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DOLE > SEC Filings for DOLE > Form 10-Q on 2-May-2013All Recent SEC Filings

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Form 10-Q for DOLE FOOD CO INC


2-May-2013

Quarterly Report


Item 2. 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 Dole's Annual Report on Form 10-K for the year ended December 29, 2012 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 23, 2013 were as follows:

On April 1, 2013, the previously announced sale of Dole's worldwide packaged foods and Asia fresh produce businesses (collectively, "Dole Asia") for $1.685 billion in cash, subject to certain adjustments ("sale transaction") to ITOCHU Corporation ("ITOCHU") was completed. The operations of Dole Asia consist of Dole's Packaged Foods reportable operating segment, and Dole's Asia fresh produce business, which is a component of Dole's Fresh Fruit reportable operating segment ("Asia Fresh"). ITOCHU will not assume certain U.S. pension and other liabilities of Dole Asia. The proceeds from the April 1 sale and Dole's new capital structure were used to pay off Dole's previous indebtedness of approximately $1.7 billion, including the settlement in full of capital lease obligations of approximately $50 million related to two vessels. During the first quarter of 2013, Dole recorded expenses of $7.1 million related to the transaction, of which $6.6 million were for compensation related arrangements not attributable to Dole Asia employees, which were unpaid as of March 23, 2013, and $0.5 million were for transaction related expenses. On February 22, 2013, ITOCHU paid Dole a non-refundable cash deposit of $200 million toward the purchase price. Dole used the $200 million in cash to repay revolver borrowings, pay certain transaction related expenses, and for general corporate purposes.

The operations of Dole Asia consist of Dole's Packaged Foods reportable operating segment, and Dole's Asia fresh produce business, which is a component of Dole's Fresh Fruit reportable operating segment ("Asia Fresh"). The results of operations for Dole Asia have been reclassified to discontinued operations for all periods presented.

In connection with the transaction, Dole will realign and streamline its global operating structure to conform to the specific needs of the remaining fresh produce businesses. Following the consummation of the transaction, Dole will be a commodity produce company with two lines of business - fresh fruit and fresh vegetables - and will remain a leading producer, marketer and distributor of fresh fruit and fresh vegetables. As a result of the sale transaction, Dole's fresh fruit business line will be smaller than at present, with an approximate 30% reduction in revenue; Dole's fresh vegetables reportable operating segment will not be impacted by the transaction. Dole will continue to be one of the world's largest producers of bananas and pineapples, and an industry leader in packaged salads, fresh-packed vegetables and fresh berries. Dole also will maintain its fully-integrated operating platform in the Americas, Europe and Africa, as well as its refrigerated supply chain, which features a dedicated refrigerated containerized fleet, as well as a network of packaging, ripening and distribution centers, to deliver fresh Dole products to market.

On May 2, 2013, following the planned syndication of the April 1, 2013 credit agreement that Dole entered into with five of Dole's principal relationship banks, Dole entered into an amended and restated credit agreement, which replaced the April 1, 2013 credit agreement. The amended and restated credit agreement contains a $180 million revolving credit facility, divided between domestic and off-shore borrowings, and a $675 million term loan, which reflects the $500 million drawn on April 1, 2013, the borrowing of $125 million that Dole was entitled to request through the end of September 2013 under the April 1, 2013 credit agreement and an additional $50 million. The new credit agreement also allows Dole to request future incremental loans. The annual interest rate on the term loan is at Dole's option, either (i) LIBOR plus 2.75%, with a LIBOR floor of 1.00% or (ii) a base rate plus 1.75%. The interest rate on amounts borrowed under the revolver is, at Doles option, either (i) LIBOR plus 2.50% to 2.75%, with no LIBOR floor, or (ii) a base rate plus 1.50% to 1.75%, in each case, based upon Dole's consolidated leverage ratio, but beginning at the upper number in the range.

On March 14, 2013, the European General Court in Luxembourg issued a judgment affirming the European Commission's October 15, 2008 Decision finding violations of the European competition (antitrust) laws and imposing 45.6 million in fines on Dole. Dole has fully provided for the results of the General Court's judgment. Dole strongly believes that the European competition laws were not violated and will appeal the judgment to the EU Court of Justice.

