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| DOLE > SEC Filings for DOLE > Form 10-Q on 3-May-2012 | All Recent SEC Filings |
3-May-2012
Quarterly Report
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 Dole's 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 materials supplies and pricing; changes in interest and currency exchange rates; economic crises; quotas, tariffs and other governmental actions; and international conflict.
Overview
Significant highlights for Dole Food Company, Inc. and its consolidated subsidiaries ("Dole") for the quarter ended March 24, 2012 were as follows:
• Net revenues for the first quarter of 2012 were $1.6 billion, a decrease of 4% from the first quarter of 2011. Excluding the sales from our Dole Spain ripening and distribution subsidiary, which was sold in the fourth quarter of 2011, sales decreased 1%.
• Operating income for the first quarter of 2012 was $46.4 million compared to $79.3 million in the first quarter of 2011. Earnings decreased in our fresh fruit and fresh vegetables segments, partially offset by improved results from our packaged foods segment.
• Fresh fruit operating income decreased primarily as a result of lower banana earnings in North America and Europe, partially offset by higher earnings in the Asia banana operations. Lower pricing in North America and higher fruit costs from our Latin America sourcing operations were the main drivers of the lower banana performance.
• Fresh vegetables operating income decreased primarily due to lower pricing for fresh-packed vegetables partially offset by higher earnings of packaged salads and fresh berries due to lower product costs.
• Packaged foods operating income increased due to improved pricing worldwide and lower levels of marketing expenditures in North America partially offset by higher worldwide product costs.
• Dole's 2011 restructuring plan in the fresh fruit segment in Europe, Latin America and Asia remains on track. Full year net cash savings for fiscal 2012 are estimated at $24 million, of which $4 million has already been realized in the first quarter of 2012. The 2011 restructuring initiatives are not expected to have a significant impact on fiscal 2012 revenues. Although first quarter 2012 cost of products sold benefitted from our shipping and farming restructuring initiatives, higher purchased fruit costs from Latin America growers more than offset the benefits derived from the initiatives. The remaining $20 million of estimated net cash savings are expected to be realized in the remaining three quarters of fiscal 2012. Approximately $19 million of these savings are expected to offset cost of products sold and $1 million to offset selling, marketing and general and administrative expenses.
• During the first quarter of 2012, Dole completed the sale of a non-core subsidiary in Germany ("German subsidiary") which was part of the European ripening and distribution business within the fresh fruit segment. 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 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, and $23.8 million was deferred, and will be recognized as cash on the notes receivable is collected. In addition, Dole may receive an earn-out of up to 10 million euros based on future operating performance of the business. Cash proceeds were used to pay down term loan debt during the second quarter of 2012.
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 and
depreciation and amortization ("Adjusted EBITDA") to the most directly
comparable U.S. Generally Accepted Accounting Principles ("U.S. GAAP") financial
measure:
Quarter Ended
March 24, March 26,
2012 2011
(In thousands)
Net income $ 17,144 $ 2,045
(Income) loss from discontinued operations, net of
income taxes 33 (202 )
Interest expense 30,836 35,470
Income taxes 3,858 5,140
EBIT before discontinued operations 51,871 42,453
Depreciation and amortization from continuing
operations 23,624 23,353
Net unrealized (gain) loss on derivative instruments (1,867 ) 3,613
(Income) loss on long-term Japanese yen hedges (47 ) 27,405
Foreign currency exchange (gain) loss on vessel
obligations 1,394 2,409
Net unrealized loss on foreign denominated instruments (3,928 ) 6,892
Share-based compensation 2,849 1,865
Charges for restructuring 1,331 2,755
Gain on asset sales (4,203 ) -
Adjusted EBITDA $ 71,024 $ 110,745
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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 adding the loss or subtracting the income from 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 charges for restructuring; and (8) 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 12 to the condensed 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.
