the three quarters ended October 10, 2009. Income tax
expense included interest expense of $2.5 million (net of
associated income tax benefits of approximately
$0.5 million) related to Dole’s unrecognized tax
benefits. An income tax benefit of $60.1 million was
recorded for the three quarters ended October 4, 2008,
which included $60.9 million for the favorable settlement
of the federal income tax audit for the years 1995 to 2001 and
interest expense of $4.5 million (net of associated income
tax benefits of approximately $1.1 million) related to
Dole’s unrecognized tax benefits. Dole’s effective tax
rate varies significantly from period to period due to the
level, mix and seasonality of earnings generated in its various
U.S. and foreign jurisdictions.
Income taxes for the quarters ended October 10, 2009 and
October 4, 2008 were a benefit of $1.3 million and an
expense of $0.1 million, respectively.
Under ASC Topic 270 and ASC Topic 740, Dole is required to
adjust its effective tax rate for each quarter to be consistent
with the estimated annual effective tax rate. Jurisdictions with
a projected loss where no tax benefit can be recognized are
excluded from the calculation of the estimated annual effective
tax rate. Applying the provisions of ASC Topic 270 and ASC Topic
740 could result in a higher or lower effective tax rate during
a particular quarter, based upon the mix and timing of actual
earnings versus annual projections.
For the periods presented, Dole’s income tax provision
differs from the U.S. federal statutory rate applied to
Dole’s pretax income primarily due to operations in foreign
jurisdictions that are taxed at a rate lower than the
U.S. federal statutory rate, offset by the accrual for
uncertain tax positions. In addition, income taxes for the three
quarters ended October 4, 2008 also benefited from the
settlement of the federal income tax audit for the
years 1995-2001.
Segment
Results of Operations
Dole has three reportable operating segments: fresh fruit, fresh
vegetables and packaged foods. These reportable segments are
managed separately due to differences in their products,
production processes, distribution channels and customer bases.
Management evaluates and monitors segment performance primarily
through, among other measures, earnings before interest expense
and income taxes (“EBIT”). EBIT is calculated by
adding interest expense and income taxes to income from
continuing operations. Management believes that segment EBIT
provides useful information for analyzing the underlying
business results as well as allowing investors a means to
evaluate the financial results of each segment in relation to
Dole as a whole. EBIT is not defined under U.S. GAAP and
should not be considered in isolation or as a substitute for net
income or cash flow measures prepared in accordance with
U.S. GAAP or as a measure of Dole’s profitability.
Additionally, Dole’s computation of EBIT may not be
comparable to other similarly titled measures computed by other
companies, because not all companies calculate EBIT in the same
manner.
Unrealized gain (loss) on foreign denominated instruments
(8,725
)
8,375
(7,144
)
3,305
Operating and other expenses
(18,675
)
(13,993
)
(39,750
)
(32,603
)
Corporate
(55,384
)
(12,382
)
(81,581
)
(49,415
)
Interest expense
(69,955
)
(52,616
)
(157,743
)
(137,358
)
Income taxes
1,307
(75
)
(15,704
)
60,125
Income (loss) from continuing operations
$
(53,436
)
$
(2,342
)
$
69,708
$
149,296
Fresh
Fruit
Fresh fruit revenues for the quarter ended October 10, 2009
decreased 17% to $1.3 billion from $1.6 billion for
the quarter ended October 4, 2008. The primary reason for
the reduction in revenue was the divestiture of Dole’s
ripening and distribution businesses in the United Kingdom and
France. Excluding third quarter 2008 sales from Dole’s
divested businesses in the European ripening and distribution
operations, fresh fruit revenues decreased 10% during the third
quarter of 2009. European ripening and distribution revenues for
the third quarter 2009 were $517 million, compared to
$750 million for the third quarter of 2008. European
ripening and distribution revenues from businesses not divested
decreased $107 million during the third quarter of 2009
primarily as a result of unfavorable euro and Swedish krona
foreign currency exchange movements and lower volumes sold in
Germany. Third quarter 2009 banana sales decreased
$12 million due to lower volumes sold in Asia as well as
planned volume reductions in Europe, partially offset by higher
volumes sold in North America. Fresh pineapple sales increased
$11 million mainly due to higher volumes of fresh
pineapples sold in North America and improved pricing of fresh
pineapples in Asia. Fresh fruit revenues for the three quarters
ended October 10, 2009 decreased 15% to $3.7 billion
from $4.3 billion for the three quarters ended
October 4, 2008. Excluding sales for the first three
quarters of 2008 from Dole’s divested businesses, fresh
fruit revenues for the first three quarters of 2009 decreased
7%. European ripening and distribution revenues for year to date
2009 were $1.4 billion, compared to $2.1 billion for
the 2008 year to date period. The change in revenues was mainly
due to the same factors that impacted sales during the third
quarter except for higher sales of bananas in Asia as a result
of improved pricing and lower sales of fresh pineapples in Asia.
