Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
DOLE > SEC Filings for DOLE > Form 10-K on 15-Mar-2012All Recent SEC Filings

Show all filings for DOLE FOOD CO INC

Form 10-K for DOLE FOOD CO INC


15-Mar-2012

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis contains forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements, which are based on management's assumptions and describe Dole's future plans, strategies and expectations, are generally identifiable by the use of terms such as "anticipate," "will," "expect," "believe," "should" or similar expressions. The potential risks and uncertainties that could cause Dole's actual results to differ materially from those expressed or implied herein are set forth in Item 1A and Item 7A of this Annual Report on Form 10-K for the year ended December 31, 2011 and include: weather-related phenomena; market responses to industry volume pressures; product and raw material supplies and pricing; changes in interest and currency exchange rates; economic crises; quotas, tariffs and other governmental actions and international conflict.

Overview

Significant highlights for Dole Food Company, Inc. and its consolidated subsidiaries ("Dole" or the Company") for the year ended December 31, 2011 were as follows:

• Revenues for 2011 were $7.2 billion, an increase of 5%. Revenues grew in all three of Dole's reporting segments.

• Operating income in 2011 was $229.6 million compared to $193.7 million in 2010, an increase of 19%. Excluding the $32.5 million gain on legal settlements recorded during 2010, operating income increased $68.5 million or 43%.

• Fresh fruit operating income increased primarily as a result of improved banana performance worldwide. In addition, Dole's European ripening and distribution and Chilean deciduous fruit businesses generated higher earnings.

• Fresh vegetables operating income increased due to improved pricing and lower marketing expenditures in our packaged salads operations, partially offset by higher harvesting and growing costs in the fresh-packaged vegetables operations.

• Packaged foods operating income was lower as improved pricing was offset by higher product costs and higher selling, marketing and general and administrative expense worldwide.

• Dole committed to a new restructuring plan during the third quarter of 2011 in the fresh fruit segment in Europe, Latin America and Asia. These restructuring efforts, coupled with our 2010 restructuring plan, will further reduce costs by realigning supply with demand. During fiscal 2011, Dole incurred total restructuring costs of $30.2 million. As a result of the two plans, Dole has recorded total restructuring charges of $51.6 million to date and expects to incur additional charges of $3.7 million during 2012. Cost savings realized for fiscal 2011 are estimated to be $38 million associated with the 2010 plan. During fiscal 2012, Dole expects to realize additional cost savings of $25 million related to the 2011 restructuring plan.

• During the fourth quarter of 2011, Dole completed the sale of Dole Food España, S.A.U. ("Dole Spain"), to a subsidiary of Compagnie Financière de Participations, a company in which Dole holds a non-controlling 40% ownership interest.

• Dole completed the acquisition of SunnyRidge Farms, one of the top blueberry companies in the United States, during the fourth quarter of 2011. Total consideration was $91.3 million, plus an earn-out payable in 2015 that will be between $0 and $15 million. Dole paid the consideration, less certain escrowed amounts, primarily from cash on hand, some of which was attributable to Dole's third quarter 2011 refinancing transactions.

• During the fourth quarter of 2011, Dole entered into an agreement to sell a non-core subsidiary in Germany. The sale is expected to close during the first half of 2012 subject to the satisfaction of certain conditions. The German subsidiary generated fiscal 2011 revenues of approximately $550 million.


Table of Contents
• During the first quarter of 2012, Dole acquired Mrs. May's Naturals, Inc., a company committed to providing consumers with wholesome snacks for a healthier lifestyle. The acquisition provides a platform for growth of all-natural offerings in the health and nutrition food category, which is a part of our packaged foods segment.