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 quarters ended March 24, 2012 and
March 26, 2011 were as follows:
Quarter Ended
March 24, March 26,
2012 2011
(In thousands)
Revenues, net $ 1,626,610 $ 1,686,104
Operating income 46,411 79,276
Other income (expense), net 3,008 (39,351 )
Interest expense (30,836 ) (35,470 )
Income taxes (3,858 ) (5,140 )
Net income 17,144 2,045
Less: Net income attributable to noncontrolling
interests (777 ) (1,005 )
Net income attributable to shareholders of Dole Food
Company, Inc. 16,367 1,040
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Revenues
Revenues in the quarter ended March 24, 2012 decreased 4% to $1.6 billion from $1.7 billion for the quarter ended March 26, 2011. Excluding first quarter 2011 sales from Dole Spain of $36 million, which was sold in the fourth quarter of 2011, sales decreased 1%. Fresh fruit sales decreased $67 million. Excluding first quarter 2011 sales from Dole Spain, fresh fruit sales decreased $31 million. The decrease is primarily related to lower sales in the Europe and lower pricing of bananas in North America. These factors were partially offset by improved local pricing for Asia bananas as well as higher volumes of other fresh fruit sold in Asia, higher volumes of fresh pineapples sold worldwide and higher sales of Chilean deciduous fruit. Fresh vegetables sales increased $6 million mainly due to higher sales of fresh berries and packaged salads. This was partially offset by lower pricing for fresh-packed vegetables. Packaged foods sales increased $2 million primarily due to higher sales in the North America frozen fruit and healthy snack businesses and improved global pricing, partially offset by lower worldwide volumes of packaged fruit sold. Net unfavorable foreign currency exchange movements in Dole's selling locations resulted in lower revenues of approximately $10 million.
Operating Income
For the quarter ended March 24, 2012, operating income decreased to $46.4 million compared with $79.3 million for the quarter ended March 26, 2011. Fresh fruit operating income decreased primarily due to lower earnings in Dole's banana operations in North America and Europe, partially offset by higher earnings in the Asia banana operations. Fresh vegetables operating income decreased due to lower pricing in all major fresh-packed vegetable product lines, partially offset by higher earnings of fresh berries and packaged salads due primarily to lower product costs. Packaged foods operating income increased primarily due to lower levels of marketing expenditures in North America, as prior year results included additional spending during the first quarter of 2011 for product launches.
Other Income (Expense), Net
For the quarter ended March 24, 2012, other income (expense), net was income of $3 million compared to a loss of $39.4 million in the prior year. The improvement was primarily due to the absence of $27.4 of unrealized losses incurred in connection with the March 2011 unwinding of the cross currency swap and entering into a
series of long-term Japanese yen hedges. In addition, unrealized gains of $3.7 million were recorded during the first quarter of 2012 on Dole's foreign denominated borrowings, compared with unrealized losses of $7.6 million recorded in the first quarter of 2011. There also was a decrease of $1 million in unrealized losses generated on Dole's British pound sterling vessel obligation.
The cross currency swap was scheduled to mature in June 2011. 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 entered into 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 12 - Derivative Financial Instruments for additional information.
Interest Expense
Interest expense for the quarter ended March 24, 2012 was $30.8 million compared to $35.5 million for the quarter ended March 26, 2011. Interest expense decreased primarily as a result of lower effective borrowing rates due in part to the maturity of Dole's interest rate swap in the second quarter of 2011 as well as Dole's repurchase and retirement of $52.5 million of its 13.875% senior secured notes due 2014 during the third quarter of 2011.
Income Taxes
Dole recorded $3.9 million of income tax expense on $19.4 million of pretax income from continuing operations for the quarter ended March 24, 2012. Income tax expense included interest expense of $0.3 million related to Dole's unrecognized tax benefits. Income tax expense of $5.1 million on $5.8 million of pretax income from continuing operations was recorded for the first quarter ended March 26, 2011 which included interest expense of $0.6 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 quarter ended March 24, 2012, Dole's income tax expense differs from the U.S. federal statutory rate applied to Dole's pretax income primarily due to operations in foreign jurisdictions that are taxed at a rate lower than the U.S. federal statutory rate. For the quarter ended March 26, 2011, Dole's income tax expense differed from the U.S. federal statutory rate applied to Dole's pretax income primarily due to losses in certain jurisdictions for which it is more likely than not that a tax benefit will not be realized.
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.
As a result of expiration of the statute of limitations, Dole estimates its tax provision for the second quarter of 2012 will be reduced by approximately $18 million, including interest, net of tax benefits.
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 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 sells not only 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 FRUITBOWLS, canned pineapple and pineapple juice.
