XNYS:DOLE Quarterly Report 10-Q Filing - 6/16/2012

Effective Date 6/16/2012

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 16, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission file number 1-4455

 

 

Dole Food Company, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   99-0035300

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

One Dole Drive, Westlake Village, California 91362

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:

(818) 879-6600

 

 

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  x    No  ¨

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  x    No  ¨

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.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    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  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Shares Outstanding at July 20, 2012

Common Stock, $0.001 Par Value   88,946,386

 

 

 


Table of Contents

DOLE FOOD COMPANY, INC.

INDEX

 

        Page
Number
 

PART I

  Financial Information  

Item 1.

  Financial Statements (Unaudited)  
 

Condensed Consolidated Statements of Operations—Quarters and Half Years Ended June  16, 2012 and June 18, 2011

    3   
 

Condensed Consolidated Statements of Comprehensive Income—Quarters and Half Years Ended June 16, 2012 and June 18, 2011

    4   
 

Condensed Consolidated Balance Sheets—June 16, 2012 and December 31, 2011

    5   
 

Condensed Consolidated Statements of Cash Flows—Half Years Ended June 16, 2012 and June 18, 2011

    6   
 

Condensed Consolidated Statements of Shareholders’ Equity—Half Years Ended June 16, 2012 and June 18, 2011

    8   
 

Notes to Condensed Consolidated Financial Statements

    9   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    42   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    51   

Item 4.

 

Controls and Procedures

    51   

PART II

  Other Information  

Item 1.

  Legal Proceedings     52   

Item 6.

  Exhibits     52   
  Signatures     53   
  Exhibit Index     54   
 

Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

 
 

Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

 
 

Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act

 
 

Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

 

 

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Table of Contents

PART I.

FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Quarter Ended     Half Year Ended  
     June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
     (In thousands, except per share data)  

Revenues, net

   $ 1,718,455      $ 1,915,725      $ 3,345,065      $ 3,601,829   

Cost of products sold

     (1,485,322     (1,657,519     (2,941,081     (3,136,862
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     233,133        258,206        403,984        464,967   

Selling, marketing and general and administrative expenses

     (135,082     (130,233     (262,394     (254,963

Charges for restructuring and long-term receivables (Notes 3 and 5)

     (1,938     (5,947     (3,269     (8,702

Gain on asset sales (Note 7)

     1,954        11        6,157        11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     98,067        122,037        144,478        201,313   

Other income (expense), net (Note 2)

     (1,492     4,337        1,516        (35,014

Interest income

     1,765        1,166        2,614        2,484   

Interest expense

     (30,757     (34,837     (61,593     (70,307
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes and equity earnings

     67,583        92,703        87,015        98,476   

Income taxes

     (3,967     (13,518     (7,825     (18,658

Earnings from equity method investments

     1,922        3,480        3,525        4,690   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of income taxes

     65,538        82,665        82,715        84,508   

Income (loss) from discontinued operations, net of income taxes

     1        29        (32     231   

Gain on disposal of discontinued operations, net of income taxes

     —          339        —          339   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     65,539        83,033        82,683        85,078   

Less: Net income attributable to noncontrolling interests

     (1,410     (1,267     (2,187     (2,272
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Dole Food Company, Inc.

   $ 64,129      $ 81,766      $ 80,496      $ 82,806   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share—Basic (Note 15):

        

Income from continuing operations

   $ 0.75      $ 0.94      $ 0.94      $ 0.96   

Net income attributable to shareholders of Dole Food Company, Inc.

   $ 0.73      $ 0.93      $ 0.92      $ 0.95   

Earnings per share—Diluted (Note 15):

        

Income from continuing operations

   $ 0.74      $ 0.94      $ 0.94      $ 0.96   

Net income attributable to shareholders of Dole Food Company, Inc.

   $ 0.73      $ 0.93      $ 0.91      $ 0.94   

See Accompanying Notes to Condensed Consolidated Financial Statements

 

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DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

     Quarter Ended     Half Year Ended  
     June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
     (In thousands)  

Net income

   $ 65,539      $ 83,033      $ 82,683      $ 85,078   

Net foreign currency translation adjustment

     (8,082     (3,377     (3,129     7,526   

Unrealized hedging gains (losses), net of income taxes of ($984), ($61), $652 and ($639)

     (27,711     (13,114     25,061        (14,197

Reclassification of realized (gains) losses to net income, net of income taxes of ($335), $379, ($534) and $680

     (1,483     8,748        1,134        13,723   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     28,263        75,290        105,749        92,130   

Less: Comprehensive income attributable to noncontrolling interests

     (1,410     (1,287     (2,190     (2,295
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to shareholders of Dole Food Company, Inc.

   $ 26,853      $ 74,003      $ 103,559      $ 89,835   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

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DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     June 16,
2012
    December 31,
2011
 
    

(In thousands, except per

share data)

 

ASSETS

    

Cash and cash equivalents

   $ 94,116      $ 122,348   

Restricted cash

     555        6,230   

Receivables, net of allowances of $31,649 and $32,237, respectively

     772,308        685,094   

Inventories

     831,755        829,517   

Prepaid expenses and other assets

     71,252        65,331   

Deferred income tax assets

     27,459        26,184   

Assets held-for-sale (Note 7)

     21,588        75,641   
  

 

 

   

 

 

 

Total current assets

     1,819,033        1,810,345   

Investments

     100,374        99,469   

Actively marketed land (Note 7)

     74,814        74,814   

Property, plant and equipment, net of accumulated depreciation of $1,192,398 and $1,150,304, respectively

     896,237        910,729   

Goodwill

     413,966        418,113   

Intangible assets, net

     737,847        732,013   

Other assets, net

     269,263        225,839   
  

 

 

   

 

 

 

Total assets

   $ 4,311,534      $ 4,271,322   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Accounts payable

   $ 503,323      $ 452,049   

Liabilities related to assets held-for-sale (Note 7)

     —          49,117   

Accrued liabilities

     526,384        541,730   

Current portion of long-term debt, net

     8,866        10,756   

Notes payable

     74,757        27,969   
  

 

 

   

 

 

 

Total current liabilities

     1,113,330        1,081,621   

Long-term debt, net

     1,551,941        1,641,112   

Deferred income tax liabilities

     220,951        181,677   

Other long-term liabilities

     496,489        548,491   

Commitments and contingencies (Note 14)

    

Shareholders’ equity

    

Preferred stock—$0.001 par value; 10,000 shares authorized, none issued or outstanding

     —          —     

Common stock—$0.001 par value; 300,000 shares authorized, 88,952 shares issued and outstanding as of June 16, 2012 and December 31, 2011

     89        89   

Additional paid-in capital

     792,009        786,355   

Retained earnings

     189,938        109,442   

Accumulated other comprehensive loss

     (80,319     (103,382
  

 

 

   

 

 

 

Equity attributable to shareholders of Dole Food Company, Inc.

     901,717        792,504   

Equity attributable to noncontrolling interests

     27,106        25,917   
  

 

 

   

 

 

 

Total equity

     928,823        818,421   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,311,534      $ 4,271,322   
  

 

 

   

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

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DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Half Year Ended  
     June 16,
2012
    June 18,
2011
 
     (In thousands)  

Operating Activities

    

Net income

   $ 82,683      $ 85,078   

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     48,531        47,398   

Share-based compensation expense

     5,654        3,997   

Net (gains) losses on financial instruments

     2,921        37,238   

Asset write-offs and net (gain) loss on sale of assets

     (4,798     4,222   

Earnings from equity method investments

     (3,525     (4,690

Amortization of debt discounts and debt issuance costs

     5,057        5,228   

Loss on early retirement of debt

     433        20   

Provision for deferred income taxes

     18,535        11,875   

Pension and other postretirement benefit plan expense

     10,313        11,656   

Other

     520        35   

Changes in operating assets and liabilities:

    

Receivables

     (89,725     (98,222

Inventories

     (1,421     (64,222

Prepaid expenses and other assets

     (23,129     (336

Income taxes

     (24,544     (4,796

Accounts payable

     55,459        62,709   

Accrued liabilities

     (5,420     (5,096

Other long-term liabilities

     (19,819     (15,125
  

 

 

   

 

 

 

Cash flow provided by operating activities

     57,725        76,969   

Investing Activities

    

Cash received from sales of assets and businesses, net of cash disposed

     24,898        7,996   

Business acquisitions, net of cash acquired

     (15,253     —     

Capital expenditures

     (34,250     (35,946

Restricted cash and deposits

     5,675        45,114   

Other

     (716     (465
  

 

 

   

 

 

 

Cash flow provided by (used in) investing activities

     (19,646     16,699   

Financing Activities

    

Short-term debt borrowings (repayments), net

     52,108        (3,310

Long-term debt borrowings

     549,368        163,043   

Long-term debt repayments

     (643,684     (182,975

Net proceeds from common stock option exercises

     —          312   

Dividends paid to noncontrolling interests

     (851     (2,250

Settlement of long-term Japanese yen hedge forwards

     (22,855     (2,212
  

 

 

   

 

 

 

Cash flow used in financing activities

     (65,914     (27,392
  

 

 

   

 

 

 

Effect of foreign currency exchange rate changes on cash

     (397     2,461   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (28,232     68,737   

Cash and cash equivalents at beginning of period

     122,348        170,147   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 94,116      $ 238,884   
  

 

 

   

 

 

 

 

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DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(Unaudited)

 

Supplemental cash flow information

At June 16, 2012 and June 18, 2011, accounts payable included approximately $2.6 million and $2.2 million, respectively, for capital expenditures.

During the first quarter of 2011, Dole effectively extinguished its cross currency swap liability by entering into a series of Japanese yen forward contracts (“long-term Japanese yen hedges”) that mature over a four year period. Refer to Note 12—Derivative Financial Instruments for additional information.