Net unfavorable foreign currency exchange movements in
Dole’s foreign selling locations resulted in lower revenues
of approximately $16 million and $176 million during
the third quarter and first three quarters of 2009, respectively.
Dole’s fresh fruit segment EBIT is significantly impacted
by certain items, which are included in the table below:
Unrealized gain (loss) on foreign currency and fuel hedges
(12,917
)
8,027
418
16,316
Foreign currency exchange gain (loss) on vessel obligations
1,032
7,245
(5,951
)
9,320
Net unrealized gain (loss) on foreign denominated instruments
(291
)
805
(512
)
1,590
Gain on asset sales
16,359
1,350
23,059
12,993
Total Fresh fruit EBIT
$
44,928
$
59,261
$
240,216
$
243,415
Fresh fruit EBIT for the quarter ended October 10, 2009
decreased to $44.9 million from $59.3 million for the
quarter ended October 4, 2008. Third quarter European
ripening and distribution EBIT decreased to $4.2 million in
2009 from $8.5 million in 2008. Lower EBIT was reported in
the European ripening and distribution business primarily due to
lower sales volumes and the impact of unfavorable euro foreign
currency exchange movements. Third quarter 2009 banana EBIT
increased slightly as improved earnings in the European banana
business resulting from lower shipping and distribution costs
were partially offset by lower earnings in Dole’s North
America banana operations. Adverse weather conditions in Latin
America early in the year impacted production yields and
resulted in significantly higher fruit costs. Fresh fruit EBIT
also benefitted from higher worldwide earnings in Dole’s
fresh pineapple operations. If foreign currency exchange rates
in Dole’s significant fresh fruit foreign operations during
the quarter ended October 10, 2009 had remained unchanged
from those experienced during the quarter ended October 4,2008, Dole estimates that fresh fruit EBIT would have been lower
by approximately $8 million. Fresh fruit EBIT for the three
quarters ended October 10, 2009 decreased to
$240.2 million from $243.4 million for the three
quarters ended October 4, 2008. The change in EBIT was
mainly due to the same factors that impacted EBIT during the
third quarter. European ripening and distribution EBIT decreased
to $16 million for year to date 2009, compared to
$27 million for year to date 2008. North America banana
earnings decreased mainly due to higher fruit costs. These
factors were offset by higher banana EBIT in Asia and improved
earnings in the Chilean deciduous fruit operations as a result
of lower product costs.
Fresh
Vegetables
Fresh vegetables revenues for the quarter ended October 10,2009 decreased 9% to $298.8 million from
$327.9 million for the quarter ended October 4, 2008.
Lower revenues in the North America fresh-packed vegetables
business resulted from lower sales of major product lines.
Revenues in the value-added category decreased primarily due to
lower sales volumes, lower fuel and transportation related
surcharges, and a small shift in sales from higher to lower
priced products. Fresh vegetables revenues for the three
quarters ended October 10, 2009 decreased 6% to
$790.4 million from $838.6 million for the three
quarters ended October 4, 2008. The change in revenues for
the three quarters was mainly due to the same factors that
impacted sales during the third quarter.
Fresh vegetables EBIT for the quarter ended October 10,2009 improved to a loss of $3.5 million from a loss of
$6.4 million for the quarter ended October 4, 2008.
