e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 17, 2006
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
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Commission File Number 1-4455
Dole Food Company,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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99-0035300
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Dole
Drive
Westlake Village, California 91362
(Address of principal executive
offices and zip code)
Registrants 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 þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Class
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Shares Outstanding at
July 28, 2006
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Common Stock, $0.001 Par Value
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1,000
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DOLE FOOD
COMPANY, INC.
INDEX
2
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands)
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Quarter Ended
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Half Year Ended
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June 17,
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June 18,
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June 17,
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June 18,
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2006
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2005
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2006
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2005
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Revenues, net
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$
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1,589,037
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$
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1,526,351
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$
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2,989,043
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$
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2,968,484
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Cost of products sold
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1,407,448
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1,305,559
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2,676,993
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2,531,745
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Gross margin
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181,589
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220,792
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312,050
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436,739
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Selling, marketing and general and
administrative expenses
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108,909
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107,382
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216,375
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222,200
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Operating income
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72,680
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113,410
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95,675
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214,539
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Other income (expense), net
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(4,029
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)
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(40,933
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(5,115
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(37,983
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Interest income
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1,705
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970
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3,179
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2,045
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Interest expense
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40,007
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32,398
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74,432
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68,457
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Income before income taxes,
minority interests and equity earnings
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30,349
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41,049
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19,307
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110,144
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Income taxes
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13,071
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9,689
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8,853
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63,110
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Minority interests, net of income
taxes
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101
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647
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718
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1,146
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Equity in earnings of
unconsolidated subsidiaries, net of income taxes
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(1,323
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(1,615
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(2,845
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(3,594
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Net income
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$
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18,500
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$
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32,328
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$
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12,581
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$
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49,482
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See Accompanying Notes to Condensed Consolidated Financial
Statements
3
DOLE FOOD
COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
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June 17,
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December 31,
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2006
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2005
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ASSETS
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Cash and cash equivalents
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$
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51,303
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$
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48,812
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Receivables, net of allowances of
$57,366 and $58,585, respectively
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806,231
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637,636
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Inventories
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632,613
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623,497
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Prepaid expenses
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67,938
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58,864
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Deferred income tax assets
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37,595
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34,756
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Total current assets
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1,595,680
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1,403,565
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Investments
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82,853
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76,753
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Property, plant and equipment, net
of accumulated depreciation of $782,190 and $705,115,
respectively
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1,505,254
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1,508,597
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Goodwill
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540,280
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540,280
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Intangible assets, net
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724,680
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726,700
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Other assets, net
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148,826
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153,832
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Total assets
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$
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4,597,573
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$
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4,409,727
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LIABILITIES AND
SHAREHOLDERS EQUITY
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Accounts payable
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$
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461,552
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$
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411,451
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Accrued liabilities
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447,812
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431,037
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Current portion of long-term debt
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14,643
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25,020
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Notes payable
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34,819
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1,394
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Total current liabilities
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958,826
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868,902
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Long-term debt
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2,205,767
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2,000,843
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Deferred income tax liabilities
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355,634
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355,647
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Other long-term liabilities
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556,541
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546,305
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Minority interests
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20,947
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21,487
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Contingencies (Note 10)
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Shareholders equity
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Common stock
$0.001 par value; 1,000 shares authorized, issued and
outstanding
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Additional paid-in capital
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468,422
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440,032
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Retained earnings
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41,881
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192,991
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Accumulated other comprehensive
loss
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(10,445
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(16,480
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Total shareholders equity
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499,858
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616,543
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Total liabilities and
shareholders equity
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$
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4,597,573
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$
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4,409,727
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See Accompanying Notes to Condensed Consolidated Financial
Statements
4
DOLE FOOD
COMPANY, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Half Year Ended
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June 17,
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June 18,
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2006
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2005
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Operating activities
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Net income
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$
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12,581
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$
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49,482
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Adjustments to reconcile net
income to cash flow provided by (used in) operating activities:
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Depreciation and amortization
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66,656
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67,779
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Foreign currency exchange loss
(gain)
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3,051
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(3,648
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Asset write-offs and gain on sale
of assets, net
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(215
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(3,041
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Minority interests and equity
earnings, net
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(2,127
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)
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(2,448
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Deferred income taxes
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(3,447
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(750
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Premiums paid on early retirement
of debt
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33,047
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Pension and other post-retirement
benefit plan expense
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6,688
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6,790
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Write-off of debt issuance costs
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8,133
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10,722
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Amortization of debt issuance costs
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2,174
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3,289
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Other
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1,741
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2,647
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Changes in operating assets and
liabilities:
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Receivables
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(174,637
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(154,887
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Inventories
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(6,416
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)
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(24,703
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)
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Prepaid expenses and other assets
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(7,982
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)
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(7,682
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)
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Accounts payable
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31,675
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123,167
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Accrued liabilities
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13,415
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(22,451
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)
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Other long-term liabilities
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5,539
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(3,627
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)
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Cash flow provided by (used in)
operating activities
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(43,171
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)
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73,686
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Investing activities
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Proceeds from sales of assets
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2,285
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7,006
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Acquisitions and investments
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(51,010
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Capital additions
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(44,724
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)
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(44,478
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)
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Repurchase of common stock in the
going-private merger transaction
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(100
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)
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(349
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)
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Cash flow used in investing
activities
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(42,539
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)
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(88,831
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)
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Financing activities
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Short-term debt borrowings
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51,360
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6,971
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Short-term debt repayments
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(18,421
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)
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(21,621
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)
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Long-term debt borrowings, net of
debt issuance costs
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1,562,061
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1,190,649
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Long-term debt repayments
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(1,378,558
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)
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(1,155,052
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)
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Capital contributions
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28,390
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Dividends paid to minority
shareholders
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(1,296
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)
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(2,382
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)
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Dividends paid to parent
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(163,691
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)
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(12,300
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)
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Cash flow provided by financing
activities
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79,845
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6,265
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Effect of foreign currency
exchange rate changes on cash and cash equivalents
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8,356
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(1,761
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)
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Increase (decrease) in cash and
cash equivalents
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2,491
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(10,641
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Cash and cash equivalents at
beginning of period
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48,812
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79,217
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Cash and cash equivalents at end
of period
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$
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51,303
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$
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68,576
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See Accompanying Notes to Condensed Consolidated Financial
Statements
5
DOLE FOOD
COMPANY, INC.