In connection with the first quarter 2012 sale of a non-core German subsidiary (“German subsidiary”), Dole has $27 million of notes receivable, of which $1 million is included in receivables and $26 million is included in other assets. Related to the sale, Dole has deferred income of $22 million of which approximately $1 million is included in accrued liabilities and approximately $21 million is included in other long-term liabilities. Of the notes receivable for which deferred income was recorded, approximately $0.8 million has been collected during the half year ended June 16, 2012, and was recognized as gain on sale of assets. Refer to Note 7—Assets Held-For-Sale and Actively Marketed Land for additional information.

See Accompanying Notes to Condensed Consolidated Financial Statements

 

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DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

    Equity Attributable to Shareholders’ of Dole Food Company, Inc.              
                            Accumulated Other
Comprehensive Income (Loss)
    Equity
Attributable
to
Noncontrolling
Interests
       
    Common
Shares
Outstanding
    Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Pension &
Other
Postretirement
Benefits
    Cumulative
Translation
Adjustment
    Unrealized
Gains
(Losses)
on Hedges
      Total
Equity
 

Balance at January 1, 2011

    88,611      $ 89      $ 776,918      $ 71,083      $ (71,836   $ 42,067      $ (26,152   $ 24,615      $ 816,784   

Net income

    —          —          —          82,806        —          —          —          2,272        85,078   

Share-based compensation

    —          —          3,997        —          —          —          —          —          3,997   

Exercise of stock options

    27        —          312        —          —          —          —          —          312   

Issuance of restricted stock

    6        —          —          —          —          —          —          —          —     

Cancellation of restricted stock

    (40     —          —          —          —          —          —          —          —     

Dividends paid

    —          —          —          —          —          —          —          (2,250     (2,250

Net foreign currency translation adjustment

    —          —          —          —          —          7,503        —          23        7,526   

Unrealized hedging gains (losses), net of income taxes of ($639)

    —          —          —          —          —          —          (14,197     —          (14,197

Reclassification of realized losses to net income, net of income taxes of $680

    —          —          —          —          —          —          13,723        —          13,723   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 18, 2011

    88,604      $ 89      $ 781,227      $ 153,889      $ (71,836   $ 49,570      $ (26,626   $ 24,660      $ 910,973   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    88,952      $ 89      $ 786,355      $ 109,442      $ (94,708   $ 30,346      $ (39,020   $ 25,917      $ 818,421   

Net income

    —          —          —          80,496        —          —          —          2,187        82,683   

Share-based compensation

    —          —          5,654        —          —          —          —          —          5,654   

Dividends paid

    —          —          —          —          —          —          —          (851     (851

Disposal of noncontrolling interest

    —          —          —          —          —          —          —          (150     (150

Net foreign currency translation adjustment

    —          —          —          —          —          (3,132     —          3        (3,129

Unrealized hedging gains (losses), net of income taxes of $652

    —          —          —          —          —          —          25,061        —          25,061   

Reclassification of realized losses to net income, net of income taxes of ($534)

    —          —          —          —          —          —          1,134        —          1,134   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 16, 2012

    88,952      $ 89      $ 792,009      $ 189,938      $ (94,708   $ 27,214      $ (12,825   $ 27,106      $ 928,823   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Dole Food Company, Inc. and its consolidated subsidiaries (“Dole” or the “Company”) include all adjustments necessary, which are of a normal recurring nature, to present fairly Dole’s financial position, results of operations and cash flows. Dole operates under a 52/53-week year. The quarters ended June 16, 2012 and June 18, 2011 are twelve weeks in duration. For a summary of significant accounting policies and additional information relating to Dole’s financial statements, refer to the Notes to Consolidated Financial Statements in Item 8 of Dole’s Annual Report on Form 10-K for the year ended December 31, 2011.

Interim results are subject to seasonal variations and are not necessarily indicative of the results of operations for a full year. Dole’s operations are sensitive to a number of factors including weather-related phenomena and their effects on industry volumes, prices, product quality and costs. Operations are also sensitive to fluctuations in foreign currency exchange rates in both sourcing and selling locations as well as economic crises and security risks.

In March 2003, Dole completed a going-private merger transaction. As a result of the transaction, Dole became wholly-owned by David H. Murdock, Dole’s Chairman. In October 2009, Dole completed a $446 million initial public offering of its common stock and received proceeds of $415 million. Dole’s chairman, David H. Murdock, and his affiliates beneficially own 51,710,000 common shares, or approximately 58.1% of Dole’s outstanding common shares.

NOTE 2—OTHER INCOME (EXPENSE), NET

Included in other income (expense), net in Dole’s condensed consolidated statements of operations for the quarters and half years ended June 16, 2012 and June 18, 2011 are the following items:

 

    Quarter Ended     Half Year Ended  
    June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
    (In thousands)  

Unrealized gain (loss) on long-term Japanese yen hedges

  $ (1,543   $ 4,825      $ (599   $ (22,580

Unrealized gain (loss) on foreign denominated borrowings

    (626     (581     3,121        (8,147

Realized loss on foreign denominated borrowings

    (10     (15     (339     (100

Foreign currency exchange gain (loss) on vessel obligation

    891        (130     (503     (2,539

Loss on early retirement of debt

    (433     (20     (433     (20

Unrealized loss on cross currency swap

    —          —          —          (3,787

Realized gain on cross currency swap

    —          —          —          1,885   

Other

    229        258        269        274   
 

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

  $ (1,492   $ 4,337      $ 1,516      $ (35,014
 

 

 

   

 

 

   

 

 

   

 

 

 

Refer to Note 12—Derivative Financial Instruments for further discussion regarding Dole’s long-term Japanese yen hedges and cross currency swap.

NOTE 3—CHARGES FOR RESTRUCTURING

As a result of challenging market conditions in Dole’s fresh fruit operations, Dole committed to a restructuring plan during the third quarter of 2010 in its fresh fruit segment in Europe, Latin America and

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Asia (“2010 plan”). These restructuring efforts are designed to reduce costs by realigning fruit supply with expected demand. As part of these initiatives, Dole restructured certain farming operations in Latin America and Asia, reorganized its European operations and rationalized vessel charters.

During the third quarter of 2011, Dole committed to further restructure its fresh fruit operations in Europe and Latin America, as well as restructure the fresh vegetables operations in Asia (“2011 plan”). As part of this plan, Dole consolidated certain operations in Europe to reduce overhead, restructured farming operations in Latin America, and further rationalized vessel charters. In addition, Dole ended certain unprofitable contractual arrangements in Asia.

As a result of these various initiatives, Dole expects to realize cash savings in its financial results. These savings are expected to result from lower production costs including lower labor costs on our farms and in our ports, enhanced farm productivity, lower distribution costs resulting from more efficient utilization of our shipping fleet, the termination of unprofitable contractual arrangements, and lower selling and general and administrative costs as a result of streamlining Dole’s organization in Europe.

2010 Restructuring Plan

Dole incurred restructuring costs of $0.5 million and $0.7 million during the quarter and half year ended June 16, 2012, related to the 2010 plan. Dole has incurred cumulative restructuring costs of $42 million since the third quarter of 2010 for this plan. Of these costs, $20.8 million were paid or will be paid in cash, with the remaining amounts related to the non-cash write-down of long-lived assets and deferred crop-growing costs of $13.2 million as well as pension-related settlement charges of $8 million. Severance charges relating to employee terminations involved approximately 3,580 employees.

Dole expects to incur additional restructuring charges of approximately $0.4 million during the remainder of fiscal 2012 related to the 2010 plan. These additional charges will primarily consist of contract termination costs.

The following table summarizes restructuring charges related to the 2010 plan:

 

     Charges
Incurred in
Half Year 2012
     Cumulative
Charges
Incurred
     Additional
Charges to be
Incurred
     Total
Charges
 
     (In thousands)  

Severance and other employee-related costs

   $ 174       $ 8,792       $ —         $ 8,792   

Contract termination and other costs

     48         11,965         395         12,360   

Pension-related settlement charges

     —           7,982         —           7,982   

Asset write-downs

     445         7,956         —           7,956   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     667         36,695         395         37,090   

Inventory write-downs recorded in costs of products sold

     —           5,294         —           5,294   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 667       $ 41,989       $ 395       $ 42,384   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

A rollforward of activity for Dole’s restructuring liabilities related to the 2010 plan, which are classified in accrued liabilities in the accompanying condensed consolidated balance sheets, is summarized as follows:

 

     Balance as of
December 31, 2011
     Charges      Cash Payments     Non-cash      Balance as of
June 16, 2012
 
     (In thousands)  

Severance and other employee-related costs

   $ 85       $ 174       $ (259   $ —         $ —     

Contract termination and other costs

     3,715         48         (558     —           3,205   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 3,800       $ 222       $ (817   $ —         $ 3,205   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

2011 Restructuring Plan

Dole incurred restructuring costs of $0.4 million and $1.6 million during the quarter and half year ended June 16, 2012, related to the 2011 plan. Dole has incurred cumulative restructuring costs of $11.8 million since the third quarter of 2011 for this plan. Of these costs, $8.3 million were paid or will be paid in cash, with the remaining amounts related to the non-cash write-down of long-lived assets of $3.4 million as well as pension-related settlement charges of $0.1 million. Severance charges relating to employee terminations involved approximately 475 employees.

Dole expects to incur additional restructuring charges of approximately $1.6 million during the remainder of fiscal 2012 related to the 2011 plan. These additional charges will primarily consist of employee severance and contract termination costs. Approximately 60 additional employees are expected to be impacted by these initiatives.