Non-GAAP Financial Measures

The following is a reconciliation of earnings before interest expense and income
taxes ("EBIT") and adjusted earnings before interest expense, income taxes,
depreciation and amortization ("Adjusted EBITDA") to the most directly
comparable U.S. Generally Accepted Accounting Principles ("U.S. GAAP") financial
measure:



                                               Year Ended          Year Ended          Year Ended
                                              December 31,         January  1,         January  2,
                                                  2011                2011                2010
                                                                 (In thousands)
Net income (loss)                            $       41,793       $     (30,166 )     $      88,033
(Income) loss from discontinued
operations, net of income taxes                         201                (629 )            (1,639 )
Gain on disposal of discontinued
operations, net of income taxes                        (339 )            (2,957 )            (1,308 )
Interest expense                                    142,430             163,950             205,715
Income taxes                                          6,521              13,394              22,684

EBIT before discontinued operations                 190,606             143,592             313,485
Depreciation and amortization from
continuing operations                               103,921             114,239             119,572
Net unrealized loss on derivative
instruments                                           7,227              65,099               8,417
Loss on long-term Japanese yen hedges                20,501                   -                   -
Foreign currency exchange (gain) loss on
vessel obligations                                     (125 )            (2,677 )             6,326
Net unrealized loss on foreign
denominated instruments                               2,858               3,204                 306
Share-based compensation                              9,143               6,642                 925
Refinancing charges and loss on early
retirement of notes                                  26,212               4,650               5,601
Charges for restructuring and long-term
receivables                                          30,210              32,748                   -
Debt retirement costs in connection with
initial public offering                                   -                   -              30,551
Gain on asset sales                                  (4,541 )            (3,017 )           (61,257 )

Adjusted EBITDA                              $      386,012       $     364,480       $     423,926

EBIT before discontinued operations and Adjusted EBITDA are measures commonly used by financial analysts in evaluating the performance of companies. EBIT before discontinued operations is calculated from net income by adding interest expense and income tax expense, and subtracting income from discontinued operations, net of income taxes, and gain on disposal of discontinued operations, net of income taxes. Adjusted EBITDA is calculated from EBIT before discontinued operations by: (1) adding depreciation and amortization from continuing operations; (2) adding the net unrealized loss or subtracting the net unrealized gain on foreign currency and bunker fuel hedges and the cross currency swap which do not have a more than insignificant financing element present at contract inception; (3) adding the net loss or subtracting the net gain on the long-term Japanese yen hedges; (4) adding the foreign currency loss or subtracting the foreign currency gain on the vessel obligations; (5) adding the net unrealized loss or subtracting the net unrealized gain on foreign denominated instruments; (6) adding share-based compensation expense; (7) adding refinancing charges and loss on early retirement of notes; (8) adding charges for restructuring and long-term receivables; (9) for 2009, adding the debt retirement costs in connection with the initial public offering; and
(10) subtracting the gain on asset sales. Due to the fact that the long-term Japanese yen hedges had more than an insignificant financing element at inception (as discussed in Note 16 to the consolidated financial statements), the liability is treated similar to a debt instrument and the associated cash flows are classified as a financing activity. As a result, both the realized and unrealized gains and losses related to the long-term Japanese yen hedges are subtracted from or added back to EBIT before discontinued operations when calculating Adjusted EBITDA. These adjustments have been made because management excludes these amounts when evaluating the performance of Dole.


Table of Contents

EBIT before discontinued operations and Adjusted EBITDA are not calculated or presented in accordance with U.S. GAAP, and EBIT before discontinued operations and Adjusted EBITDA are not a substitute for net income attributable to shareholders of Dole Food Company, Inc., net income, income from continuing operations, cash flows from operating activities or any other measure prescribed by U.S. GAAP. Further, EBIT before discontinued operations and Adjusted EBITDA as used herein are not necessarily comparable to similarly titled measures of other companies. However, Dole has included EBIT before discontinued operations and Adjusted EBITDA herein because management believes that EBIT before discontinued operations and Adjusted EBITDA are useful performance measures for Dole. In addition, EBIT before discontinued operations and Adjusted EBITDA are presented because management believes that these measures are frequently used by securities analysts, investors and others in the evaluation of Dole.

EBIT before discontinued operations and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, operating income, cash flow or other combined income or cash flow data prepared in accordance with U.S. GAAP. Because of their limitations, EBIT before discontinued operations and Adjusted EBITDA and the related ratios presented throughout this Item 7 should not be considered as measures of discretionary cash available to invest in business growth or reduce indebtedness. Dole compensates for these limitations by relying primarily on its U.S. GAAP results and using EBIT before discontinued operations and Adjusted EBITDA only supplementally.