Net revenues from continuing operations for the first quarter of 2013 were $1.05 billion, a decrease of 3% from the first quarter of 2012. Excluding the sales from our former German ripening and distribution subsidiary of $115 million, which was sold in the first quarter of 2012, sales increased 8%. Sales were higher in both our fresh fruit and fresh vegetables reporting segments.

Operating income from continuing operations for the first quarter of 2013 was a loss of $0.1 million compared to income of $28.4 million in the first quarter of 2012.

Fresh fruit operating income decreased primarily due to a $33.7 million legal provision related to the European Union antitrust decision, which Dole is appealing. Excluding the legal provision, operating income increased primarily due to higher pricing for fresh pineapple and higher earnings from Chilean deciduous fruit. The banana operations also benefitted from higher pricing in Europe and lower Latin America banana fruit costs, partially offset by lower pricing in North America.

Fresh vegetables operating income increased primarily due to improved pricing in all major fresh-packed vegetables product lines, partially offset by lower earnings of fresh berries due primarily to higher growing costs. Packaged salads earnings decreased slightly due to higher purchased vegetable costs, partially offset by higher pricing.


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Non-GAAP Financial Measures

The following is a reconciliation of earnings before interest expense, income
taxes and discontinued operations ("EBIT before discontinued operations") 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 23,          March 24,
                                                               2013              2012
                                                                   (In thousands)
Net income (loss)                                           $  (65,597 )      $    17,144
(Income) loss from discontinued operations, net of
income taxes                                                    69,461              8,426
Interest expense from continuing operations                     10,248              2,073
Income taxes from continuing operations                         (3,901 )            5,213

EBIT before discontinued operations                             10,211             32,856
Depreciation and amortization from continuing
operations                                                      15,100             15,201
Net unrealized (gain) loss on derivative instruments
from continuing operations                                       1,124             (1,455 )
Foreign currency exchange (gain) loss on vessel
obligations                                                     (3,098 )            1,394
Net unrealized loss on foreign denominated instruments
from continuing operations                                      (4,054 )           (3,840 )
Share-based compensation from continuing operations              9,209              2,442
Charges for restructuring from continuing operations                -               1,331
ITOCHU transaction related costs                                 7,054                197
Gain on asset sales                                             (1,321 )           (4,203 )

Adjusted EBITDA                                             $   34,225        $    43,923

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 from continuing operations; (3) adding the foreign currency loss or subtracting the foreign currency gain on the vessel obligations; (4) adding the net unrealized loss or subtracting the net unrealized gain on foreign denominated instruments from continuing operations; (5) adding share-based compensation expense from continuing operations; (6) adding charges for restructuring and long-term receivables from continuing operations; (7) adding ITOCHU transaction related costs; and (8) subtracting the gain on asset sales from continuing operations. 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 2 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.


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Results of Operations

Selected results of operations for the quarters ended March 23, 2013 and
March 24, 2012 were as follows:



                                                                   Quarter Ended
                                                            March 23,          March 24,
                                                              2013               2012
                                                                   (In thousands)
Revenues, net                                              $ 1,053,805        $ 1,086,379
Operating income (loss)                                           (134 )           28,424
Other income (expense), net                                      7,251              2,293
Interest expense                                               (10,248 )           (2,073 )
Income taxes                                                     3,901             (5,213 )
Income (loss) from continuing operations, net of
income taxes                                                     3,864             25,570
Loss from discontinued operations, net of income taxes         (69,461 )           (8,426 )
Net income (loss)                                              (65,597 )           17,144
Less: Net income attributable to noncontrolling
interests                                                       (1,131 )             (777 )
Net income (loss) attributable to shareholders of Dole
Food Company, Inc.                                             (66,728 )           16,367

Revenues

Revenues in the quarter ended March 23, 2013 decreased 3% to $1.05 billion from $1.09 billion for the quarter ended March 24, 2012. Excluding first quarter 2012 sales from Dole's German ripening and distribution subsidiary of $115 million, which was sold in the first quarter of 2012, sales increased 8%. Fresh fruit sales decreased $84 million. Excluding first quarter 2012 sales from the divested German subsidiary, fresh fruit sales increased $31 million. The increase is primarily related to improved pricing and higher volumes in Europe. These improvements were partially offset by lower volumes in Dole's Chilean deciduous fruit business and slightly lower sales of bananas in North America. Fresh vegetables sales increased $51 million mainly due to improved pricing for fresh-packed vegetables and higher volumes of fresh berries and packaged salads. Net favorable foreign currency exchange movements in Dole's selling locations resulted in higher revenues of approximately $8 million.