The following table summarizes restructuring charges related to the 2011 plan:

 

     Charges/
(Adjustments)
Incurred in
Half Year 2012
    Cumulative
Charges
Incurred
     Additional
Charges to be
Incurred
     Total
Charges
 
     (In thousands)  

Severance and other employee-related costs

   $ (29   $ 413       $ 1,211       $ 1,624   

Contract termination and other costs

     1,601        7,895         418         8,313   

Pension-related settlement charges

     —          86         —           86   

Asset write-downs

     —          3,410         —           3,410   
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ 1,572      $ 11,804       $ 1,629       $ 13,433   
  

 

 

   

 

 

    

 

 

    

 

 

 

A rollforward of activity for Dole’s restructuring liabilities related to the 2011 plan, which are classified in accrued liabilities in the accompanying condensed consolidated balance sheets, is summarized as follows:

 

     Balance as of
December 31, 2011
     Charges/
(Adjustments)
    Cash Payments     Non-cash     Balance as of
June 16, 2012
 
     (In thousands)  

Severance and other employee-related costs

   $ 194       $ (29   $ (165   $ —        $ —     

Contract termination and other costs

     4,235         1,601        (4,344     (4     1,488   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 4,429       $ 1,572      $ (4,509   $ (4   $ 1,488   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

NOTE 4—INCOME TAXES

Dole recorded $7.8 million of income tax expense on $87 million of pretax income from continuing operations for the half year ended June 16, 2012. Income tax expense included an interest benefit of $3.2 million related to Dole’s unrecognized tax benefits. Income tax expense of $18.7 million on $98.5 million of pretax income from continuing operations was recorded for the half year ended June 18, 2011 which included an interest benefit of $2.6 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. For the half year ended June 16, 2012, Dole’s income tax expense differs from the U.S. federal statutory rate applied to Dole’s pretax income primarily due to a decrease in Dole’s total amount of unrecognized tax benefits of $17 million as a result of the expiration of the statute of limitations concerning certain transfer pricing items. Including interest, net of tax benefits, the total amount recorded for this item was $18.7 million which was partially offset by an increase in Dole’s U.S. federal valuation allowance. For the half year ended June 18, 2011, Dole’s income tax expense differed 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. Income tax expense for the half year ended June 18, 2011 also benefitted by $8.4 million, including tax and interest, due to a favorable court ruling in Ecuador relating to a non-U.S. unrecognized tax benefit.

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. This 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.

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 $7.1 million and $10.6 million at June 16, 2012 and December 31, 2011, respectively, and are included as a component of other long-term liabilities in the accompanying condensed consolidated balance sheets. The decrease in interest expense of $3.5 million for the half year ended June 16, 2012 includes a reduction of $0.3 million included in the net assets of a German subsidiary sold during the first quarter.

Dole or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state 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 2006.

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. Management considers it unlikely that the resolution of these matters will have a material adverse effect on Dole’s results of operations.

NOTE 5—LONG-TERM RECEIVABLES

At June 16, 2012, Dole’s long-term financing receivables consisted of $15.1 million of grower advances, net of allowances, $7 million of note receivable related to the sale of the fresh-cut flowers business, $26 million of notes receivable related to the sale of a German subsidiary and net long-term trade receivables of $2.3 million. These assets have been included in other assets in the accompanying condensed consolidated balance sheet as of June 16, 2012.

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Dole monitors the collectability of these grower advances through periodic review of financial information received from these growers. At June 16, 2012, these advances had an allowance for credit losses of $13.6 million, and approximately $4.7 million of the net grower advances were 90 days past due. Dole’s historical losses on its long-term grower advances have been immaterial and Dole expects this to continue. During the half year ended June 16, 2012, the allowance for grower advances increased by $1 million, which related to an increase in the provision that was recorded to cost of products sold.

At June 16, 2012, Dole has a $7 million note receivable from the buyer of the fresh-cut flowers business. This receivable is secured by properties that have an estimated fair value in excess of the note, which was due in January 2011. Two of the three Colombian companies that have granted mortgages in such properties to secure their guaranties of such note are currently under reorganization pursuant to Colombian Law 1116. Dole is currently renegotiating with the buyer the terms of the note, including the timing of payment and the interest rate. Dole believes that based on its position in the reorganization, that the note will be collected. During the second quarter of 2012, Dole received a cash payment of $2.9 million from the owner of certain properties. In exchange, Dole released the mortgages on such properties. Subsequent to such cash payment, the party that made the payment gave Dole written notice pursuant to which Dole allocated $1.3 million to repayment of principal on the note receivable and remainder to interest.

During the fourth quarter of 2011, Dole entered into an agreement to sell a German subsidiary. The sale was completed during the first quarter of 2012. Net consideration from the sale totaled approximately $49.6 million. Of this amount, $20.6 million of cash proceeds, net of cash disposed, was collected and the remaining $29 million (€22 million) was recorded as notes receivable denominated in euros, which mature on various dates through March 2022. During the second quarter of 2012, $0.8 million (€0.6 million) was collected on the notes receivable. Of the remaining $27 million (€21.4 million) notes receivable, approximately $26 million was recorded as long-term notes receivable, of which $21 million have annual minimum payment requirements based on the financial performance of the business. $22 million of the notes receivables are collateralized by the business, and the remaining long-term note receivable of $5 million is fully secured by property that has an estimated fair value in excess of the note.

Dole has gross long-term trade receivables of $19.1 million due from a customer in Eastern Europe, for which it is likely that payment will not be received during the next year. During fiscal 2010 and 2009, Dole recorded provisions for bad debt of $11.4 million and $4.4 million, respectively. During the second quarter of 2012, Dole recorded provisions for bad debt of $1 million which is included in charges for restructuring and long-term receivables, bringing the total allowance for bad debt to $16.8 million. The net receivable of $2.3 million represents management’s best estimate of its net realizable value after consideration of collateral securing the receivables.

NOTE 6—INVENTORIES

The major classes of inventories were as follows:

 

     June 16, 2012      December 31, 2011  
     (In thousands)  

Finished products

   $ 438,173       $ 414,640   

Raw materials and work in progress

     150,840         131,287   

Crop-growing costs

     187,464         224,149   

Operating supplies and other

     55,278         59,441   
  

 

 

    

 

 

 
   $ 831,755       $ 829,517   
  

 

 

    

 

 

 

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

NOTE 7—ASSETS HELD-FOR-SALE AND ACTIVELY MARKETED LAND

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 certain long-lived assets. Accordingly, Dole has assets classified as either held-for-sale or actively marketed land.

Total assets held-for-sale by segment were as follows:

 

     Fresh Fruit     Fresh
Vegetables
     Packaged
Foods
     Fresh-Cut
Flowers—
Discontinued
Operation
     Total Assets
Held-for-Sale
 
     (In thousands)  

Balance as of December 31, 2011

   $ 66,805      $ 599       $ 3,214       $ 5,023       $ 75,641   

Additions

     43        —           —           —           43   

Sales

     (51,748     —           —           —           (51,748

Reclassifications

     (2,348     —           —           —           (2,348
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of June 16, 2012

   $ 12,752      $ 599       $ 3,214       $ 5,023       $ 21,588   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Assets held-for-sale included on Dole’s consolidated balance sheet as of June 16, 2012 consisted of property, plant and equipment, net of accumulated depreciation.

Total liabilities related to assets held-for-sale by segment were as follows:

 

     Fresh Fruit     Fresh
Vegetables
     Packaged
Foods
     Fresh-Cut
Flowers—
Discontinued
Operation
     Total
Liabilities
Held-for-Sale
 
     (In thousands)  

Balance as of December 31, 2011

   $ 49,117      $ —         $ —         $ —         $ 49,117   

Sales

     (49,117     —           —           —           (49,117
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of June 16, 2012

   $ —        $ —         $ —         $ —         $ —     
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Gains on asset sales by segment were as follows:

 

    Quarter Ended     Half Year Ended  
    June 16, 2012     June 18, 2011     June 16, 2012     June 18, 2011  
    (In thousands)  

Fresh Fruit

  $ 1,954      $ 11      $ 6,157      $ 11   

Fresh Vegetables

    —          —          —          —     

Packaged Foods

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from Continuing Operations

    1,954        11        6,157        11   

Fresh-Cut Flowers—Discontinued Operations

    —          339        —          339   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,954      $ 350      $ 6,157      $ 350   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Proceeds from asset sales by segment were as follows:

 

    Quarter Ended     Half Year Ended  
    June 16, 2012     June 18, 2011     June 16, 2012     June 18, 2011  
    (In thousands)  

Fresh Fruit

  $ 1,955      $ 1,329      $ 24,397      $ 1,329   

Fresh Vegetables

    —          —          —          —     

Packaged Foods

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from Continuing Operations

    1,955        1,329        24,397        1,329   

Fresh-Cut Flowers—Discontinued Operations

    1,279        2,912        1,279        2,912   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 3,234      $ 4,241      $ 25,676      $ 4,241   
 

 

 

   

 

 

   

 

 

   

 

 

 

Fresh Fruit

During the fourth quarter of 2011, Dole entered into an agreement to sell a German subsidiary which was part of the European ripening and distribution business within the fresh fruit segment. The sale was completed during the first quarter of 2012. Net consideration from the sale totaled approximately $49.6 million. Of this amount, $20.6 million of cash proceeds, net of cash disposed, was collected and the remaining $29 million (€22 million) was recorded as notes receivable, which mature on various dates through March 2022. Dole realized a gain of $27 million on the sale, of which $3.2 million was recorded during the first quarter of 2012, resulting in deferred income of $23.8 million (€18 million), which will be recognized as cash on the notes receivable are collected. During the second quarter of 2012, $0.8 million was collected and recorded as a gain on the sale. In addition, Dole may receive an earn-out of up to €10 million based on future operating performance of the business.