Results of Operations

Selected results of operations for the years ended December 31, 2011, January 1, 2011 and January 2, 2010 were as follows:

                                                 Year Ended         Year Ended        Year Ended
                                                December 31,        January 1,        January 2,
                                                    2011               2011              2010
                                                                 (In thousands)
Revenues, net                                  $    7,223,836       $ 6,892,614       $ 6,778,521
Operating income                                      229,644           193,674           351,746
Other income (expense), net                           (49,233 )         (63,641 )         (24,727 )
Interest expense                                     (142,430 )        (163,950 )        (205,715 )
Income taxes                                           (6,521 )         (13,394 )         (22,684 )
Earnings from equity method investments                 5,530             7,364            10,100
Net income (loss)                                      41,793           (30,166 )          88,033
Less: Net income attributable to
noncontrolling interests                               (3,434 )          (3,958 )          (3,948 )
Net income (loss) attributable to
shareholders of Dole Food Company, Inc.                38,359           (34,124 )          84,085

Revenues

For the year ended December 31, 2011, revenues increased 5% to $7.2 billion from $6.9 billion for the year ended January 1, 2011. Higher sales were reported in all three of Dole's operating segments. Fresh fruit sales increased $231.3 million primarily due to improved local banana pricing worldwide and higher volumes of bananas sold in North America and Asia, favorable foreign currency exchange movements in Europe and Japan as well as higher sales of Chile deciduous fruit. These improvements were partially offset by lower volumes of bananas sold in Europe due to the implementation of the 2010 European restructuring plan as well as lower volumes sold in the European ripening and distribution business. Packaged foods sales increased $75.7 million due primarily to improved pricing worldwide and higher volumes sold in Asia and the North American frozen fruit business. Fresh vegetables sales increased $24.3 million due primarily to higher pricing of packaged salads and revenues associated with the October 2011 acquisition of SunnyRidge. Net favorable foreign currency exchange movements in Dole's selling locations resulted in higher revenues of approximately $198 million.


Table of Contents

For the year ended January 1, 2011, revenues increased 2% to $6.9 billion from $6.8 billion in the prior year. Higher sales were reported in all three of Dole's operating segments. Packaged foods sales increased $79.6 million as a result of higher volumes worldwide. Fresh vegetables sales increased $18 million due primarily to higher sales of packaged salads in North America. Fresh fruit sales increased slightly due to higher sales in the European ripening and distribution businesses, higher volumes of bananas and fresh vegetables sold in Asia as well as higher sales of citrus and other fresh fruit in Asia. These improvements were partially offset by lower volumes of bananas sold in North America and Europe as well as lower pricing in Asia. In addition, fresh fruit revenues were impacted by the sale of Dole's Latin America box plants during the third and fourth quarters of 2009. The box plants contributed $110 million to revenues during 2009. Net favorable currency exchange movements in Dole's selling locations resulted in higher revenues of approximately $26 million.

Operating Income

For the year ended December 31, 2011, operating income increased $36 million or 19% to $229.6 million compared with $193.7 million for the year ended January 1, 2011. Excluding the $32.5 million gain on the legal settlements recorded in 2010, operating income increased $68.5 million or 43%. Fresh fruit operating results increased primarily due to higher earnings in Dole's worldwide banana operations, European ripening and distribution business and Chilean deciduous fruit business. Banana earnings benefitted from improved performance in Asia. In addition, there was better local pricing worldwide for bananas and lower shipping and distribution costs in Europe. Fresh vegetables operating results increased due primarily to higher earnings in packaged salads partially offset by lower earnings in the fresh-packed vegetables and berries operations. These improvements were partially offset by lower operating results in Dole's packaged foods segment due primarily to higher product costs worldwide and higher levels of marketing expenditures in North America associated with the 2011 product launches. New product launches included FRUIT BOWLS® in 100% juice, fruit in jars in 100% juice, fruit smoothie SHAKERS® and frozen fruit single-serve cups. If foreign currency exchange rates in Dole's significant foreign operations during the year ended December 31, 2011 had remained unchanged from those experienced during the year ended January 1, 2011, Dole estimates that its operating income would have been lower by approximately $16 million.