(Unaudited)
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 the Companys financial position, results
of operations and cash flows. The Company operates under a
52/53-week
year. The quarters ended June 17, 2006 and June 18,
2005 are twelve weeks in duration. For a summary of significant
accounting policies and additional information relating to the
Companys financial statements, refer to the Notes to
Consolidated Financial Statements in Item 8 of the
Companys Annual Report on
Form 10-K
(Form 10-K)
for the year ended December 31, 2005.
Interim results are subject to seasonal variations and are not
necessarily indicative of the results of operations for a full
year. The Companys 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 developing countries.
Certain amounts in the prior year financial statements and
related footnotes have been reclassified to conform with the
2006 presentation.
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2.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
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During June 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48
Accounting for Uncertainty in Income Taxes (an
interpretation of FASB Statement No. 109) which
is effective for fiscal years beginning after December 15,
2006 with earlier adoption encouraged. This interpretation was
issued to clarify the accounting for uncertainty in income taxes
recognized in the financial statements by prescribing a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
Company is in the process of evaluating the impact of this
interpretation.
Income tax expense for the half year ended June 17, 2006 of
$8.9 million reflects the Companys expected effective
income tax rate of approximately 45.9% for the full fiscal year
ending December 30, 2006. Income tax expense for the half
year ended June 18, 2005 of approximately $24 million,
which excludes the $39.1 million impact of the repatriation
of certain foreign earnings, reflects the Companys then
expected effective income tax rate of approximately 21% for the
full fiscal year ended December 31, 2005.
For 2005, the Companys effective income tax rate differs
from the U.S. federal statutory rate primarily due to
earnings from operations being taxed in foreign jurisdictions at
a net effective rate lower than the U.S. rate. For 2006,
the Companys effective income tax rate is higher than the
U.S. federal statutory rate primarily due to the accrual of tax
related contingencies partially offset by earnings from foreign
jurisdictions that are taxed at a rate lower than the U.S.
federal statutory rate. Other than the taxes provided on the
$570 million of repatriated foreign earnings, no
U.S. taxes have been provided on foreign earnings because
such earnings are intended to be indefinitely invested outside
the U.S.
Section 965 Repatriation: During October
2004, the American Jobs Creation Act of 2004 was signed into
law, adding Section 965 to the Internal Revenue Code.
Section 965 provided a special one-time deduction of 85% of
certain foreign earnings that are repatriated under a domestic
reinvestment plan, as defined therein. The effective federal tax
rate on any qualified foreign earnings repatriated under
Section 965 equals 5.25%. Taxpayers could elect to apply
this provision to a qualified earnings repatriation made during
calendar year 2005.
6
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
During the second quarter of fiscal 2005, the Company
repatriated $570 million of earnings from its foreign
subsidiaries, of which approximately $489 million qualified
for the 85% dividends received deduction under Section 965.
Income Tax Audits: The Company believes its
tax positions comply with the applicable tax laws and that it is
adequately provided for all tax-related matters. The Company is
subject to examination by taxing authorities in the various
jurisdictions in which it files tax returns. Specifically, the
Company is routinely under examination by the Internal Revenue
Service. The current examination includes the years 1995 through
2001. Matters raised upon audit may involve substantial amounts
and could result in material cash payments if resolved
unfavorably; however, the Company does not believe that any
material payments will be made related to these matters within
the next twelve months. In addition, the Company considers it
unlikely that the resolution of these matters will have a
material adverse effect on its results of operations.
Internal Revenue Service Audit: On
June 29, 2006, the IRS completed an examination of the
Companys federal income tax returns for the years 1995 to
2001 and issued a Revenue Agents Report (RAR)
that includes various proposed adjustments. The net tax
deficiency associated with the RAR is $175 million, plus
interest and penalties. The Company timely filed a protest
letter contesting the proposed adjustments contained in the RAR
on July 6, 2006 and will pursue resolution of these issues
with the Appeals Division of the IRS. The Company believes that
its U.S. federal income tax returns were completed in
accordance with applicable laws and regulations and disagrees
with the proposed adjustments. The Company also believes that it
is adequately reserved with respect to this matter. Management
does not believe that any material payments will be made related
to these matters within the next twelve months. In addition,
management considers it unlikely that the resolution of these
matters will have a material adverse effect on its results of
operations.
Honduran Tax Case: In 2005, the Company
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 the Companys interest in
Cervecería Hondureña, S.A in 2001. The Company
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, the Company
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 is
seeking dismissal of the lawsuit and attachment of assets, which
the Company is challenging. No reserve has been provided for
this assessment.