Additionally, during the first quarter of 2012, Dole sold 230 acres of land in Hawaii. Dole received net cash proceeds of $1.8 million and recorded a gain of $1 million. At June 16, 2012, the asset held-for-sale balance in the fresh fruit reporting segment included approximately 2,050 acres of land in Hawaii. During the second quarter of 2012, Dole completed the sale of farm land in Honduras. Dole received cash proceeds of $1.2 million and recorded a gain of $1.2 million.

Packaged Foods

At June 16, 2012, the assets held-for-sale balance in the packaged foods reporting segment consisted of approximately 400 acres of peach orchards located in California.

Fresh-Cut Flowers—Discontinued Operation

At June 16, 2012, the assets held-for-sale balance in the fresh-cut flowers—discontinued operation consisted of a portion of the real estate of the former flowers division. Dole collected $1.3 million of long-term receivables during the second quarter ended June 16, 2012 related to the sale of the fresh-cut flowers—discontinued operation. Refer to Note 5—Long-Term Receivables for additional information.

Actively Marketed Land

Included in actively marketed land is land that does not meet Dole’s future strategic direction or internal economic return criteria. The land that has been identified is available for sale in its present condition and an

 

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DOLE FOO0D COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

active program is underway to sell the properties. Dole is actively marketing these properties at a price that is in excess of book value but the timing of sale is uncertain. At June 16, 2012, actively marketed land consisted of approximately 14,200 acres of Hawaii land in the fresh fruit segment, with a net book value of $74.8 million.

NOTE 8—GOODWILL AND INTANGIBLE ASSETS

Goodwill has been allocated to Dole’s reporting segments as follows:

 

     Fresh Fruit     Fresh
Vegetables
     Packaged
Foods
     Total  
     (In thousands)  

Balance as of December 31, 2011

   $ 272,743      $ 84,759       $ 60,611       $ 418,113   

Additions

     —          —           6,853         6,853   

Disposals

     (11,000     —           —           (11,000
  

 

 

   

 

 

    

 

 

    

 

 

 

Balance as of June 16, 2012

   $ 261,743      $ 84,759       $ 67,464       $ 413,966   
  

 

 

   

 

 

    

 

 

    

 

 

 

During the first quarter of 2012, Dole completed the sale of a German subsidiary in the fresh fruit segment. As a result of the sale, $11 million of goodwill attributable to this subsidiary was written-off. Refer to Note 7—Assets-Held-For-Sale for further information.

During the first quarter of 2012, Dole completed the acquisition of Mrs. May’s Naturals, Inc. (“Mrs. May’s”), a company committed to providing consumers with wholesome snacks for a healthier lifestyle. Mrs. May’s is part of the packaged foods segment. Pursuant to the terms of the merger agreement, Dole purchased Mrs. May’s for total consideration of approximately $15 million, plus an annual earn-out between $0 and $1 million payable in 2013, 2014 and 2015. The acquisition resulted in goodwill of $6.9 million. In addition, Dole recorded $9.3 million of intangible assets consisting of $7.1 million for customer relationships and $2.2 million for trade names.

Dole’s Fresh Vegetables goodwill balance as of December 31, 2011 has been retrospectively adjusted to reflect an increase in goodwill and a corresponding increase in accrued liabilities of $1.3 million related to the fourth quarter 2011 SunnyRidge Farms (“SunnyRidge”) acquisition. During the second quarter of 2012, Dole was able to determine the amount of additional consideration owed to the former shareholders of SunnyRidge related to certain tax matters.

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Details of Dole’s intangible assets were as follows:

 

     June 16, 2012     December 31, 2011  
     (In thousands)  

Amortized intangible assets:

    

Customer relationships

   $ 66,601      $ 59,501   

Other amortized intangible assets

     17,824        15,231   
  

 

 

   

 

 

 
     84,425        74,732   

Accumulated amortization—customer relationships

     (34,267     (31,755

Other accumulated amortization

     (1,926     (579
  

 

 

   

 

 

 

Accumulated amortization—intangible assets

     (36,193     (32,334
  

 

 

   

 

 

 

Amortized intangible assets, net

     48,232        42,398   

Indefinite-lived intangible assets:

    

Trademark and trade names

     689,615        689,615   
  

 

 

   

 

 

 
   $ 737,847      $ 732,013   
  

 

 

   

 

 

 

Amortization expense of intangible assets totaled $2.2 million and $0.8 million in the quarters ended June 16, 2012 and June 18, 2011, respectively, and $3.9 million and $1.7 million for the half years ended June 16, 2012 and June 18, 2011, respectively.

As of June 16, 2012, the estimated amortization expense associated with Dole’s intangible assets for the remainder of 2012 and in each of the next four fiscal years is as follows (in thousands):

 

Fiscal Year

   Amount  

2012 (remainder of the year)

   $ 4,529   

2013

   $ 6,654   

2014

   $ 5,998   

2015

   $ 5,998   

2016

   $ 5,522   

Thereafter

   $ 19,531   

Dole performed its annual impairment test for goodwill for all of its reporting units during the second quarter of 2012. In performing the valuations, Dole estimated the fair value of its reporting units using a combination of a market approach based on revenue and earnings before interest expense, income taxes, depreciation and amortization multiples of comparable public companies that are engaged in similar lines of business, and using an income approach based on expected future cash flows that are discounted at rates that reflect the risks associated with the current market. In determining the estimated cash flows for each of the reporting units, Dole considered recent economic and industry trends in estimating the expected future cash flows, which are subject to change based upon market conditions. As a result of the test, Dole concluded that goodwill was not impaired. Reasonably possible fluctuations in the market guideline multiples, cash flow estimates, and the discount rates used do not indicate that there is an impairment of goodwill.

In addition, Dole also performed its annual impairment test for its DOLE® trademark during the second quarter of 2012. Dole estimated the fair value of its trademark using the relief-from-royalty method. The

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

relief-from-royalty method estimates the royalty expense that could be avoided in the operating business as a result of owning the respective trademark. The royalty savings are measured by applying a royalty rate to projected sales and then discounting by a discount rate that reflects the risks associated with the current market. The royalty rate is determined based on market data. As a result of the test, Dole concluded that the value of the trademark was not impaired. The fair value estimate is most sensitive to the royalty rate used. Reasonably possible changes to the royalty rate and the discount rate do not indicate impairment for the DOLE trademark.

NOTE 9—NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt consisted of the following:

 

     June 16,
2012
    December 31,
2011
 
     (In thousands)  

Unsecured debt:

    

8.75% debentures due 2013

   $ 155,000      $ 155,000   

Secured debt:

    

13.875% notes due 2014

     174,904        174,904   

8% notes due 2016

     315,000        315,000   

Revolving credit facility

     —          69,300   

Term loan facilities

     872,095        895,500   

Contracts and notes, at a weighted average interest rate of 3.2% in 2012 (3.8% in 2011) through 2018

     5,448        7,294   

Capital lease obligations, at a weighted average interest rate of 2.8% in 2012 (3.0% in 2011)

     57,747        57,000   

Notes payable, at a weighted average interest rate of 2.2% in 2012 (3.1% in 2011)

     74,757        27,969   

Unamortized debt discounts

     (19,387     (22,130
  

 

 

   

 

 

 
     1,635,564        1,679,837   

Notes payable and current maturities, net of unamortized debt discounts

     (83,623     (38,725
  

 

 

   

 

 

 
   $ 1,551,941      $ 1,641,112   
  

 

 

   

 

 

 

Notes Payable

Dole borrows funds primarily on a short-term basis to finance current operations. The terms of these borrowings range from one month to six months. Dole’s notes payable at June 16, 2012 consist primarily of foreign borrowings in Asia and Latin America.

2011 Refinancing

Dole’s senior secured term loan and the asset-based lending senior secured revolving credit facility (“ABL revolver”) were amended and restated on July 8, 2011 (“2011 Refinancing”). The amendments reduced borrowing rates on the ABL revolver, with an opportunity to also reduce future borrowing rates on the term loan and eliminated the financial maintenance covenants of total leverage ratio and minimum interest coverage ratio (such covenants had been in the previous term loan facilities, but not the revolving credit facility). The amended credit facilities included $872.1 million of term debt due 2018 and provided a $350 million revolving credit facility due 2016. During the third quarter of fiscal 2011, Dole incurred debt issuance costs of $13 million.

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Term Loans and Revolving Credit Facility

As of June 16, 2012, the term loan facilities consisted of $312.6 million of Term Loan B and $559.5 million of Term Loan C. The term loan facilities bear interest, at Dole’s option, at a rate per annum equal to either (i) the London Interbank Offer Rate (“LIBOR”) plus 3.75%, with a LIBOR floor of 1.25%; or (ii) a base rate plus 2.75%. Interest on the term loan facilities is payable quarterly in arrears or at maturity of LIBOR contracts. The weighted average variable interest rate at June 16, 2012 for Term Loan B and Term Loan C was 4.98%. The term loan facilities require quarterly principal payments, plus a balloon payment due in 2018.

As of June 16, 2012, there was no balance outstanding under the ABL revolver. Amounts outstanding under the ABL revolver bear interest, at Dole’s option, at a rate per annum equal to either (i) LIBOR plus 1.75% to 2.25%, or (ii) a base rate plus 0.75% to 1.25%, in each case, based upon Dole’s historical borrowing availability under this facility. As of June 16, 2012, the borrowing base for the ABL revolver was $330.6 million. After taking into account approximately $91.1 million of outstanding letters of credit issued under the ABL revolver, Dole had approximately $239.5 million available for borrowings as of June 16, 2012. The ABL revolver matures in 2016.

Covenants

Provisions under the senior secured credit facilities and the indentures governing Dole’s senior secured notes and debentures require Dole to comply with certain covenants. These covenants include limitations on, among other things, indebtedness, investments, liens, 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 the greater of (i) $35 million and (ii) 12.5% of the lesser of the Total Commitment (as defined) and the borrowing base. To date, the springing covenant has never been effective and Dole does not currently anticipate that the springing covenant will become effective. At June 16, 2012, Dole was in compliance with all applicable covenants.