This improvement was primarily due to lower raw material and
fuel costs, and improved network efficiency in the value-added
category. Earnings in the fresh-packed vegetables
category decreased as a result of lower pricing across most
major products. Fresh vegetables EBIT for the three quarters
ended October 10, 2009 increased to $9.5 million from
a loss of $8.3 million for the three quarters ended
October 4, 2008. The increase in EBIT was primarily due to
improved performance in the value-added category from continued
operating efficiencies and lower raw material and fuel costs. In
addition, fresh vegetables EBIT includes a gain of
$9.2 million from property sold in California during the
first quarter of 2009. Total fresh vegetables EBIT in 2008 also
benefited from a workers compensation accrual adjustment of
$7 million recorded in the second quarter of 2008. North
America fresh-packed vegetables earnings increased, absent the
workers compensation accrual adjustment in 2008, due to lower
harvesting and growing costs.
Packaged
Foods
Packaged foods revenues for the quarter ended October 10,2009 decreased 5% to $309.8 million from
$326.5 million for the quarter ended October 4, 2008.
The decrease in revenues was primarily due to lower volumes sold
in North America. Lower volumes were due in part to a
contraction in the packaged fruit category. In addition, price
increases have also impacted volumes. Packaged foods revenues
for the three quarters ended October 10, 2009 decreased 7%
to $785.5 million from $843.2 million for the three
quarters ended October 4, 2008. The change in revenues for
the first three quarters of the year was mainly due to the same
factors that impacted sales during the third quarter.
EBIT in the packaged foods segment for the quarter ended
October 10, 2009 increased to $29.2 million from
$9.8 million for the quarter ended October 4, 2008.
The increase in EBIT was attributable to improved pricing and
lower product, shipping and distribution costs. Lower product
costs resulted from lower commodity costs (fuel and plastic) as
well as favorable foreign currency movements in Thailand and the
Philippines, where products are sourced. Lower shipping and
distribution costs resulted from lower fuel prices. EBIT for the
three quarters ended October 10, 2009 increased to
$75.1 million from $40.8 million for the three
quarters ended October 4, 2008. The increase in EBIT was
attributable to improved earnings worldwide and lower selling,
general and administrative expenses. If foreign currency
exchange rates in Dole’s packaged foods foreign operations
during the quarter and the three quarters ended October 10,2009 had remained unchanged from those experienced during the
quarter and the three quarters ended October 4, 2008, Dole
estimates that packaged foods EBIT would have been lower by
approximately $4 million and $10 million, respectively.
Corporate
Corporate EBIT was a loss of $55.4 million for the quarter
ended October 10, 2009 compared to a loss of
$12.4 million for the quarter ended October 4, 2008.
The decrease in EBIT was primarily due to an increase in
unrealized losses of $21.2 million generated on the cross
currency swap. In addition, EBIT in 2009 was impacted by
unrealized losses on foreign denominated instruments of
$8.7 million. Corporate EBIT was a loss of
$81.6 million for the three quarters ended October 10,2009 compared to a loss of $49.4 million for the three
quarters ended October 4, 2008. The decrease in EBIT was
primarily due to an increase in unrealized losses of
$14.6 million generated on the cross currency swap,
unrealized losses of $7.1 million on foreign denominated
instruments, and the write-off of deferred debt issuance costs
of $5.2 million associated with the March 2009 amendment of
Dole’s senior secured credit facilities. These factors were
partially offset by lower levels of general and administrative
expenditures.
Discontinued
Operations
During the second quarter of 2008, Dole approved and committed
to a formal plan to divest its fresh-cut flowers operations
(“Flowers transactions”). The first phase of the
Flowers transaction was completed during the first quarter of
2009. In addition, during the fourth quarter of 2007, Dole
approved and committed to a formal plan to divest its citrus and
pistachio operations (“Citrus”) located in central
California. The operating results of Citrus were included in the
fresh fruit operating segment. The sale of Citrus was completed
during the third quarter of 2008.