Operating Income

For the quarter ended March 23, 2013, operating income from continuing operations decreased to a loss of $0.1 million compared with operating income of $28.4 million for the quarter ended March 24, 2012. Operating income decreased primarily due to a legal provision of $33.7 million recorded in connection with the March 2013 decision by the European Union General Court affirming the European Commission's 45.6 million fine imposed during fiscal 2008. Excluding the legal provision, operating income increased $5.2 million. Fresh fruit operating income increased due to higher earnings in Dole's worldwide fresh pineapple operations, higher earnings from Dole's banana operations in Europe, and better performance in the Chilean deciduous fruit business. These improvements were partially offset by slightly lower earnings in Dole's banana operations in North America. Fresh vegetables operating income increased due to higher pricing in all major fresh-packed vegetable product lines, partially offset by lower earnings of fresh berries and packaged salads due primarily to higher growing, purchased vegetable and production costs.

Other Income (Expense), Net

For the quarter ended March 23, 2013, other income (expense), net was income of $7.3 million compared to income of $2.3 million in the prior year. The improvement was primarily due to unrealized gains of $3.1 million generated on Dole's British pound sterling vessel obligation, compared with unrealized losses of $1.4 million recorded in the first quarter of 2012. There was an increase of $0.4 million in unrealized gains on foreign denominated borrowings.

As a result of reflecting Dole Asia's operations as discontinued operations, amounts previously recorded in other income (expense), net related to Dole's long-term Japanese yen hedges have been reclassified into discontinued operations for all periods presented.

Interest Expense

Interest expense for the quarter ended March 23, 2013 was $10.2 million compared to $2.1 million for the quarter ended March 24, 2012. The increase was primarily due to an $8.7 million accrual recorded in the first quarter of 2013 in connection with the March 2013 decision by the European Union General Court affirming the European Commission's 45.6 million fine imposed during fiscal 2008.

As a result of reflecting Dole Asia's operations as discontinued operations, all interest expense associated with Dole's notes and debentures, term loans and revolving credit facilities has been reclassified into discontinued operations for all periods presented. Refer to Note 12 to the Condensed Consolidated Financial Statements for additional information.


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Income Taxes

Dole recorded an income tax benefit of $3.9 million on a $2.1 million pretax loss from continuing operations for the quarter ended March 23, 2013. The income tax benefit included an interest benefit of $0.7 million related to Dole's unrecognized tax benefits. Income tax expense of $5.2 million on $29.4 million of pretax income from continuing operations was recorded for the first quarter ended March 24, 2012, which included interest expense of $0.3 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 23, 2013, Dole's income tax benefit differs from the U.S. federal statutory rate applied to Dole's pretax loss primarily due to a reduction in Dole's liability for unrecognized tax benefits related to the expiration of the statute of limitations in certain foreign jurisdictions. For the quarter ended March 24, 2012, Dole's income tax provision differed from the U.S. federal statutory rate applied to Dole's pre-tax income primarily due to operations in foreign jurisdictions that are taxed at a rate lower than the U.S. federal statutory rate.

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.

Segment Results of Operations

Due to the reporting of the packaged foods reportable operating segment as discontinued operations, Dole has two reportable operating segments from continuing operations: fresh fruit and fresh vegetables. 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 Dole-owned or leased farms located in Latin America, with significant selling locations in North America and Western Europe. Dole Asia's fresh produce business formerly was included in the fresh fruit reportable operating segment, but is reported as discontinued operations in this report as a result of the sale transaction.

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.