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 debt could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If Dole were unable to repay those amounts, the lenders could proceed against the collateral granted to them, if any, to secure the indebtedness. If the lenders under Dole’s indebtedness were to accelerate the payment of the indebtedness, Dole cannot give assurance that its assets would be sufficiently liquid to repay in full its outstanding indebtedness on an accelerated basis.

Debt Issuance Costs

Debt issuance costs are capitalized and amortized into interest expense over the term of the underlying debt. During the quarter and half year ended June 16, 2012, Dole amortized deferred debt issuance costs of $1.3 million and $2.6 million, respectively. During the quarter and half year ended June 18, 2011, Dole amortized deferred debt issuance costs of $1.3 million and $2.8 million, respectively.

Debt discounts are amortized into interest expense over the term of the underlying debt. During the quarter and half year ended June 16, 2012, Dole amortized debt discounts of $1.3 million and $2.5 million, respectively. During the quarter and half year ended June 18, 2011, Dole amortized debt discounts of $1.1 million and $2.3 million, respectively.

 

19


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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 values and estimated fair values of Dole’s debt are summarized below:

 

     June 16, 2012      December 31, 2011  
     Carrying
Values
     Estimated
Fair Values
     Carrying
Values
     Estimated
Fair Values
 
     (In thousands)  

Secured and unsecured notes and debentures

   $ 635,645       $ 693,610       $ 633,970       $ 694,314   

Term loans

     861,967         867,735         884,304         888,784   

Carrying values are net of debt discounts.

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:

 

     U.S. Pension Plans     International
Pension Plans
    OPRB Plans  
     Quarter Ended     Quarter Ended     Quarter Ended  
     June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
     (In thousands)  

Service cost

   $ 42      $ 43      $ 1,807      $ 1,459      $ 16      $ 18   

Interest cost

     3,222        3,440        1,648        1,599        481        482   

Expected return on plan assets

     (3,529     (3,779     (98     (104     —          —     

Amortization of:

            

Unrecognized net loss

     1,871        1,525        403        211        18        15   

Unrecognized prior service cost (benefit)

     —          —          88        97        (814     (813

Unrecognized net transition obligation

     —          —          —          1        —          —     

Restructuring related settlements and other

     —          —          —          1,155        —          1,731   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,606      $ 1,229      $ 3,848      $ 4,418      $ (299   $ 1,433   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     U.S. Pension Plans     International
Pension Plans
    OPRB Plans  
     Half Year Ended     Half Year Ended     Half Year Ended  
     June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
     (In thousands)  

Service cost

   $ 84      $ 86      $ 3,616      $ 2,911      $ 32      $ 35   

Interest cost

     6,444        6,880        3,297        3,187        962        964   

Expected return on plan assets

     (7,058     (7,558     (196     (207     —          —     

Amortization of:

            

Unrecognized net loss

     3,742        3,050        802        421        36        30   

Unrecognized prior service cost (benefit)

     —          —          180        194        (1,628     (1,626

Unrecognized net transition obligation

     —          —          —          1        —          —     

Restructuring related settlements and other

     —          —          —          1,557        —          1,731   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 3,212      $ 2,458      $ 7,699      $ 8,064      $ (598   $ 1,134   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

NOTE 11—SEGMENT INFORMATION

Dole has three reportable operating segments: fresh fruit, fresh vegetables and packaged foods. These reportable segments are managed separately due to differences in geography, products, production processes, distribution channels and customer bases.

The fresh fruit reportable operating segment (“fresh fruit”) primarily sells bananas, fresh pineapple and deciduous fruit, which are sourced from local growers or Company-owned or leased farms located in Latin America and Asia, with significant selling locations in North America, Western Europe and Japan. The Asia component of fresh fruit not only sells fruit, but also sources and grows vegetables for sale primarily in Japan.

The fresh vegetables reportable operating segment (“fresh vegetables”) sells packaged salads and has a line of fresh-packed products that includes iceberg and romaine lettuce, celery, and fresh berries including strawberries and blueberries. Substantially all of the sales for fresh vegetables are generated in North America.

During the fourth quarter of 2011, Dole changed the segment classification of its Asia fresh vegetables operations from the fresh vegetables operating segment to the fresh fruit operating segment, due to a change in operational reporting. The segment reporting change has been reflected for all periods presented.

The packaged foods reportable operating segment (“packaged foods”) sells and distributes packaged fruit and frozen fruit products in North America, Europe and Asia, with North America as the primary market. The largest component of packaged foods sales are FRUIT BOWLS®, canned pineapple and pineapple juice.

Management evaluates and monitors segment performance primarily through, among other measures, earnings before interest expense and income taxes (“EBIT”). EBIT before discontinued operations is calculated from net income by adding interest expense and income tax expense, and adding the loss or subtracting the income from discontinued operations, net of income taxes. 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. Generally Accepted Accounting Principles (“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 for the reportable operating segments and corporate were as follows:

 

     Quarter Ended      Half Year Ended  
     June 16,
2012
     June 18,
2011
     June 16,
2012
     June 18,
2011
 
     (In thousands)  

Fresh fruit

   $ 1,138,546       $ 1,384,313       $ 2,262,201       $ 2,575,283   

Fresh vegetables

     288,563         258,890         524,484         489,100   

Packaged foods

     291,248         272,341         558,185         537,121   

Corporate

     98         181         195         325   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,718,455       $ 1,915,725       $ 3,345,065       $ 3,601,829   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

21


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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

EBIT for the reportable operating segments and corporate were as follows:

 

     Quarter Ended     Half Year Ended  
     June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
     (In thousands)  

Fresh fruit EBIT

   $ 88,962      $ 107,634      $ 126,445      $ 173,467   

Fresh vegetables EBIT

     10,252        5,597        17,286        17,863   

Packaged foods EBIT

     17,546        25,881        33,805        38,061   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating segments EBIT

     116,760        139,112        177,536        229,391   

Corporate:

        

Unrealized loss on cross currency swap

     —          —          —          (3,787

Unrealized gain (loss) on long-term Japanese yen hedges

     (1,543     4,825        (599     (22,580

Net unrealized gain (loss) on foreign denominated instruments

     (547     (514     3,098        (6,434

Share-based compensation

     (1,721     (1,362     (3,442     (2,576

Loss on early retirement of debt

     (433     (20     (433     (20

Operating and other expenses

     (12,254     (11,021     (24,027     (20,521
  

 

 

   

 

 

   

 

 

   

 

 

 

Corporate

     (16,498     (8,092     (25,403     (55,918

Interest expense

     (30,757     (34,837     (61,593     (70,307

Income taxes

     (3,967     (13,518     (7,825     (18,658
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     65,538        82,665        82,715        84,508   

Income (loss) from discontinued operations, net of income taxes

     1        29        (32     231   

Gain from disposal of discontinued operations, net of income taxes

     —          339        —          339   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 65,539      $ 83,033      $ 82,683      $ 85,078   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dole’s equity earnings from equity method investments, which have been included in EBIT in the table above, relate primarily to the fresh fruit operating segment.

Total assets for the three reportable operating segments, corporate and fresh-cut flowers were as follows:

 

     June 16,
2012
     December 31,
2011
 
     (In thousands)  

Fresh fruit

   $ 2,149,303       $ 2,129,910   

Fresh vegetables

     480,005         489,091   

Packaged foods

     789,052         743,447   
  

 

 

    

 

 

 

Total operating segments

     3,418,360         3,362,448   

Corporate

     888,151         903,851   

Fresh-cut flowers—discontinued operation

     5,023         5,023   
  

 

 

    

 

 

 
   $ 4,311,534       $ 4,271,322   
  

 

 

    

 

 

 

 

22


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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

NOTE 12—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 some of these 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.

Cash Flow Hedges

A majority of Dole’s foreign currency derivative instruments are designated as cash flow hedges. Specifically, Dole designated a majority of its foreign currency exchange forward contracts as cash flow hedges of its forecasted revenue and operating expense transactions. As a result, changes in fair value of the foreign currency derivative instruments since hedge designation, to the extent effective, are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”) in the accompanying condensed consolidated balance sheet and are reclassified into earnings in the same period the underlying transactions affect earnings. Any portion of a cash flow hedge deemed ineffective are recognized into current period earnings.

Interest Rate Swap, Cross Currency Swap and Long-term Japanese Yen Hedges

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 that matured June 16, 2011.

In connection with the March 2010 refinancing transaction, some of the terms of Dole’s senior secured credit facilities were amended. Dole evaluated the impact of these amendments on its hedge designation for its interest rate swap and determined not to re-designate the interest rate swap as a cash flow hedge of its interest rate risk associated with Term Loan C. As a result, changes in the fair value of the interest rate swap after de-designation on March 2, 2010 were recorded in interest expense. The unrealized loss in AOCI was recognized into interest expense through the June 2011 maturity as the underlying Term Loan C interest payments were made.

During 2006 (subsequently amended in 2009), Dole executed a cross currency swap to synthetically convert $320 million of Term Loan C into Japanese yen denominated debt in order to effectively lower the U.S. dollar fixed interest rate. The cross currency swap was scheduled to mature in June 2011. During 2009, Dole entered into a collateral arrangement which required Dole to provide collateral to its counterparties when the fair market value of the cross currency and interest rate swaps exceeded a combined liability of $35 million.

During the first quarter of 2011, Dole entered into a transaction to effectively unwind the cross currency swap by refinancing its obligation under the cross currency swap and entering into a series of long-term Japanese yen hedges that mature through December 2014. As a result of the unwind of the cross currency swap, the collateral arrangement with the counterparties was no longer required. The long-term Japanese yen hedges require Dole to buy U.S. dollars and sell Japanese yen at an exchange rate of ¥101.3. At inception, these contracts were in a liability position of approximately $159 million and the total notional amount outstanding of the long-term Japanese yen hedges was $596.3 million. At June 16, 2012 the liability was approximately $145 million, and the total notional amount outstanding of the long-term Japanese yen hedges was $495.5 million. The value of these contracts will fluctuate based on changes in the exchange rate over the life of the individual forward contracts.