The operating results of fresh-cut flowers and Citrus for the
quarters and three quarters ended October 10, 2009 and
October 4, 2008 are reported in the following table:
Income (loss) from discontinued operations, net of income taxes
$
832
$
(19,383
)
$
(880
)
$
(20,263
)
Gain on disposal of discontinued operations, net of income taxes
$
1,308
$
—
$
3,315
$
3,315
Fresh-Cut
Flowers
Fresh-cut flowers income before income taxes for the three
quarters ended October 10, 2009 increased to
$1 million from a loss of $33.9 million for the three
quarters ended October 4, 2008. As a result of the
January 16, 2009 close of the first phase of the Flowers
transaction, fresh-cut flowers operating results for the first
three quarters of 2009 consisted of only two weeks of operations
compared to twelve weeks during 2008. In connection with the
sale, Dole received cash proceeds of $21 million and
recorded a note receivable of $8.3 million, which is due
January 2011. Dole recorded a gain of $1.3 million on the
sale.
Liquidity
and Capital Resources
Cash flows provided by operating activities were
$282.9 million for the three quarters ended
October 10, 2009, compared to cash flows used in operating
activities of $27.3 million for the three quarters ended
October 4, 2008. Cash flows provided by operating
activities improved $310.2 million primarily due to better
working capital management and higher operating income. Working
capital improved due to significantly better collections of
receivables and lower levels of raw materials and crop
inventory. These improvements were partially offset by lower
levels of accounts payable and higher prepaid expenses, due in
part to the timing of payments.
Cash flows used in investing activities were $284.7 million
for the three quarters ended October 10, 2009, compared to
cash flows provided by investing activities of
$94.6 million for the three quarters ended October 4,2008. Net use of cash in investing activities was primarily due
to restricted deposits and lower levels of cash proceeds
received on asset sales, partially offset by lower capital
expenditures. Of the restricted deposits, $302.5 million
was related to the net proceeds of the 8% Senior Secured
Notes due October 2016 (“2016 Notes”)
offering deposited with the trustee under the indenture
governing Dole’s 7.25% Notes due June 2010 (“2010
Notes”). On October 26, 2009, Dole redeemed all of the
outstanding 2010 Notes. The remaining $40.4 million was
related to a collateral agreement associated with Dole’s
cross currency and interest rate swap instruments.
Cash flows provided by financing activities were
$9.7 million for the three quarters ended October 10,2009, compared to cash flows used in financing activities of
$89.7 million for the three quarters ended October 4,2008. As a result of proceeds received from asset sales and
improved earnings during the first three quarters of 2009, Dole
repaid $150.5 million under the ABL revolver and
repurchased $37 million of the 2010 Notes. In addition,
Dole repaid all of the outstanding 8.625% Senior Notes due
2009 (“2009 Notes”), and issued 13.875% Senior
Secured Notes due March 2014 (“2014 Notes”) and the
2016 Notes. In connection with the 2009 refinancing
transactions, Dole incurred $25.3 million of debt issuance
costs.
On June 22, 2009, Dole declared and paid a dividend of
$15 million to its parent, DHM Holding Company, Inc. Dole
paid the dividend during the third quarter of 2009. Dole does
not at present have the ability to declare future dividends
under the terms of its senior secured credit facilities.
As of October 10, 2009, Dole had a cash balance of
$102 million and an ABL revolver borrowing base of
$330.1 million. After taking into account approximately
$91.6 million of outstanding letters of credit issued under
the ABL revolver, Dole had approximately $238.5 million
available for borrowings as of October 10, 2009. Amounts
outstanding under the term loan facilities were
$800.6 million at October 10, 2009. In addition, Dole
had approximately $96.5 million of letters of credit and
bank guarantees outstanding under its $100 million
pre-funded letter of credit facility at October 10, 2009.
On April 30, 2009, Dole obtained letters of credit to
support a bank guarantee issued to the European Commission in
connection with their Decision that imposed a fine on Dole.
These letters of credit were issued under the ABL revolver and
the pre-funded letter of credit facility.
During the second quarter of 2009, Dole reclassified to current
liabilities $400 million of its 2010 Notes. During the
second quarter of 2009, Dole’s Board of Directors
authorized the repurchase of up to $95 million of the 2010
Notes. As of October 10, 2009, Dole had repurchased
$37 million of the 2010 Notes and on October 26, 2009
redeemed all of the remaining outstanding 2010 Notes.