The major classes of inventories were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 17,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Finished products
|
|
$
|
314,931
|
|
|
$
|
290,593
|
|
Raw materials and work in progress
|
|
|
155,208
|
|
|
|
145,146
|
|
Crop-growing costs
|
|
|
109,301
|
|
|
|
139,271
|
|
Operating supplies and other
|
|
|
53,173
|
|
|
|
48,487
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
632,613
|
|
|
$
|
623,497
|
|
|
|
|
|
|
|
|
|
|
7
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
|
|
5.
|
GOODWILL
AND INTANGIBLE ASSETS
|
Goodwill has been allocated to the Companys reporting
segments as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh
|
|
|
Fresh
|
|
|
Packaged
|
|
|
Fresh-cut
|
|
|
|
|
|
|
|
|
|
Fruit
|
|
|
Vegetables
|
|
|
Foods
|
|
|
Flowers
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of June 17, 2006
and December 31, 2005
|
|
$
|
376,355
|
|
|
$
|
97,868
|
|
|
$
|
66,057
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
540,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of the Companys intangible assets were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 17,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
38,501
|
|
|
$
|
38,501
|
|
Other amortized intangible assets
|
|
|
9,174
|
|
|
|
9,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,675
|
|
|
|
47,565
|
|
Accumulated
amortization customer relationships
|
|
|
(10,914
|
)
|
|
|
(9,219
|
)
|
Other accumulated amortization
|
|
|
(6,599
|
)
|
|
|
(6,164
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization intangible assets
|
|
|
(17,513
|
)
|
|
|
(15,383
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
30,162
|
|
|
|
32,182
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
Trademark, trade names and other
related intangibles
|
|
|
694,518
|
|
|
|
694,518
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
$
|
724,680
|
|
|
$
|
726,700
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of intangible assets for the quarter and
half year ended June 17, 2006 was $1 million and
$2 million, respectively. Amortization expense of
intangible assets for the quarter and half year ended
June 18, 2005 was $2.7 million and $5.5 million,
respectively. As of June 17, 2006, the estimated remaining
amortization expense associated with the Companys
intangible assets for the remainder of 2006 and in each of the
next four fiscal years is as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
|
2006
|
|
$
|
2,328
|
|
2007
|
|
$
|
3,677
|
|
2008
|
|
$
|
3,677
|
|
2009
|
|
$
|
3,677
|
|
2010
|
|
$
|
3,677
|
|
The Company performed its annual impairment review of goodwill
and indefinite-lived intangible assets pursuant to Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, during the second quarter of fiscal
2006. This review indicated no impairment to goodwill or any of
the Companys indefinite-lived intangible assets.
8
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
|
|
6.
|
NOTES PAYABLE
AND LONG-TERM DEBT
|
Notes payable and long-term debt consisted of the following
amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 17,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Unsecured debt:
|
|
|
|
|
|
|
|
|
8.625% notes due 2009
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
7.25% notes due 2010
|
|
|
400,000
|
|
|
|
400,000
|
|
8.875% notes due 2011
|
|
|
200,000
|
|
|
|
200,000
|
|
8.75% debentures due 2013
|
|
|
155,000
|
|
|
|
155,000
|
|
Secured debt:
|
|
|
|
|
|
|
|
|
Revolving credit facilities
|
|
|
51,200
|
|
|
|
137,000
|
|
Term loan facilities
|
|
|
975,000
|
|
|
|
698,149
|
|
Contracts and notes due
2006 2010, at a weighted-average interest rate of
6.85% (6.86% in 2005)
|
|
|
5,975
|
|
|
|
5,952
|
|
Capital lease obligations
|
|
|
84,305
|
|
|
|
80,971
|
|
Unamortized debt discount
|
|
|
(1,070
|
)
|
|
|
(1,209
|
)
|
Notes payable
|
|
|
34,819
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,255,229
|
|
|
|
2,027,257
|
|
Current maturities
|
|
|
(49,462
|
)
|
|
|
(26,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,205,767
|
|
|
$
|
2,000,843
|
|
|
|
|
|
|
|
|
|
|
The Company amortized deferred debt issuance costs of
$1.1 million and $2.2 million during the quarter and
half year ended June 17, 2006, respectively. The Company
amortized deferred debt issuance costs of $1.4 million and
$3.3 million during the quarter and half year ended
June 18, 2005, respectively.
On April 12, 2006, the Company completed an amendment and
restatement of its senior secured credit facilities. The Company
obtained $975 million of term loan facilities (consisting
of $225 million related to Term Loan B and
$750 million related to Term Loan C) and
$100 million in a pre-funded letter of credit facility. The
proceeds of the term loans were used to repay the outstanding
term loans under the Companys then existing senior secured
credit facilities which consisted of Term Loan A
(denominated in Japanese yen) and Term Loan B. In addition,
the Company paid a dividend of $160 million during the
second quarter of 2006 to its immediate parent, Dole Holding
Company, LLC, which proceeds were used to repay its Second Lien
Senior Credit Facility. The weighted average variable interest
rate at June 17, 2006 for the term loan facilities was 7.1%.
In addition, the Company entered into a new asset based
revolving credit facility (ABL revolver) of
$350 million. The facility is secured and is subject to a
borrowing base consisting of up to 85% of eligible accounts
receivable plus a predetermined percentage of eligible
inventory, as defined in the credit facility. As of
June 17, 2006, the ABL revolver balance outstanding was
$51.2 million. The weighted average variable interest rate
at June 17, 2006, for the asset based revolving credit
facility was 8%.
In connection with the April 2006 refinancing transaction, the
Company wrote-off deferred debt issuance costs of
$8.1 million. The Company also recognized a gain of
$6.5 million related to the settlement of its interest rate
swap associated with Term Loan A. These amounts were
recorded to other income (expense) in the condensed consolidated
statements of income.