 

23


Table of Contents

DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Dole has designated the long-term Japanese yen forward contracts as cash flow hedges of its forecasted Japanese yen revenue stream. Due to the fact that there is a significant financing element present at the inception of the long-term Japanese yen hedges, the cash inflows or outflows associated with settlement of these contracts are included within the financing activities in Dole’s condensed consolidated statement of cash flows. A portion of the long-term Japanese yen hedges are deemed ineffective. With respect to this portion, changes in the fair value of the hedges are recorded in other income (expense), net in the accompanying condensed consolidated statements of operations, because the ineffectiveness is considered to be caused by the financing element of this instrument.

At June 16, 2012, the gross notional value of Dole’s derivative instruments were as follows:

 

    

Average Strike
Price

   Notional
Amount
 
     (In thousands, except average
strike price)
 

Derivatives designated as cash flow hedging instruments:

     

Foreign currency hedges (buy/sell):

     

U.S. dollar/Japanese yen

   JPY 101.1 /$    $ 499,561   

Thai baht/U.S. dollar

   THB 31 /$      102,679   

U.S. dollar/Euro

   USD 1.38 /€      71,123   

Philippine peso/U.S. dollar

   PHP 42.52 /$      52,421   

Chilean peso/U.S. dollar

   CLP 505.13/$      9,079   

Derivatives not designated as cash flow hedging instruments:

     

Foreign currency hedges (buy/sell):

     

U.S. dollar/Swedish krona

   SEK 7.16 /$      3,510   

South African rand/U.S. dollar

   ZAR 8.32 /$      2,150   

British pound sterling /U.S. dollar

   USD 1.55 /£      1,046   

South African rand/ British pound sterling

   ZAR 13 /£    £ 600   

South African rand/Euro

   ZAR 10.48 /€    425   

Bunker fuel hedges

   USD 562 /mt      16,333 mt 

The following table presents the derivative assets (liabilities) at fair value for derivatives designated as cash flow hedging instruments:

 

    

Balance Sheet

Classification

   June 16,
2012
    December 31,
2011
 
          (In thousands)  

Assets:

       

Foreign currency exchange contracts

   Receivables, net    $ 6,080      $ 5,427   
     

 

 

   

 

 

 
        6,080        5,427   

Liabilities:

       

Foreign currency exchange contracts

   Accrued liabilities      (57,950     (70,730
   Other long-term liabilities      (89,464     (123,304
     

 

 

   

 

 

 
        (147,414     (194,034
     

 

 

   

 

 

 

Total derivatives designated as cash flow hedging instruments

      $ (141,334   $ (188,607
     

 

 

   

 

 

 

 

24


Table of Contents

DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following table presents the derivative assets (liabilities) at fair value for derivatives not designated as cash flow hedging instruments:

 

    

Balance Sheet
Classification

   June 16,
2012
    December 31,
2011
 
          (In thousands)  

Assets:

       

Foreign currency exchange contracts

   Receivables, net    $ 14      $ 205   

Bunker fuel hedges

   Receivables, net      26        1,563   
     

 

 

   

 

 

 
        40        1,768   

Liabilities:

       

Foreign currency exchange contracts

   Accrued liabilities      (128     —     
     

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

      $ (88   $ 1,768   
     

 

 

   

 

 

 

Settlement of the foreign currency hedges will occur during 2012 through 2014 and settlement of bunker fuel hedges will occur during 2012.

The effects of the interest rate swap and foreign currency hedges designated as cash flow hedging instruments on accumulated other comprehensive income (loss) and the condensed consolidated statements of operations for the quarters and half years ended June 16, 2012 and June 18, 2011 were as follows:

 

    Gains (Losses)
Recognized in

AOCI During
Quarter Ended
        Gains (Losses)
Reclassified

Into Income During
Quarter Ended
    Gains (Losses)
Recognized  in

Income
due to Hedge
Ineffectiveness
or Amounts
Excluded
from
Effectiveness
Testing During
Quarter Ended
 
    June 16,
2012
    June 18,
2011
   

Income Statement

Classification

  June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
    (In thousands)  

Interest rate swap

  $ —        $ —        Interest expense   $ —        $ (3,185   $ —        $ —     

Foreign currency hedges (1)

    (28,695     (13,247   Cost of products sold     1,148        (5,184     1,155        (2,426
      Other income (expense), net     —          —          (1,543     4,825   

 

25


Table of Contents

DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

    Gains (Losses)
Recognized in

AOCI During
Half Year Ended
        Gains  (Losses)
Reclassified

Into Income During
Half Year Ended
    Gains (Losses)
Recognized in

Income
due to Hedge
Ineffectiveness
or Amounts
Excluded
from
Effectiveness
Testing During
Half Year Ended
 
    June 16,
2012
    June 18,
2011
   

Income Statement

Classification

  June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
    (In thousands)  

Interest rate swap

  $ —        $ —        Interest expense   $ —        $ (6,644   $ —        $ —     

Foreign currency hedges (1)

    25,713        (14,908   Cost of products sold     (1,668     (6,399     2,112        (790
      Other income (expense), net     —          —          (599     4,143   

 

(1) Amounts related to the long-term Japanese yen hedges have been included in this line item.

Unrealized gains and losses on the interest rate swap were recorded through AOCI through the de-designation date. Amounts included in AOCI as of the de-designation date were being amortized into interest expense as the quarterly payments were made through maturity of the interest rate swap in June 2011. Net unrecognized losses of $3.1 million related to the foreign currency hedges are expected to be realized into earnings in the next twelve months.

Net gains (losses) on derivatives not designated as cash flow hedging instruments, or prior to being designated as cash flow hedging instruments for the quarters and half years ended June 16, 2012 and June 18, 2011, were as follows:

 

          Quarter Ended  
    

Classification in

Statement of Operations

   June 16,
2012
    June 18,
2011
 
          (In thousands)  

Foreign currency exchange contracts

   Cost of products sold    $ 65      $ (605

Bunker fuel contracts

   Cost of products sold      (1,906     239   

Foreign currency exchange contracts

   Other income (expense), net      (9     —     

Interest rate swap

   Interest expense      —          (10,889
     

 

 

   

 

 

 
      $ (1,850   $ (11,255
     

 

 

   

 

 

 
          Half Year Ended  
    

Classification in

Statement of Operations

   June 16,
2012
    June 18,
2011
 
          (In thousands)  

Foreign currency exchange contracts

   Cost of products sold    $ 236      $ (858

Bunker fuel contracts

   Cost of products sold      (372     2,812   

Foreign currency exchange contracts

   Other income (expense), net      32        —     

Long-term Japanese yen hedges

   Other income (expense), net      —          (26,723

Cross currency swap

   Other income (expense), net      —          (1,902

Interest rate swap

   Interest expense      —          (18,942
     

 

 

   

 

 

 
      $ (104   $ (45,613
     

 

 

   

 

 

 

 

26


Table of Contents

DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

NOTE 13—FAIR VALUE MEASUREMENTS

Dole’s financial instruments primarily consist of short-term trade and grower receivables, trade payables, notes receivable and notes payable, as well as long-term grower receivables, derivatives, 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 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.

The inputs used to measure fair value are based on a hierarchy that prioritizes observable and unobservable inputs used in valuation techniques. 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 (liabilities) measured at fair value on a recurring basis:

 

    Fair Value Measurements Using Significant
Other Observable Inputs (Level 2)
 
        June 16, 2012             December 31, 2011      
    (In thousands)  

Assets:

   

Foreign currency exchange contracts

  $ 6,094      $ 5,632   

Bunker fuel contracts

    26        1,563   
 

 

 

   

 

 

 
  $ 6,120      $ 7,195   
 

 

 

   

 

 

 

Liabilities:

   

Foreign currency exchange contracts

  $ (147,542   $ (194,034
 

 

 

   

 

 

 

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 and bunker fuel contracts were estimated using internal discounted cash flow calculations based upon forward foreign currency exchange rates, bunker fuel futures, interest-rate yield curves or quotes obtained from brokers for contracts with similar terms less any credit valuation adjustments. Dole recorded a credit valuation adjustment at June 16, 2012 which reduced the derivative liability balances. The credit valuation adjustment was $2.6 million at June 16, 2012 and $10.5 million at December 31, 2011. For the half year ended June 16, 2012, the net change in credit valuation adjustment resulted in an unrealized loss of $6.3 million, which was recorded as other income (expense), net. In addition a $1.6 million unrealized loss was recorded in AOCI. For the half year ended June 18, 2011, the net change in credit valuation adjustment resulted in an unrealized gain of $6 million, which was recorded as other income (expense), net. For the quarter ended June 16, 2012, the net change in credit valuation adjustment resulted in an unrealized loss of $1.3 million which was recorded as other income (expense), net in the accompanying condensed consolidated statements of operations. In addition, a $0.3 million unrealized gain was recorded in AOCI. For the quarter ended June 18, 2011, the net change in the credit valuation adjustment resulted in a loss of $1.8 million, which was recorded as other income (expense), net.

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The fair value of goodwill and the intangible assets recorded in connection with the acquisition of Mrs. May’s was determined using discounted cash flow models based on an internal estimate of future cash flows based on unobservable inputs, and as such, are considered to be Level 3 non-recurring fair values within the fair value hierarchy.

During the second quarter of 2012, $1 million of long-term trade receivables were written down to their estimated fair values based on Level 3 inputs.