Initial
Public Offering
On October 22, 2009, Dole priced a $446 million
initial public offering (“IPO”) of approximately
35.7 million common shares at $12.50 per share. On
October 23, 2009, Dole’s common stock began trading on
the New York Stock Exchange under the ticker symbol
“DOLE.” Upon the October 28, 2009 closing of the
IPO, Dole received net proceeds of $415 million, reflecting
$31 million of underwriting discount and offering expenses.
The net proceeds have been and will be used by Dole to pay down
indebtedness, as discussed more fully below. At the completion
of the offering, Dole’s chairman, David H. Murdock, and his
affiliates beneficially own approximately 51.7 million
common shares, or 59% of the Company’s outstanding common
shares.
Immediately prior to the IPO closing, Dole completed certain
restructuring transactions as a result of which
(1) Dole’s former parent holding company, DHM Holding
Company, Inc. (“Holdings”) was merged into Dole,
(2) some shares of Dole held by an affiliate of
Mr. Murdock were redeemed in exchange for (a) the 85%
interest in Westlake Wellbeing Properties, LLC (which owns the
Four Seasons Hotel Westlake Village) formerly owned by Holdings,
together with the assumption by such affiliate of
$30 million of a debt obligation of Holdings and
(b) approximately 1,600 acres of idle land in Honduras
owned by a Dole subsidiary, and (3) Dole paid the remaining
$85 million of the Holdings debt obligation in order to
eliminate a pre-existing cross-default and cross-acceleration
risk under which a default by Holdings on such debt could have
resulted in a cross-default and cross-acceleration under
Dole’s credit facilities and bond indentures. As a result
of the merger of Holdings into Dole, the federal net operating
loss carryforwards of Holdings will become available to Dole,
subject to normal statutory expiration periods. Holdings’
estimated federal net operating loss carryforwards were
approximately $166 million as of October 10, 2009.
Dole used the net proceeds from the IPO to repay
$47 million of amounts outstanding under its revolving
credit facility, as well as making the $85 million debt
repayment discussed above, which, as noted, resulted in the
elimination of Dole’s pre-existing cross-default and
cross-acceleration risk related to the Holdings debt. In
addition, on October 28, 2009, Dole issued to the trustee
under the indenture governing Dole’s 2014 Notes a notice of
redemption for $122.5 million of 2014 Notes. On
October 29, 2009, Dole issued to the trustee under the
indenture governing Dole’s 8.875% Senior Notes due
2011 (“2011 Notes”) a notice of redemption for
$130 million of 2011 Notes. These redemptions will be paid
for with net proceeds from Dole’s IPO.
In connection with a trust offering occurring at the same time
as the IPO, an affiliate of Mr. Murdock entered into a
purchase agreement with a newly established Trust pursuant to
which Mr. Murdock has the option to deliver cash or shares
of Dole’s common stock on exchange of the Trust’s
securities beginning on November 1, 2012. A portion of the
net proceeds from such transaction was used to repay
indebtedness of an affiliate of Mr. Murdock that had
subjected Dole to an additional cross-default and
cross-acceleration risk. As a result of this transaction, and
the transactions relating to the former Holdings debt, all of
Dole’s pre-existing cross-default and cross-acceleration
risks arising from any indebtedness of Mr. Murdock or his
affiliates have been eliminated. These transactions do not
affect the customary cross-default and cross-acceleration
provisions between the different categories of Dole’s own
debt.
Refinancing
Transactions
During the first quarter of 2009, Dole completed the sale and
issuance of the 2014 Notes with a $350 million aggregate
principal amount at a discount of $25 million. The 2014Notes were sold to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933
(“Securities Act”) and to persons outside the United
States in compliance with Regulation S under the Securities
Act. The sale was exempt from the registration requirements of
the Securities Act. Interest on the 2014 Notes will be paid
semiannually in arrears on March 15 and September 15 of each
year, beginning on September 15, 2009. The 2014 Notes have
the benefit of a lien on certain U.S. assets of Dole that
is junior to the liens of Dole’s senior secured credit
facilities (revolving credit and term loan facilities), and are
senior obligations of Dole ranking equally with Dole’s
existing senior debt. Dole used the net proceeds from this
offering to repay the remaining outstanding 2009 Notes at
maturity on May 1, 2009.