After taking into account approximately $3.2 million of
outstanding letters of credit issued under the ABL revolver, the
Company had approximately $273 million available for
borrowings as of June 17, 2006. In addition,
9
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
the Company has approximately $83.7 million of letters of
credit and bond guarantees outstanding under its pre-funded
letter of credit facility.
The terms and covenants under the new senior secured credit
facilities are similar to those under the Companys
previous senior secured credit facilities except that the new
facilities do not contain certain financial maintenance or
maximum capital expenditure covenants. The Company was in
compliance with all applicable covenants at June 17, 2006.
During June 2006, the Company entered into an interest rate swap
agreement in order to hedge future changes in interest rates.
This agreement effectively converted $320 million of
borrowings under Term Loan C, which is variable-rate debt,
to a fixed rate basis through June 2011. The interest rate swap
fixed the interest rate at 7.24%. The fair value of the swap was
$0.6 million at June 17, 2006. Simultaneously, the
Company 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 of 7.24% to a Japanese yen
interest rate of 3.60%. Since the cross currency swap does not
qualify for hedge accounting, all gains and losses are recorded
through other income (expense) in the condensed consolidated
statements of income.
Comprehensive
Income
The components of comprehensive income were as follows in each
period (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
18,500
|
|
|
$
|
32,328
|
|
Unrealized foreign currency
exchange translation gain (loss)
|
|
|
9,986
|
|
|
|
(11,813
|
)
|
Reclassification of realized cash
flow hedging gains to net income
|
|
|
(5,307
|
)
|
|
|
(532
|
)
|
Unrealized net gain (loss) on cash
flow hedging instruments
|
|
|
(8,049
|
)
|
|
|
3,521
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
15,130
|
|
|
$
|
23,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half Year Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
12,581
|
|
|
$
|
49,482
|
|
Unrealized foreign currency
exchange translation gain (loss)
|
|
|
12,264
|
|
|
|
(19,459
|
)
|
Reclassification of realized cash
flow hedging gains to net income
|
|
|
(6,578
|
)
|
|
|
(638
|
)
|
Unrealized net gain on cash flow
hedging instruments
|
|
|
349
|
|
|
|
2,875
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
18,616
|
|
|
$
|
32,260
|
|
|
|
|
|
|
|
|
|
|
Capital
Contribution
On March 3, 2006, DHM Holding Company, Inc.
(HoldCo) executed a $150 million senior secured
term loan agreement. In March 2006, HoldCo contributed
$28.4 million to its wholly-owned subsidiary, Dole Holding
Company, LLC, the Companys immediate parent, which
contributed the funds to the Company. The Company intends to
return this entire amount back to Dole Holding Company, LLC by
the end of 2006 for further return to HoldCo.
10
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Dividends
During the half year ended June 17, 2006, the Company
declared and paid dividends of $163.7 million to Dole
Holding Company, LLC. For the quarter ended June 17, 2006,
dividends declared and paid were $160.3 million.
During the quarter and half year ended June 18, 2005, the
Company declared dividends of $74 million to its parent
company, Dole Holding Company, LLC, of which $12.3 million
was paid. The dividends were a return of the capital
contribution made to the Company by Dole Holding Company, LLC,
in 2004. The remaining balance of $61.7 million was paid
during the third quarter of 2005.
The Companys ability to declare future dividends is
limited under the terms of its senior secured credit facilities
and bond indentures.
|
|
8.
|
EMPLOYEE
BENEFIT PLANS
|
The components of net periodic benefit cost for the
Companys U.S. and international pension plans and other
postretirement benefit (OPRB) plans were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
|
Foreign Pension Plans
|
|
|
OPRB Plans
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
June 17,
|
|
|
June 18,
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Components of net periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
408
|
|
|
$
|
438
|
|
|
$
|
853
|
|
|
$
|
734
|
|
|
$
|
65
|
|
|
$
|
32
|
|
Interest cost
|
|
|
3,918
|
|
|
|
4,063
|
|
|
|
1,428
|
|
|
|
1,179
|
|
|
|
900
|
|
|
|
758
|
|
Expected return on plan assets
|
|
|
(4,159
|
)
|
|
|
(4,172
|
)
|
|
|
(83
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss (gain)
|
|
|
145
|
|
|
|
199
|
|
|
|
50
|
|
|
|
41
|
|
|
|
(26
|
)
|
|
|
5
|
|
Unrecognized prior service cost
(benefit)
|
|
|
|
|
|
|
1
|
|
|
|
16
|
|
|
|
14
|
|
|
|
(211
|
)
|
|
|
(320
|
)
|
Unrecognized net transition
obligation
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
312
|
|
|
$
|
529
|
|
|
$
|
2,274
|
|
|
$
|
1,903
|
|
|
$
|
728
|
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
|
Foreign Pension Plans
|
|
|
OPRB Plans
|
|
|
|
Half Year Ended
|
|
|
Half Year Ended
|
|
|
Half Year Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
June 17,
|
|
|
June 18,
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Components of net periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
816
|
|
|
$
|
876
|
|
|
$
|
1,731
|
|
|
$
|
1,624
|
|
|
$
|
130
|
|
|
$
|
51
|
|
Interest cost
|
|
|
7,836
|
|
|
|
8,126
|
|
|
|
2,889
|
|
|
|
2,491
|
|
|
|
1,800
|
|
|
|
1,927
|
|
Expected return on plan assets
|
|
|
(8,318
|
)
|
|
|
(8,343
|
)
|
|
|
(168
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss (gain)
|
|
|
290
|
|
|
|
397
|
|
|
|
103
|
|
|
|
76
|
|
|
|
(52
|
)
|
|
|
10
|
|
Unrecognized prior service cost
(benefit)
|
|
|
|
|
|
|
2
|
|
|
|
27
|
|
|
|
29
|
|
|
|
(422
|
)
|
|
|
(345
|
)
|
Unrecognized net transition
obligation
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
624
|
|
|
$
|
1,058
|
|
|
$
|
4,608
|
|
|
$
|
4,089
|
|
|
$
|
1,456
|
|
|
$
|
1,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the Internal Revenue Service funding requirements, no
contribution will be required for 2006. However, the Company may
make contributions to its U.S. qualified plan in 2006 at
its election. Contributions to the qualified U.S. pension
plan in excess of the minimum funding requirements are voluntary
and may change depending on the Companys operating
performance or at managements discretion. During the first
half of 2006, the Company did not make any voluntary pension
contributions to its qualified U.S. pension plan.