The goodwill and indefinite-lived intangible asset impairment analysis was performed in the second quarter of 2012 using a combination of discounted cash flow models and market multiples. The discounted cash flow models used estimates and assumptions including pricing and volume data, anticipated growth rates, profitability levels, tax rates and discount rates. Refer to Note 8—Goodwill and Intangible Assets for additional information.

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.

NOTE 14—CONTINGENCIES

Dole is a guarantor of indebtedness of some of its key fruit suppliers and other entities integral to Dole’s operations. At June 16, 2012, guarantees of $10.5 million consisted primarily of amounts advanced under third-party bank agreements to independent growers that supply Dole with product. Dole has not historically experienced significant losses associated with these guarantees.

Dole issues letters of credit and bank guarantees through its ABL revolver and, in addition, separately through major banking institutions. Dole also provides bonds issued by insurance companies. These letters of credit, bank guarantees and insurance company bonds are required by certain regulatory authorities, suppliers and other operating agreements. As of June 16, 2012, total letters of credit, bank guarantees and bonds outstanding under these arrangements were $177.7 million.

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 $136.2 million of its subsidiaries’ obligations to their suppliers and other third parties as of June 16, 2012.

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

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 position or results of operations.

DBCP Cases: A significant portion of Dole’s legal exposure relates to lawsuits pending in the United States and in several foreign countries, alleging injury as a result of exposure to the agricultural chemical DBCP (1,2-dibromo-3-chloropropane). DBCP was manufactured by several chemical companies including entities of The Dow Chemical Company and Royal Dutch Shell plc 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 242 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 50 labor cases pending in Costa Rica under that country’s national insurance program.

On October 3, 2011, Dole signed a definitive settlement agreement with the plaintiff group represented by the Provost & Umphrey Law Firm, L.L.P., which with full implementation will bring to an end all of their DBCP lawsuits and judgments. Of the 230 lawsuits pending worldwide, the settlement includes four lawsuits in the United States (a petition to the U.S. Supreme Court for a writ of certiorari was recently denied in one Provost judgment enforcement action; the plaintiffs holding the underlying judgment are included in the settlement) and 33 lawsuits in Nicaragua, which includes any and all Nicaragua judgments and plaintiff claims associated with Provost & Umphrey. The 33 Nicaragua cases represent approximately $9 billion in claimed damages and, in seven of those cases, judgments totaling $907.5 million. The effectiveness of the settlement is contingent upon the satisfaction of a number of conditions including various court approvals and signed releases from the plaintiff group. There is no assurance that the settlement effectiveness conditions will be satisfied. This settlement is consistent with the position Dole has taken in the past, that it is willing to seek reasonable resolution of pending DBCP litigation. The settlement, if it becomes effective, will not have a material effect on Dole’s financial position, results of operations or cash flows.

Of the 201 lawsuits not included in the Provost & Umphrey settlement, 25 are currently pending in various jurisdictions in the United States. One case in Los Angeles Superior Court, the last remaining lawsuit brought in the United States by Nicaraguan plaintiffs, was dismissed after the Court found that the plaintiffs and their representatives engaged in blatant fraud, witness tampering and active manipulation. On March 11, 2011, the Court issued a final Statement of Decision, followed on March 31, 2011 by a Judgment, that vacates the prior judgment and dismisses all plaintiffs’ claims with prejudice. Plaintiffs filed a notice of appeal of that judgment on May 6, 2011, and briefing is expected to be completed in the third quarter of 2012. Nine cases were recently filed in Delaware State and Federal courts. Seven of those cases, however, were filed by the same plaintiffs that had filed seven cases in Louisiana Federal Court in 2011, all of which are subject to pending motions for

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

summary judgment. The remaining lawsuits are pending in Latin America and the Philippines. Claimed damages in DBCP cases worldwide total approximately $45 billion ($36 billion not counting lawsuits included in the Provost & Umphrey settlement), with lawsuits in Nicaragua representing approximately 87% 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.

In Nicaragua, 196 cases are currently filed (of which 34 are active) in various courts throughout the country (163 cases not counting lawsuits included in the Provost & Umphrey settlement), all but three of which were brought pursuant to Law 364 (including one new case that was served on November 21, 2011), 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 (25 cases not counting lawsuits included in the Provost & Umphrey settlement): $489.4 million (nine cases consolidated with 465 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 85 claimants) on June 15, 2004; $27.7 million (one case with 36 claimants) on March 17, 2005; $46.4 million (one case with 62 claimants) on August 20, 2005; $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 learned of unofficially. Except for the latest one, Dole has appealed all judgments. Dole will appeal the $357.7 million judgment once it has been served. The two judgments that resulted from seven of the cases filed by Provost & Umphrey, the $809 million judgment dated December 1, 2006 (six cases consolidated with 1,248 claimants) and the $98.5 million judgment dated August 8, 2005 (one case with 150 claimants), are included in the settlement.

In all but one of the active cases where the proceeding has reached the appropriate stage, Dole has sought to have the cases returned to the United States. In all of the cases where Dole’s request to return the case to the United States has been ruled upon, the courts have denied Dole’s request and Dole has appealed those decisions.

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 its subsidiary, 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 position or results of operations. The official start of the Honduran Worker Program was announced on January 8, 2007. On August 15, 2007, Shell Oil Company was included in the Worker Program.

As to all the DBCP matters, Dole has denied liability and asserted substantial defenses. Although no assurance can be given concerning the outcome of the DBCP cases, in the opinion of management, after

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 position or results of operations.

European Union Antitrust Inquiry: On October 15, 2008, the European Commission (“EC”) adopted a Decision against Dole Food Company, Inc. and Dole Fresh Fruit Europe OHG and against other unrelated banana companies, finding violations of the European competition (antitrust) laws. The Decision imposes €45.6 million in fines on Dole.

The Decision follows a Statement of Objections, issued by the EC on July 25, 2007, and searches carried out by the EC in June 2005 at certain banana importers and distributors, including two of Dole’s offices.

Dole received the Decision on October 21, 2008 and appealed the Decision to the European General Court in Luxembourg on December 24, 2008. Oral argument on the appeal was held on January 25, 2012.

Dole made an initial $10 million (€7.6 million) provisional payment towards the €45.6 million fine on January 22, 2009, which is classified as other assets, net in the accompanying condensed consolidated balance sheets. As agreed with the European Commission (DG Budget), Dole provided the required bank guaranty for the remaining balance of the fine plus interest 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 General Court fully agrees with Dole’s arguments presented in its appeal, Dole will be entitled to the return of all monies paid, plus interest.

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 condensed 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 Cervecería Hondureña, S.A in 2001. Dole believes the assessment is without merit and filed an appeal with the Honduran tax authorities, which was denied. As a result of the denial in the administrative process, in order to negate the tax assessment, on August 5, 2005, Dole proceeded to the next stage of the appellate process by filing a lawsuit against the Honduran government in the Honduran Administrative Tax Trial Court. The 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. Dole and the Honduran government have had discussions regarding possible ways to resolve pending lawsuits and tax-related matters. 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 position or results of operations.

Former Shell Site: Shell Oil Company and Dole were sued in several cases filed in Los Angeles Superior Court, beginning in 2009, alleging property damage and personal injury by persons claiming to be current or former residents in the area of a housing development built in the 1960s by a predecessor of what is now a Dole subsidiary, on land that had been owned and used by Shell as a crude oil storage facility for 40 years prior to the housing development. On April 20, 2011, the Court dismissed the case with prejudice, including all claims

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

against Dole. On August 11, 2011, the Court overturned its dismissal in response to plaintiffs’ motion for reconsideration and permitted the filing of a second amended complaint by plaintiffs. The defendants filed motions to dismiss plaintiffs’ second amended complaint, which have been denied, except that Shell’s motions were granted to dismiss certain property damage claims and certain claims based on the allegation that Shell had engaged in ultrahazardous activity. The California Regional Water Quality Control Board is supervising the cleanup on the former Shell site. On March 11, 2011, the Water Board issued a Cleanup and Abatement Order naming Shell as the Discharger and a Responsible Party, and ordering Shell to assess, monitor, and cleanup and abate the effects of contaminants discharged to soil and groundwater at the site. On April 22, 2011, the Water Board sent Dole a letter requiring Dole to supply information concerning ownership, development and activities of the former Shell site, which Dole did on September 15, 2011.

NOTE 15—EARNINGS PER SHARE

 

     Quarter Ended     Half Year Ended  
     June 16,
2012
    June 18,
2011
    June 16,
2012
    June 18,
2011
 
     (In thousands, except per share data)  

Income from continuing operations

   $ 65,538      $ 82,665      $ 82,715      $ 84,508   

Income (loss) from discontinued operations, net of income taxes

     1        29        (32     231   

Gain on disposal of discontinued operations, net of income taxes

     —          339        —          339   

Less: Net income attributable to noncontrolling interests

     (1,410     (1,267     (2,187     (2,272
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Dole Food Company, Inc.

   $ 64,129      $ 81,766      $ 80,496      $ 82,806   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding—Basic

     87,760        87,587        87,760        87,580   

Diluted effects of stock incentive plan

     611        535        543        522   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding—Diluted

     88,371        88,122        88,303        88,102   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings Per Share—Basic

        

Income from continuing operations

   $ 0.75      $ 0.94      $ 0.94      $ 0.96   

Income from discontinued operations, net of income taxes

     —          —          —          —     

Gain on disposal of discontinued operations, net of income taxes

     —          —          —          —     

Less: Net income attributable to noncontrolling interests

     (0.02     (0.01     (0.02     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Dole Food Company, Inc.

   $ 0.73      $ 0.93      $ 0.92      $ 0.95   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings Per Share—Diluted

        

Income from continuing operations

   $ 0.74      $ 0.94      $ 0.94      $ 0.96   

Income from discontinued operations, net of income taxes

     —          —          —          —     

Gain on disposal of discontinued operations, net of income taxes

     —          —          —          —     

Less: Net income attributable to noncontrolling interests

     (0.01     (0.01     (0.03     (0.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Dole Food Company, Inc.