Management evaluates and monitors segment performance primarily through, among other measures, 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. 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
March 24, March 26,
2012 2011
(In thousands)
Fresh fruit $ 1,123,655 $ 1,190,970
Fresh vegetables 235,921 230,210
Packaged foods 266,937 264,780
Corporate 97 144
$ 1,626,610 $ 1,686,104
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EBIT for the reportable operating segments and corporate were as follows:
Quarter Ended
March 24, March 26,
2012 2011
(In thousands)
Fresh fruit EBIT $ 37,483 $ 65,832
Fresh vegetables EBIT 7,034 12,267
Packaged foods EBIT 16,259 12,180
Total operating segments EBIT 60,776 90,279
Corporate:
Unrealized loss on cross currency swap - (3,787 )
Unrealized gain (loss) on long-term Japanese yen
hedges 944 (27,405 )
Net unrealized loss on foreign denominated instruments 3,645 (5,920 )
Share-based compensation (1,721 ) (1,214 )
Operating and other expenses (11,773 ) (9,500 )
Corporate (8,905 ) (47,826 )
Interest expense (30,836 ) (35,470 )
Income taxes (3,858 ) (5,140 )
Income from continuing operations 17,177 1,843
Income (loss) from discontinued operations, net of
income taxes (33 ) 202
Net income $ 17,144 $ 2,045
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Fresh Fruit
Fresh fruit revenues for the quarter ended March 24, 2012 decreased 6% to $1.12 billion from $1.19 billion for the quarter ended March 26, 2011. Excluding sales from Dole Spain, fresh fruit revenues decreased 3% mainly due to lower sales in Europe. European sales decreased as a result of lower volumes sold, lower local
pricing and unfavorable euro and Swedish krona foreign currency exchange movements. The German subsidiary which was sold at the end of the first quarter of 2012 generated revenues of approximately $115 million. As a result of the sale, there will be a reduction in revenues of approximately $410 million for the remaining three quarters of fiscal 2012. Banana sales were slightly lower as improved local pricing and favorable Japanese yen foreign currency movements in Asia bananas were offset by lower pricing of bananas in North America. Fresh pineapple sales increased due to improved volumes sold worldwide. Sales in Asia also increased due to higher volumes of other diversified fresh fruit and vegetables. Sales of Chilean deciduous fruit increased primarily as a result of higher sales volumes and improved local pricing for grapes, apples and stone fruit. Net unfavorable foreign currency exchange movements in Dole's foreign selling locations resulted in lower revenues of approximately $10 million during the first quarter ended March 24, 2012.
Dole's fresh fruit segment EBIT is impacted by certain items, which are included in the table below:
Quarter Ended
March 24, March 26,
2012 2011
(In thousands)
Charges for restructuring $ (1,331 ) $ (2,755 )
Unrealized gain on foreign currency and fuel hedges 1,455 1,169
Net loss on long-term Japanese yen hedges (897 ) -
Foreign currency exchange loss on vessel obligations (1,394 ) (2,409 )
Net unrealized gain on foreign denominated instruments 195 118
Share-based compensation (693 ) (378 )
Gain on asset sales 4,203 -
Total $ 1,538 $ (4,255 )
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Fresh fruit EBIT for the quarter ended March 24, 2012 decreased $28.3 million to $37.5 million from $65.8 million for the quarter ended March 26, 2011. Banana EBIT decreased as a result of lower pricing in North America and higher fruit costs due to increased prices from Latin American growers. These factors were partially offset by higher earnings in Dole's Asia banana operations and lower shipping costs in Europe. The decrease in shipping costs was due primarily to Dole's 2011 restructuring initiatives which further reduced vessel charters, improved vessel utilization and made better use of available outside freight offerings. EBIT in Europe decreased slightly as a result of lower pricing and higher product costs.
Fresh Vegetables
Fresh vegetables revenues for the quarter ended March 24, 2012 increased 2% to $235.9 million from $230.2 million for the quarter ended March 26, 2011. Fresh berries revenues increased as a result of higher volumes for strawberries as well as sales associated with the fourth quarter 2011 SunnyRidge Farm ("SunnyRidge") acquisition. SunnyRidge revenues for the first quarter of 2012 were $15.1 million. Packaged salads revenues increased as a result of improved pricing. Fresh-packed vegetable revenues decreased as a result of significantly lower pricing across all major vegetable product lines despite higher volumes. Lower pricing was due to oversupply conditions during the first quarter of 2012. The quarter over quarter comparison was also impacted by abnormally strong pricing in the first quarter of 2011 associated with product shortages from challenging weather conditions.
Fresh vegetables EBIT for the quarter ended March 24, 2012 decreased to $7 million from $12.3 million for the quarter ended March 26, 2011. EBIT decreased as a result of lower pricing in the fresh-packed vegetables business partially offset by lower growing costs. Earnings in the fresh berries business increased as a result of lower growing and harvesting costs partially offset by lower pricing for strawberries. SunnyRidge did not have a significant impact on EBIT during the first quarter of 2012 as earnings were impacted by amortization of intangible assets from the acquisition. Packaged salads earnings increased as result of improved pricing and lower vegetable costs due in part to production efficiencies. Fresh vegetables EBIT benefitted from lower growing and raw materials costs in the first quarter of 2012 as costs during the first quarter of 2011 were unusually high as a result of product shortages and poor growing conditions.
Packaged Foods
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