The Company has four primary reportable operating segments:
fresh fruit, fresh vegetables, packaged foods and fresh-cut
flowers. These reportable segments are managed separately due to
differences in their products, production processes,
distribution channels and customer bases.
Management evaluates and monitors segment performance primarily
through earnings before interest expense and income taxes
(EBIT). EBIT is calculated by adding income taxes
and interest expense to net income. 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 the Company as a whole. EBIT is not defined under
accounting principles generally accepted in the United States
(GAAP) and should not be considered in isolation or
as a substitute for net income measures prepared in accordance
with GAAP or as a measure of the Companys profitability.
Additionally, the Companys 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.
12
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Revenues from external customers and EBIT for the reportable
operating segments and corporate were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Half Year Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh fruit
|
|
$
|
1,003,909
|
|
|
$
|
984,077
|
|
|
$
|
1,900,933
|
|
|
$
|
1,923,604
|
|
Fresh vegetables
|
|
|
304,403
|
|
|
|
290,223
|
|
|
|
547,606
|
|
|
|
543,829
|
|
Packaged foods
|
|
|
221,723
|
|
|
|
195,363
|
|
|
|
417,670
|
|
|
|
385,653
|
|
Fresh-cut flowers
|
|
|
44,869
|
|
|
|
44,360
|
|
|
|
103,033
|
|
|
|
97,079
|
|
Other operating segments
|
|
|
14,133
|
|
|
|
12,328
|
|
|
|
19,801
|
|
|
|
18,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,589,037
|
|
|
$
|
1,526,351
|
|
|
$
|
2,989,043
|
|
|
$
|
2,968,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh fruit
|
|
$
|
52,470
|
|
|
$
|
94,957
|
|
|
$
|
72,693
|
|
|
$
|
171,466
|
|
Fresh vegetables
|
|
|
11,791
|
|
|
|
10,670
|
|
|
|
16,351
|
|
|
|
29,874
|
|
Packaged foods
|
|
|
22,002
|
|
|
|
20,792
|
|
|
|
36,883
|
|
|
|
38,719
|
|
Fresh-cut flowers
|
|
|
(5,083
|
)
|
|
|
(666
|
)
|
|
|
(5,478
|
)
|
|
|
3,892
|
|
Other operating segments
|
|
|
423
|
|
|
|
438
|
|
|
|
573
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating segments
|
|
|
81,603
|
|
|
|
126,191
|
|
|
|
121,022
|
|
|
|
244,464
|
|
Corporate
|
|
|
(10,025
|
)
|
|
|
(51,776
|
)
|
|
|
(25,156
|
)
|
|
|
(63,415
|
)
|
Interest expense
|
|
|
40,007
|
|
|
|
32,398
|
|
|
|
74,432
|
|
|
|
68,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
31,571
|
|
|
$
|
42,017
|
|
|
$
|
21,434
|
|
|
$
|
112,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A majority of the Companys equity earnings in
unconsolidated subsidiaries, which have been included in EBIT in
the table above, relate to the fresh fruit operating segment.
Total assets for the reportable operating segments and corporate
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 17,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Fresh fruit
|
|
$
|
2,446,082
|
|
|
$
|
2,301,090
|
|
Fresh vegetables
|
|
|
473,448
|
|
|
|
451,490
|
|
Packaged foods
|
|
|
668,134
|
|
|
|
639,999
|
|
Fresh-cut flowers
|
|
|
151,790
|
|
|
|
153,565
|
|
Other operating segments
|
|
|
21,214
|
|
|
|
12,478
|
|
|
|
|
|
|
|
|
|
|
Total operating segments
|
|
|
3,760,668
|
|
|
|
3,558,622
|
|
Corporate
|
|
|
836,905
|
|
|
|
851,105
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,597,573
|
|
|
$
|
4,409,727
|
|
|
|
|
|
|
|
|
|
|
The Company is a guarantor of indebtedness of some of its key
fruit suppliers and other entities integral to the
Companys operations. At June 17, 2006, guarantees of
$1.9 million consisted primarily of amounts advanced under
13
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
third party bank agreements to independent growers that supply
the Company with product. The Company has not historically
experienced any significant losses associated with these
guarantees.
In connection with the April 2006 refinancing transaction, the
Company obtained a $100 million pre-funded letter of credit
facility. As of June 17, 2006, letters of credit and bank
guarantees outstanding under this facility totaled
$83.7 million. In addition, the Company issues letters of
credit and bonds through major banking institutions, insurance
companies and its ABL revolver as required by certain regulatory
authorities, vendor and other operating agreements. As of
June 17, 2006, total letters of credit and bonds
outstanding under these arrangements were $29.2 million.
As part of its normal business activities, the Company and its
subsidiaries also provide guarantees to various regulatory
authorities, primarily in Europe, in order to comply with
foreign regulations when operating businesses overseas. These
guarantees relate to customs duties and banana import license
fees that were granted to the European Union member states
agricultural authority. These guarantees are obtained from
commercial banks in the form of letters of credit or bank
guarantees, primarily issued under the Companys pre-funded
letter of credit facility.