Dole's management evaluates and monitors segment performance primarily through earnings before interest expense and income taxes before discontinued operations ("EBIT"). EBIT is calculated by adding interest expense and income taxes to income (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 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 continuing operations were as follows:

                                              Quarter Ended
                                        March 23,       March 24,
                                          2013            2012
                                             (In thousands)
                    Fresh fruit        $   763,788     $   847,623
                    Fresh vegetables       289,654         238,411
                    Corporate                  363             345

                                       $ 1,053,805     $ 1,086,379

The table above includes intersegment revenues from the Dole Asia business of $8 million and $9 million for the quarters ended March 23, 2013 and March 24, 2012, respectively.


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EBIT from continuing operations was as follows:

                                                                    Quarter Ended
                                                            March 23,          March 24,
                                                               2013               2012
                                                                   (In thousands)
Fresh fruit EBIT                                            $   11,497         $   35,671
Fresh vegetables EBIT                                           17,013              7,034

Total operating segments EBIT                                   28,510             42,705
Corporate:
Net unrealized gain (loss) on foreign denominated
instruments                                                      3,952              3,645
Share-based compensation                                        (6,146 )           (1,721 )
ITOCHU transaction related costs                                (7,054 )             (197 )
Operating and other expenses                                    (9,051 )          (11,576 )

Corporate                                                      (18,299 )           (9,849 )
Interest expense                                               (10,248 )           (2,073 )
Income taxes                                                     3,901             (5,213 )

Income from continuing operations                                3,864             25,570
Loss from discontinued operations, net of income taxes         (69,461 )           (8,426 )

Net income (loss)                                           $  (65,597 )       $   17,144

First Quarter 2013 Compared with First Quarter 2012 for Continuing Operations

Fresh Fruit

Fresh fruit revenues for the quarter ended March 23, 2013 decreased 10% to $764 million from $848 million for the quarter ended March 24, 2012. Excluding first quarter 2012 sales by Dole's former German subsidiary of approximately $115 million, fresh fruit revenues increased 4% mainly due to higher sales in Europe. European sales increased as a result of higher local pricing, higher volumes sold and favorable euro and Swedish krona foreign currency exchange movements. These improvements were partially offset by slightly lower sales of bananas in North America as a result of lower pricing. Sales of Chilean deciduous fruit decreased as a result of lower volumes for grapes and apples, partially offset by higher local pricing. Net favorable foreign currency exchange movements in Dole's foreign selling locations resulted in higher revenues of approximately $8 million during the first quarter ended March 23, 2013.

Dole's fresh fruit segment EBIT was impacted by certain items, which are included in the table below:

                                                                Quarter Ended
                                                         March 23,        March 24,
                                                            2013            2012
                                                               (In thousands)
Charges for restructuring                                $       -       $    (1,331 )
European Union antitrust legal provision                    (33,700 )             -
Unrealized gain on foreign currency and fuel hedges          (1,124 )          1,455
Foreign currency exchange loss on vessel obligations          3,098           (1,394 )
Net unrealized gain on foreign denominated instruments          102              195
Share-based compensation                                     (2,298 )           (533 )
Gain on asset sales                                           1,321            4,203

Total                                                    $  (32,601 )    $     2,595

Fresh fruit EBIT for the quarter ended March 23, 2013 decreased $24.2 million to $11.5 million from $35.7 million for the quarter ended March 24, 2012. Fresh fruit EBIT decreased primarily due to a legal provision of $33.7 million recorded in connection with the March 2013 decision by the European Union General Court affirming the European Commission's 45.6 million fine imposed during fiscal 2008. Excluding the legal provision, fresh fruit EBIT increased $9.5 million, or 27%. Banana EBIT increased as a result of higher local pricing in Europe and lower fruit and shipping costs. Lower fruit costs resulted from improved production yields in Latin America associated with both Dole-owned farms in Costa Rica and Honduras as well as fruit purchased from growers in Ecuador. Shipping costs decreased due to lower fuel costs and improved vessel utilization. Fresh pineapples EBIT increased as a result of improved pricing in North America and Europe, partially offset by higher product costs. Chilean deciduous fruit EBIT increased primarily due to improved local pricing, partially offset by higher product costs.


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Fresh Vegetables

Fresh vegetables revenues for the quarter ended March 23, 2013 increased 21% to $289.7 million from $238.4 million for the quarter ended March 24, 2012. Fresh-packed vegetable revenues increased as a result of higher pricing across all major vegetable product lines despite lower overall volumes. Pricing . . .

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