In connection with the refinancing transactions in the first
quarter of 2009, Dole amended its senior secured credit
facilities. The amendments, among other things, permitted the
issuance of new secured debt securities, increased the interest
rate on the term loan and revolving credit facilities and added
a leverage maintenance covenant.
As a result of the issuance of the 2014 Notes and amendment to
the senior secured credit facilities during March 2009, interest
rates on these instruments increased significantly as compared
to the interest rates as they existed prior to the new debt
issuance and amendments. The interest rate on the 2014 Notes is
13.875%, compared to 8.625% on the 2009 Notes. The interest rate
on the ABL revolver and term loan facilities increased by
approximately 1.75% and 5%, respectively, as a result of the
amendment.
During the third quarter of 2009, Dole completed the sale and
issuance of the 2016 Notes with a $315 million aggregate
principal amount at a discount of $6.2 million. The 2016
Notes were sold to qualified institutional investors pursuant to
Rule 144A under the Securities and to persons outside the
United States in compliance with Regulations under the
Securities Act. The sale was exempt from the registration
requirements of the Securities Act. Interest on the 2016 Notes
will be paid semiannually in arrears on April 1 and October 1 of
each year, beginning on April 1, 2010. The 2016 Notes will
mature on October 1, 2016. The 2016 Notes have the benefit
of a lien on certain U.S. assets of Dole that is junior to
the liens of Dole’s senior secured credit facilities
(revolving credit and term loan facilities) and pari passu with
the liens of Dole’s 2014 Notes, and are senior obligations
ranking equally with Dole’s existing senior debt.
On September 25, 2009, Dole irrevocably deposited the net
proceeds from the 2016 Notes offering of $302.5 million
with the trustee under the indenture governing Dole’s 2010
Notes, and issued to the trustee a notice of redemption for all
of the outstanding $363 million principal amount. On
October 26, 2009, Dole used the net proceeds from the 2016
Notes offering, together with cash on hand and borrowings under
the revolving credit facility, to redeem all of the outstanding
2010 Notes.
Dole believes that available borrowings under the revolving
credit facility and subsidiaries’ uncommitted lines of
credit, together with its existing cash balances, future cash
flow from operations, planned asset sales and access to capital
markets will enable it to meet its working capital, capital
expenditure, debt maturity and other commitments and funding
requirements. Management’s plan is dependent upon the
occurrence of future events which will be impacted by a number
of factors including the availability of refinancing, the
general economic environment in which Dole operates, Dole’s
ability to generate cash flows from its operations, and its
ability to attract buyers for assets being marketed for sale.
Factors impacting Dole’s cash flow from operations include,
but are not limited to, items such as commodity prices, interest
rates and foreign currency exchange rates.
Other
Matters
Recently Issued and Adopted Accounting
Pronouncements: See Note 2 to the condensed
consolidated financial statements for information regarding
Dole’s adoption of new accounting pronouncements.
European Union (“EU”) Banana Import
Regime: On January 1, 2006, the EU
implemented a “tariff only” import regime for bananas.
The 2001 Understanding on Bananas between the European
Communities and the United States required the EU to implement a
tariff only banana import system by this date.
Banana imports from Latin America are currently 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 under the “tariff only” regime, the EU
had allowed up to 775,000 metric tons of bananas from African,
Caribbean, and Pacific, or ACP, countries to be imported
annually into the EU duty-free. This preferential treatment of a
zero tariff on up to 775,000 metric tons of ACP banana imports,
as well as the 176 euro per metric ton tariff applied to Latin
banana imports, was challenged by Panama, Honduras, Nicaragua,
and Colombia in consultation proceedings at the World Trade
Organization, or WTO. In addition, both Ecuador and the United
States formally requested the WTO Dispute Settlement Body, or
DSB, to appoint panels to review the matter.
The DSB issued final and definitive written rulings in favor of
Ecuador and the United States on November 27, 2008,
concluding that the 176 euro per metric ton tariff is
inconsistent with WTO trade rules. The DSB also considered that
the prior duty-free tariff reserved for ACP countries was
inconsistent with WTO trade rules but also recognized that, with
the current entry into force of Economic Partnership Agreements
between the EU and ACP countries, ACP bananas now may have
duty-free, quota-free access to the EU market.