The Company 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. The Company guaranteed $150.4 million of its
subsidiaries obligations to their suppliers and other
third parties as of June 17, 2006.
The Company 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 following a change of control (as defined) of the
Company. These agreements are more fully described in
Item 11 of the Companys annual report on
Form 10-K for the fiscal year ended December 31, 2005.
The Company is involved from time to time in claims and legal
actions incidental to its operations, both as plaintiff and
defendant. The Company has established what management currently
believes to be adequate reserves for pending legal matters.
These reserves are established as part of an ongoing worldwide
assessment of claims and legal actions that takes into
consideration such items as changes in the pending case load
(including resolved and new matters), opinions of legal counsel,
individual developments in court proceedings, changes in the
law, changes in business focus, changes in the litigation
environment, changes in opponent strategy and tactics, new
developments as a result of ongoing discovery, and past
experience in defending and settling similar claims. In the
opinion of management, after consultation with outside counsel,
the claims or actions to which the Company is a party are not
expected to have a material adverse effect, individually or in
the aggregate, on the Companys financial condition or
results of operations.
A significant portion of the Companys legal exposure
relates to lawsuits pending in the United States and in several
foreign countries, alleging injury as a result of exposure to
the agricultural chemical DBCP (1,2-dibromo-3-chloropropane).
DBCP was manufactured by several chemical companies including
Dow and Shell and registered by the U.S. government for use
on food crops. The Company 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. The Company 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.
14
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Currently there are 570 lawsuits, in various stages of
proceedings, alleging injury as a result of exposure to DBCP or
seeking enforcement of Nicaraguan judgments. Twenty-five of
these lawsuits (increased from 17 as of March 25,
2006) are currently pending in various jurisdictions in the
United States; the increase results from a redistribution of
claimants by plaintiffs counsel. One case pending in Los
Angeles Superior Court with 13 Nicaraguan plaintiffs has a trial
date of January 24, 2007. Another case in Galveston, Texas
with 439 claimants from Costa Rica has a trial planned for
January 2007. The remaining cases are pending in Latin America
and the Philippines, including 347 labor cases pending in Costa
Rica under that countrys national insurance program.
Claimed damages in DBCP cases worldwide total approximately
$37.5 billion, with lawsuits in Nicaragua representing
approximately 85% of this amount. In almost all of the non-labor
cases, the Company is a joint defendant with the major DBCP
manufacturers and, typically, other banana growers. Except as
described below, none of these lawsuits has resulted in a
verdict or judgment against the Company.
In Nicaragua, 175 cases are currently filed in various courts
throughout the country, with all but one of the lawsuits brought
pursuant to Law 364, an October 2000 Nicaraguan statute that
contains substantive and procedural provisions that
Nicaraguas 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.
Seventeen cases have resulted in judgments in Nicaragua:
$489.4 million (nine cases consolidated with
468 claimants) on December 11, 2002;
$82.9 million (one case with 58 claimants) on
February 25, 2004; $15.7 million (one case with 20
claimants) on May 25, 2004; $4 million (one case with
four claimants) on May 25, 2004; $56.5 million (one
case with 72 claimants) on June 14, 2004;
$64.8 million (one case with 86 claimants) on June 15,
2004; $27.7 million (one case with 39 claimants) on
March 17, 2005; $98.5 million (one case with
150 claimants) on August 8, 2005; and
$46.4 million (one case with 62 claimants) on
August 20, 2005. The Company has appealed all judgments to
the Nicaragua Courts of Appeal, with the Companys appeal
of the August 8, 2005 $98.5 million judgment now
activated by the court.
There are 32 active cases currently pending in civil courts in
Managua (14), Chinandega (16) and Puerto Cabezas (2), all
of which have been brought under Law 364 except for one of the
cases pending in Chinandega. Six of the active cases pending
before the court in Chinandega have been consolidated for trial,
which seeks $3.4 billion on behalf of 1,708 claimants.
Trial in this consolidated case commenced November 25,
2005. In the 31 active cases under Law 364, except for six cases
in Chinandega and four cases in Managua where the
Company has not yet been ordered to answer, the Company has
sought to have the cases returned to the United States pursuant
to Law 364. Notwithstanding, the Chinandega courts have denied
the Companys request in seven cases (six of which are
consolidated) pending there; the Managua court denied the
Companys request in one of the cases pending there; and
the court in Puerto Cabezas denied the Companys request in
the two cases there. The Companys requests in nine of the
cases in Managua are still pending; and the Company expects to
make similar requests in the remaining four cases at the
appropriate time. The Company has appealed the two decisions of
the court in Puerto Cabezas, the decision of the court in
Managua and the seven decisions of the courts in Chinandega.
The claimants attempted enforcement of the
December 11, 2002 judgment for $489.4 million in the
United States resulted in a dismissal with prejudice of
that action by the United States District Court for the Central
District of California on October 20, 2003. The claimants
have voluntarily dismissed their appeal of that decision which
was pending before the United States Court of Appeals for the
Ninth Circuit. Defendants motion for sanctions against
Plaintiffs counsel is still pending before the Court of
Appeals in that case.