   $ 0.73      $ 0.93      $ 0.91      $ 0.94   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

NOTE 16—GUARANTOR FINANCIAL INFORMATION

Dole’s 100% owned domestic subsidiaries (“Guarantors”) have fully and unconditionally guaranteed, on a joint and several basis, Dole’s obligations under the indentures related to the 2013 Debentures, the 2014 Notes and the 2016 Notes. Each guarantee is subordinated in right of payment to the Guarantors’ existing and future senior debt, including obligations under the senior secured credit facilities, and will rank pari passu with all senior subordinated indebtedness of the applicable Guarantor.

The accompanying Guarantor consolidating financial information is presented on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for Dole’s share in the subsidiaries’ cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate to the elimination of investments in subsidiaries and associated intercompany balances and transactions as well as cash overdraft and income tax reclassifications.

The following are condensed consolidating statements of operations of Dole for the quarters and half years ended June 16, 2012 and June 18, 2011; condensed consolidating balance sheets as of June 16, 2012 and December 31, 2011 and condensed consolidating statements of cash flows for the half years ended June 16, 2012 and June 18, 2011.

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended June 16, 2012

 

    Dole Food
Company, Inc.
    Guarantors     Non
Guarantors
    Eliminations     Total  
    (In thousands)  

Revenues, net

  $ 22,231      $ 775,310      $ 1,260,257      $ (339,343   $ 1,718,455   

Cost of products sold

    (18,000     (688,377     (1,115,101     336,156        (1,485,322
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    4,231        86,933        145,156        (3,187     233,133   

Selling, marketing and general and administrative expenses

    (15,977     (62,486     (59,806     3,187        (135,082

Charges for restructuring and long-term receivables

    —          —          (1,938     —          (1,938

Gain on sale of assets

    —          —          1,954        —          1,954   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (11,746     24,447        85,366        —          98,067   

Equity in subsidiary income

    83,396        60,316        —          (143,712     —     

Other income (expense), net

    —          —          (1,492     —          (1,492

Interest income

    614        288        863        —          1,765   

Interest expense

    (22,199     (15     (8,543     —          (30,757
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes and equity earnings

    50,065        85,036        76,194        (143,712     67,583   

Income taxes

    14,073        (1,787     (16,253     —          (3,967

Earnings from equity method investments

    (9     110        1,821        —          1,922   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of income taxes

    64,129        83,359        61,762        (143,712     65,538   

Income from discontinued operations, net of income taxes

    —          —          1        —          1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    64,129        83,359        61,763        (143,712     65,539   

Less: Net income attributable to noncontrolling interests

    —          —          (1,410     —          (1,410
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Dole Food Company, Inc.

  $ 64,129      $ 83,359      $ 60,353      $ (143,712   $ 64,129   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended June 18, 2011

 

    Dole Food
Company, Inc.
    Guarantors     Non
Guarantors
    Eliminations     Total  
    (In thousands)  

Revenues, net

  $ 24,277      $ 789,054      $ 1,507,761      $ (405,367   $ 1,915,725   

Cost of products sold

    (18,986     (702,800     (1,338,044     402,311        (1,657,519
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    5,291        86,254        169,717        (3,056     258,206   

Selling, marketing and general and administrative expenses

    (13,828     (57,457     (62,004     3,056        (130,233

Charges for restructuring

    —          —          (5,947     —          (5,947

Gain on asset sales

    11        —          —          —          11   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (8,526     28,797        101,766        —          122,037   

Equity in subsidiary income

    104,238        79,850        —          (184,088     —     

Other income (expense), net

    (6     —          4,343        —          4,337   

Interest income

    230        156        780        —          1,166   

Interest expense

    (22,702     (19     (12,116     —          (34,837
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and equity earnings

    73,234        108,784        94,773        (184,088     92,703   

Income taxes

    8,532        (4,684     (17,366     —          (13,518

Earnings from equity method investments

    —          67        3,413        —          3,480   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of income taxes

    81,766        104,167        80,820        (184,088     82,665   

Income from discontinued operations, net of income taxes

    —          —          29        —          29   

Gain on disposal of discontinued operations, net of income taxes

    —          —          339        —          339   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    81,766        104,167        81,188        (184,088     83,033   

Less: Net income attributable to noncontrolling interests

    —          —          (1,267     —          (1,267
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Dole Food Company, Inc.

  $ 81,766      $ 104,167      $ 79,921      $ (184,088   $ 81,766   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


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DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Half Year Ended June 16, 2012

 

    Dole Food
Company, Inc.
    Guarantors     Non
Guarantors
    Eliminations     Total  
    (In thousands)  

Revenues, net

  $ 43,846      $ 1,500,169      $ 2,465,330      $ (664,280   $ 3,345,065   

Cost of products sold

    (34,841     (1,329,720     (2,234,442     657,922        (2,941,081
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    9,005        170,449        230,888        (6,358     403,984   

Selling, marketing and general and administrative expenses

    (30,477     (121,070     (117,205     6,358        (262,394

Charges for restructuring and long-term receivables

    —          —          (3,269     —          (3,269

Gain on sale of assets

    962        —          5,195        —          6,157   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (20,510     49,379        115,609        —          144,478   

Equity in subsidiary income

    123,036        78,408        —          (201,444     —     

Other income (expense), net

    —          —          1,516        —          1,516   

Interest income

    633        363        1,618        —          2,614   

Interest expense

    (44,489     (49     (17,055     —          (61,593
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes and equity earnings

    58,670        128,101        101,688        (201,444     87,015   

Income taxes

    21,826        (6,131     (23,520     —          (7,825

Earnings from equity method investments

    —          260        3,265        —          3,525   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of income taxes

    80,496        122,230        81,433        (201,444     82,715   

Loss from discontinued operations, net of income taxes

    —          —          (32     —          (32
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    80,496        122,230        81,401        (201,444     82,683   

Less: Net income attributable to noncontrolling interests

    —          —          (2,187     —          (2,187
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Dole Food Company, Inc.

  $ 80,496      $ 122,230      $ 79,214      $ (201,444   $ 80,496   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

36


Table of Contents

DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Half Year Ended June 18, 2011

 

    Dole Food
Company, Inc.
    Guarantors     Non
Guarantors
    Eliminations     Total  
    (In thousands)  

Revenues, net

  $ 46,469      $ 1,550,939      $ 2,778,548      $ (774,127   $ 3,601,829   

Cost of products sold

    (36,624     (1,375,757     (2,492,284     767,803        (3,136,862
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    9,845        175,182        286,264        (6,324     464,967   

Selling, marketing and general and administrative expenses

    (26,671     (117,705     (116,911     6,324        (254,963

Charges for restructuring

    —          —          (8,702     —          (8,702

Gain on asset sales

    11        —          —          —          11   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (16,815     57,477        160,651        —          201,313   

Equity in subsidiary income

    133,778        84,313        —          (218,091     —     

Other income (expense), net

    (6     —          (35,008     —          (35,014

Interest income

    480        403        1,601        —          2,484   

Interest expense

    (45,498     (41     (24,768     —          (70,307
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and equity earnings

    71,939        142,152        102,476        (218,091     98,476   

Income taxes

    10,867        (9,111     (20,414     —          (18,658

Earnings from equity method investments

    —          292        4,398        —          4,690   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of income taxes

    82,806        133,333        86,460        (218,091     84,508   

Income from discontinued operations, net of income taxes

    —          —          231        —          231   

Gain on disposal of discontinued operations, net of income taxes

    —          —          339        —          339   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    82,806        133,333        87,030        (218,091     85,078   

Less: Net income attributable to noncontrolling interests

    —          —          (2,272     —          (2,272
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Dole Food Company, Inc.

  $ 82,806      $ 133,333      $ 84,758      $ (218,091   $ 82,806   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

37


Table of Contents

DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

As of June 16, 2012

 

    Dole Food
Company, Inc.
    Guarantors     Non
Guarantors
    Eliminations     Total  
    (In thousands)  

ASSETS

         

Cash and cash equivalents

  $ 12,263      $ 3,143      $ 78,710      $ —        $ 94,116   

Restricted cash

    —          —          555        —          555   

Receivables, net of allowances

    102,643        139,692        529,973        —          772,308   

Inventories

    8,943        276,933        545,879        —          831,755   

Prepaid expenses and other assets

    5,766        12,002        53,484        —          71,252   

Deferred income tax assets

    —          21,978        9,996        (4,515     27,459   

Assets held-for-sale

    12,479        3,813        5,296        —          21,588   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    142,094        457,561        1,223,893        (4,515     1,819,033   

Investments

    2,648,532        1,944,442        101,274        (4,593,874     100,374   

Actively marketed land

    74,814        —          —          —          74,814   

Property, plant and equipment, net

    134,724        268,455        493,058        —          896,237   

Goodwill

    —          131,818        282,148        —          413,966   

Intangible assets, net

    689,615        6,023        42,209        —          737,847   

Other assets, net

    63,864        20,595        192,383        (7,579     269,263   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 3,753,643      $ 2,828,894      $ 2,334,965      $ (4,605,968   $ 4,311,534   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

         

Accounts payable

  $ 5,881      $ 167,466      $ 329,976      $ —        $ 503,323   

Accrued liabilities

    66,954        163,353        300,592        (4,515     526,384   

Current portion of long-term debt, net

    (1,090     333        9,623        —          8,866   

Notes payable

    —          —          74,757        —          74,757   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    71,745        331,152        714,948        (4,515     1,113,330   

Intercompany payables (receivables)

    1,396,690        (171,240     (1,225,450     —          —     

Long-term debt, net