Dole expects that the current tariff applied to Latin banana
imports will be lowered in order that the EU may comply with
these DSB rulings and with the WTO trade rules. The DSB rulings
did not indicate the amount the EU banana tariff should be
lowered, and Dole encourages a timely resolution through
negotiations among the EU, the U.S., and the Latin banana
producing countries. Recent press reports indicate that the EU
now expects to reach resolution on the tariff by the end of
November 2009; however the Latin banana producing countries and
the EU do not yet appear to have agreed on the tariff reduction
amount or specific timetable to implement any proposed
reduction. Without such specifics, Dole cannot yet determine
what potential effects this outcome will have for Dole.
Notwithstanding, Dole strongly supports the continued efforts to
resolve this dispute and believes that the EU banana
tariff, once lowered, will be a favorable result for Dole.
Derivative Instruments and Hedging
Activities: Dole uses derivative instruments to
hedge against fluctuations in interest rates, foreign currency
exchange rate movements and bunker fuel prices. Dole does not
utilize derivatives for trading or other speculative purposes.
All of Dole’s derivative instruments, with the exception of
the interest rate swap, are not designated as effective hedges
of cash flows as defined by ASC Topic 815. As a result, all
changes in fair value of Dole’s derivative financial
instruments are reflected in Dole’s condensed consolidated
statements of operations. The interest rate swap is accounted
for as a cash flow hedge under ASC Topic 815 and accordingly,
unrealized gains or losses are recorded as a component of
accumulated other comprehensive income (loss) in the
accompanying condensed consolidated balance sheets included in
this Quarterly Report.
For the three quarters ended October 10, 2009, there have
been no material changes in the market risk disclosure presented
in Dole’s Annual Report on
Form 10-K
for the fiscal year ended January 3, 2009. For information
regarding Dole’s derivative instruments and hedging
activities, refer to Note 14 to the condensed consolidated
financial statements contained in this Quarterly Report.
An evaluation was carried out as of October 10, 2009 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 13a-15(e)
and
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 October 10, 2009. No change in our internal
control over financial reporting identified in connection with
this evaluation that occurred during our third quarter of 2009
has materially affected, or is reasonably likely to materially
affect, Dole’s internal control over financial reporting.
For information regarding legal matters, refer to Note 12
to the condensed consolidated financial statements contained in
this Quarterly Report.
Item 1A.
Risk
Factors
There have been no material changes from the risk factors as
previously disclosed on pages 14-25 in Dole’s Prospectus
filed pursuant to Rule 424(b)(4) (Registration
No. 333-161345), filed with the SEC on October 26, 2009,
which pages are incorporated herein by reference and attached
hereto as Exhibit 99.1.
Item 6.
Exhibits
Exhibit
Number
10
.15*
Form of Incentive Stock Option Agreement under the Dole Food
Company, Inc. 2009 Stock Incentive Plan
10
.17*
Form of Restricted Stock Unit Agreement under the Dole Food
Company, Inc. 2009 Stock Incentive Plan
31
.1*
Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
31
.2*
Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
32
.1†
Certification by the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
32
.2†
Certification by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
99
.1*
Dole Food Company, Inc. Prospectus filed pursuant to
Rule 424(b)(4) (Registration No. 333-161345), filed
with the SEC on October 26, 2009, pages 14-25 (Risk
Factors)
Pursuant to the requirements 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.
Form of Incentive Stock Option Agreement under the Dole Food
Company, Inc. 2009 Stock Incentive Plan
10
.17*
Form of Restricted Stock Unit Agreement under the Dole Food
Company, Inc. 2009 Stock Incentive Plan
31
.1*
Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes- Oxley Act.
31
.2*
Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
32
.1†
Certification by the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
32
.2†
Certification by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
99
.1*
Dole Food Company, Inc. Prospectus filed pursuant to
Rule 424(b)(4) (Registration
No. 333-161345),
filed with the SEC on October 26, 2009, pages
14-25 (Risk
Factors)