Claimants have also indicated their intent to seek enforcement
of the Nicaraguan judgments in Colombia, Ecuador, Venezuela and
other countries in Latin America and elsewhere, including the
United States. In Venezuela, the claimants are attempting to
enforce five of the Nicaraguan judgments in that countrys
Supreme Court: $489.4 million (December 11, 2002);
$82.9 million (February 25, 2004); $15.7 million
(May 25, 2004); $56.5 million (June 14, 2004);
and $64.8 million (June 15, 2004). An action filed to
enforce the $27.7 million Nicaraguan judgment
(March 17, 2005) in the Colombian Supreme Court was
dismissed. In Ecuador, the claimants
15
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
attempted to enforce the five Nicaraguan judgments issued
between February 25, 2004 through June 15, 2004 in the
Ecuador Supreme Court. The First, Second and Third Chambers of
the Ecuador Supreme Court issued rulings refusing to consider
those enforcement actions on the ground that the Supreme Court
was not a court of competent jurisdiction for enforcement of a
foreign judgment. The plaintiffs subsequently refiled those five
enforcement actions in the civil court in Guayaquil, Ecuador.
Two of these subsequently filed enforcement actions have been
dismissed by the 3rd Civil Court
$15.7 million (May 25, 2004) and the
12th Civil Court $56.5 million
(June 14, 2004) in Guayaquil; plaintiffs have
sought reconsideration of those dismissals. The remaining three
enforcement actions are still pending.
The Company believes that none of the Nicaraguan civil trial
courts judgments will be enforceable against any Dole
entity in the U.S. or in any other country, because
Nicaraguas 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.
As to all the DBCP matters, the Company has denied liability and
asserted substantial defenses. The Company has also engaged in
efforts to resolve pending litigation and claims in the U.S. and
Latin America. Although no assurance can be given concerning the
outcome of these cases, in the opinion of management, after
consultation with legal counsel and based on past experience
defending and settling DBCP claims, the pending lawsuits are not
expected to have a material adverse effect on the Companys
financial condition or results of operations.
European Union Antitrust Inquiry and
U.S. Class Action Lawsuits: The
European Commission (EC) is investigating alleged
violations of European Union competition (antitrust) laws by
banana and pineapple importers and distributors operating within
the European Economic Area. On June 2 and 3, 2005, the EC
conducted a search of certain of the Companys offices in
Europe. During this same period, the EC also conducted similar
unannounced searches of other companies offices located in
the European Union. The Company is cooperating with the EC and
has responded to the ECs information requests. Although no
assurances can be given concerning the course or outcome of that
EC investigation, the Company believes that it has not violated
the European Union competition laws.
Following the public announcement of the EC searches, a number
of class action lawsuits were filed against the Company and
three competitors in the U.S. District Court for the
Southern District of Florida. The lawsuits were filed on behalf
of entities that directly or indirectly purchased bananas from
the defendants and have now been consolidated into two separate
class action lawsuits: one by direct purchasers (customers); and
another by indirect purchasers (those who purchased bananas from
customers). Both consolidated class action lawsuits allege that
the defendants conspired to artificially raise or maintain
prices and control or restrict output of bananas. The Company
believes these lawsuits are without merit.
Honduran Tax Case: In 2005, the Company
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 the Companys interest in
Cervecería Hondureña, S.A in 2001. The Company
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, the Company
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 is
seeking dismissal of the lawsuit and attachment of assets, which
the Company is challenging. No reserve has been provided for
this assessment.
16
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
|
|
11.
|
IMPACT OF
HURRICANE KATRINA
|
During the third quarter of 2005, the Companys operations
in the Gulf Coast area of the United States were impacted by
Hurricane Katrina. The Companys fresh fruit division
utilizes the Gulfport, Mississippi port facility to receive and
store product from its Latin American operations. The Gulfport
facility, which is leased from the Mississippi Port Authority,
incurred significant damage from Hurricane Katrina. As a result
of the damage sustained at the Gulfport terminal, the Company
diverted shipments to other Dole port facilities including
Freeport, Texas; Port Everglades, Florida; and Wilmington,
Delaware. The Company resumed discharging shipments of fruit and
other cargo in Gulfport at the beginning of the fourth quarter
of 2005. However, the facility has not yet been fully rebuilt.
The financial impact to the Companys fresh fruit
operations includes the loss of cargo and equipment, property
damage and additional costs associated with re-routing product
to other ports in the region. Equipment that was destroyed or
damaged includes refrigerated and dry shipping containers, as
well as chassis and generator-sets used for land transportation
of the shipping containers.
During the first half of 2006, the Company incurred direct
incremental expenses of $1.2 million related to Hurricane
Katrina, bringing the total charge to $11.3 million. The
total charge includes direct incremental expenses of
$5.1 million, write-offs of owned assets with a net book
value of $4.1 million and leased assets of
$2.1 million representing amounts due to lessors. The
Company maintains customary insurance for its property,
including shipping containers, as well as for business
interruption. During the first half of 2006, the Company
collected $5.8 million from insurance carriers related to
cargo and property damage bringing the total cash collected to
$11.8 million. The Company is continuing to work with its
insurers to evaluate the extent of the costs incurred as a
result of the hurricane damage and to determine the extent of
the insurance coverage for that damage.
|
|
12.