For the year ended January 1, 2011, operating income was $193.7 million compared to $351.7 million for the year ended January 2, 2010. Operating income for 2010 included a net benefit of $5.2 million due to asset sale and unrealized hedging gains, compared to a net benefit of $73.9 million for 2009 due to asset sale and unrealized hedging gains. Fresh fruit operating results decreased primarily as a result of lower banana and fresh pineapple earnings worldwide, as well as lower earnings in the European ripening and distribution businesses. Dole's banana earnings were impacted by lower sales in North America and higher product costs in North America and Europe, as well as lower banana pricing in Asia. Fresh fruit operating results were also impacted by $32.7 million of restructuring and long-term receivables charges recorded in 2010. These factors were partially offset by a $27.3 million benefit from an arbitration settlement involving faulty manufactured containers sold to Dole. Fresh vegetables operating results increased primarily due to improved pricing, favorable product mix, and lower product costs in Dole's packaged salads business. In addition, packaged salads EBIT in 2010 benefitted from a $5.3 million settlement with a fresh vegetables supplier. Packaged foods operating results increased slightly due to higher earnings of FRUIT BOWLS and frozen fruit operations in North America and improved pricing for concentrate worldwide. This was partially offset by higher product and selling, marketing and general and administrative costs for worldwide packaged fruit. If foreign currency exchange rates in Dole's significant foreign operations during the year ended January 1, 2011 had remained unchanged from those experienced during the year ended January 2, 2010, Dole estimates that its operating income would have been lower by approximately $4 million.

Other Income (Expense), Net

Other income (expense), net was expense of $49.2 million in 2011 compared to expense of $63.6 million in 2010. The improvement was primarily due to the decrease of net losses of $56.9 million generated on Dole's


Table of Contents

cross currency swap, which was effectively unwound during the first quarter of 2011. These improvements were partially offset by net unrealized losses of $20.4 million incurred in connection with unwinding the cross currency swap and entering into a series of long-term Japanese yen hedges. In addition, charges of $13.5 million were recorded during 2011 related to premiums paid, write-off of debt issuance costs and debt discounts in connection with the early retirement of some of Dole's 13.875% senior secured notes due 2014 ("2014 Notes"). Furthermore, compared to 2010, the write-off of debt issuance costs increased $8.1 million primarily due to the 2011 refinancing transactions.

The cross currency swap was scheduled to mature in June 2011. During the first quarter of 2011, Dole effectively unwound the cross currency swap by entering into a transaction to refinance its obligation under the cross currency swap through a series of long-term Japanese yen hedges that mature through December 2014. The value of these contracts will continue to fluctuate based on changes in the exchange rate over the life of the individual forward contracts. Refer to Note 16 - Derivative Financial Instruments for additional information.

Other income (expense), net was expense of $63.6 million in 2010 compared to expense of $24.7 million in 2009. The change was due to an increase in unrealized losses of $46.2 million on Dole's cross currency swap and an increase in unrealized losses of $1.2 million on Dole's foreign denominated borrowings. These factors were partially offset by an increase in the foreign currency exchange gain on Dole's British pound sterling denominated vessel obligation of $9 million.

Interest Expense

Interest expense for the year ended December 31, 2011 was $142.4 million compared to $164 million in 2010. The decrease was primarily due to lower effective borrowing rates related due in part to the maturity of Dole's interest swap during the second quarter of 2011.

Interest expense for the year ended January 1, 2011 was $164 million compared to $205.7 million in 2009. The decrease was primarily due to debt reduction due in part to Dole's October 2009 initial public offering. In addition, interest expense benefitted from lower effective borrowing rates related to Dole's March 2010 senior secured credit facilities amendments.

Income Taxes

Dole recorded income tax expense of $6.5 million on $42.6 million of income from continuing operations before income taxes and equity earnings for the year ended December 31, 2011, reflecting a 15.3% effective tax rate for the year. Income tax expense decreased $6.9 million in 2011 compared to 2010 due primarily to the impact of a state law change effective for 2011 that reduced the deferred taxes on certain of Dole's intangibles. The effective tax rate in 2010 was (48.3%). 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 2011, Dole's income tax provision differs from the U.S. federal statutory rate applied to Dole's pre-tax income primarily due to the impact of a state law change that reduced the tax rate on certain of Dole's intangibles, a reduction of its U.S. federal valuation allowance partially offset by an increase in Dole's liability for unrecognized tax benefits, primarily attributable to potential issues with foreign investment in U.S. property.

Income tax expense for the fiscal year 2010 decreased by $9.3 million compared to 2009 due primarily to lower earnings generated in certain foreign jurisdictions. The effective tax rate in 2009 was 23.2%. For 2010, Dole's income tax provision differed from the U.S. federal statutory rate applied to Dole's pre-tax losses due to losses in certain foreign jurisdictions for which it is more likely than not that a tax benefit will not be realized which is partially offset by the reduction in Dole's liability for unrecognized tax benefits, primarily attributable to the lapse of the statute of limitations relating to a state unrecognized tax benefit. For 2009, Dole's income tax provision 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.


Table of Contents

As of December 31, 2011, Dole has not provided for U.S. federal income and foreign withholding taxes on approximately $2.4 billion of the excess of the amount for financial reporting over the tax basis of investments that are essentially permanent in duration. Management believes that such excess at December 31, 2011 will remain indefinitely invested at this time. The repatriation of cash currently held by Dole's foreign subsidiaries at December 31, 2011 would not currently result in a material cash tax payment. In the event cash flow from U.S. operations combined with accumulated previously taxed income is insufficient to fund U.S. cash flow requirements, Dole may be required to provide U.S. federal income tax and foreign withholding taxes on a portion of its anticipated fiscal 2012 foreign earnings. As a result, Dole's overall effective tax rate may increase in fiscal 2012 versus the effective tax rate experienced in previous years.

Dole had federal deferred tax assets totaling $171 million at December 31, 2011 which management believes are recoverable through the realization of income on appreciated non-core assets, including income to be generated from the reversal of the related existing taxable temporary differences upon the sale of such assets. If additional U.S. losses are experienced by Dole, valuation allowances will be required. The establishment of such valuation allowances would, all else being equal, result in increases to Dole's effective tax rate in the periods recorded.

Internal Revenue Service Audit: On August 27, 2009, the IRS completed its examination of Dole's U.S. federal income tax returns for the years 2002-2005 and issued a Revenue Agent's report ("RAR") that included various proposed adjustments, including with respect to the 2003 going-private merger transactions. The IRS proposed that certain funding used in the going-private merger was taxable and that some related investment banking fees were not deductible. The net tax deficiency associated with the RAR was $122 million, plus interest. On October 27, 2009, Dole filed a protest letter challenging the proposed adjustments contained in the RAR and pursued resolution of these issues with the IRS Appeals Division. During the quarter ended October 8, 2011, Dole reached a final settlement with the Appeals Division on all issues. As a result, Dole's total amount of unrecognized tax benefits decreased by $41 million, of which $20 million represents a cash payment. The tax of $20 million was paid in the fourth quarter of 2011, along with interest of $11 million. The matter is now closed.

Refer to Note 7 of the Consolidated Financial Statements for additional information about Dole's income taxes.

Earnings from Equity Method Investments

Earnings from equity method investments for the year ended December 31, 2011 decreased to $5.5 million from $7.4 million in 2010. The decrease was primarily related to lower earnings generated by Compagnie Financière de Participations ("CF"), a company in which Dole holds a non-controlling 40% ownership interest. Lower earnings generated by CF were due in part to lower pricing and lower consumer demand in markets to which they sell.

Earnings from equity method investments for the year ended January 1, 2011 decreased to $7.4 million from $10.1 million in 2009. The decrease was primarily related to lower earnings generated by CF. Lower earnings generated by CF were due in part to lower pricing in markets to which they sell.

Segment Results of Operations

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

Dole's management evaluates and monitors segment performance primarily through earnings before interest expense and income taxes ("EBIT"). EBIT is calculated by adding interest expense and income taxes to income


Table of Contents

(loss) from continuing 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. GAAP and should not be considered in isolation or as a substitute for net income 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 fashion.

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, which change aligns segment classification with operational reporting. The segment reporting change has been reflected for all periods presented.

. . .

  Add DOLE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for DOLE - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.