|
BUSINESS
RESTRUCTURING
|
During the first quarter of 2006, the commercial relationship
substantially ended between Doles wholly owned subsidiary,
Saba Trading AB (Saba), and Sabas largest
customer. Saba is a leading importer and distributor of fruit,
vegetables and flowers in Scandinavia. Sabas financial
results are included in Doles fresh fruit reporting
segment. Other than the expected charges described below, the
loss of this customers business is not expected to be
material to Doles ongoing earnings. In connection with
this recent event, Dole plans on restructuring certain lines of
Sabas business and expects to incur approximately
$15 million of total related costs. Total costs incurred as
of June 17, 2006, amounted to approximately
$8.9 million, of which $6.4 million is included in
cost of products sold and $2.5 million is included in
selling, marketing, and general and administrative expenses in
the Condensed Consolidated Statement of Income. The costs
incurred consist of $7.3 million of employee severance
costs, $1.3 million of contractual lease obligations and
$0.3 million of fixed asset write-offs. The
$7.3 million of employee severance costs relate to 225
employees. As of June 17, 2006, the remaining amounts of
accrued employee severance costs and contractual lease
obligations were $5.4 million and $0.7 million,
respectively. The Company expects to pay these remaining
balances by the end of 2006. The Company currently estimates
that the remaining $6 million of restructuring costs,
primarily related to employee severance and contractual lease
obligations, will be incurred during the third quarter of 2006
and paid by the end of 2006. In addition, Doles potential
contractual claims against this customer are pending the results
of current discussions.
|
|
13.
|
GUARANTOR
FINANCIAL INFORMATION
|
In connection with the issuance of the 2011 Notes in March 2003
and the 2010 Notes in May 2003, all of the Companys
wholly-owned domestic subsidiaries (Guarantors) have
fully and unconditionally guaranteed, on a joint and several
basis, the Companys obligations under the indentures
related to such Notes and to the Companys 2009 Notes and
2013 Debentures (the Guarantees). Each Guarantee is
subordinated in right of payment to the Guarantors
existing and future senior debt, including obligations under the
senior secured credit facilities, and will rank pari passu with
all senior subordinated indebtedness of the applicable Guarantor.
17
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
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 the Companys share in
the subsidiaries cumulative results of operations, capital
contributions and distributions and other changes in equity.
Elimination entries relate primarily to the elimination of
investments in subsidiaries and associated intercompany balances
and transactions.
As of January 1, 2006, Dole Packaged Frozen Foods, Inc. was
converted to a limited liability company. In addition, the
assets and liabilities of the Dole Packaged Foods division were
contributed to Dole Packaged Frozen Foods, Inc., and the
combined entity was renamed Dole Packaged Foods, LLC. Prior to
January 1, 2006, Dole Packaged Foods was included as a
division of Dole Food Company, Inc. for all guarantor financial
statements presented. Subsequent to the change in structure
effective January 1, 2006, Dole Packaged Foods, LLC is
presented as a Guarantor for disclosure purposes in the
accompanying condensed consolidated financial statements for the
quarter and half year ended June 17, 2006.
The following are condensed consolidating statements of income
of the Company for the quarters and half years ended
June 17, 2006 and June 18, 2005; condensed
consolidating balance sheets as of June 17, 2006 and
December 31, 2005; and condensed consolidating statements
of cash flows for the half years ended June 17, 2006 and
June 18, 2005.
18
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
CONDENSED
CONSOLIDATING STATEMENT OF INCOME
For the Quarter Ended June 17, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dole Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company, Inc.
|
|
|
Guarantors
|
|
|
Non Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net
|
|
$
|
15,405
|
|
|
$
|
762,337
|
|
|
$
|
1,109,081
|
|
|
$
|
(297,786
|
)
|
|
$
|
1,589,037
|
|
Cost of products sold
|
|
|
13,323
|
|
|
|
679,665
|
|
|
|
1,006,561
|
|
|
|
(292,101
|
)
|
|
|
1,407,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
2,082
|
|
|
|
82,672
|
|
|
|
102,520
|
|
|
|
(5,685
|
)
|
|
|
181,589
|
|
Selling, marketing and general and
administrative expenses
|
|
|
11,742
|
|
|
|
48,335
|
|
|
|
54,517
|
|
|
|
(5,685
|
)
|
|
|
108,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(9,660
|
)
|
|
|
34,337
|
|
|
|
48,003
|
|
|
|
|
|
|
|
72,680
|
|
Equity in subsidiary income
|
|
|
37,191
|
|
|
|
29,928
|
|
|
|
|
|
|
|
(67,119
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(3,205
|
)
|
|
|
|
|
|
|
(824
|
)
|
|
|
|
|
|
|
(4,029
|
)
|
Interest income
|
|
|
558
|
|
|
|
116
|
|
|
|
1,031
|
|
|
|
|
|
|
|
1,705
|
|
Interest expense
|
|
|
26,558
|
|
|
|
83
|
|
|
|
13,366
|
|
|
|
|
|
|
|
40,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes,
minority interests and equity earnings
|
|
|
(1,674
|
)
|
|
|
64,298
|
|
|
|
34,844
|
|
|
|
(67,119
|
)
|
|
|
30,349
|
|
Income taxes
|
|
|
(20,210
|
)
|
|
|
27,610
|
|
|
|
5,671
|
|
|
|
|
|
|
|
13,071
|
|
Minority interests, net of income
taxes
|
|
|
36
|
|
|
|
(142
|
)
|
|
|
207
|
|
|
|
|
|
|
|
101
|
|
Equity in earnings of
unconsolidated subsidiaries, net of income taxes
|
|
|
|
|
|
|
47
|
|
|
|
(1,370
|
)
|
|
|
|
|
|
|
(1,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,500
|
|
|
$
|
36,783
|
|
|
$
|
30,336
|
|
|
$
|
(67,119
|
)
|
|
$
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Quarter Ended June 18, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dole Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company, Inc.
|
|
|
Guarantors
|
|
|
Non Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net
|
|
$
|
125,896
|
|
|
$
|
597,623
|
|
|
$
|
1,081,659
|
|
|
$
|
(278,827
|
)
|
|
$
|
1,526,351
|
|
Cost of products sold
|
|
|
93,115
|
|
|
|
554,183
|
|
|
|
932,777
|
|
|
|
(274,516
|
)
|
|
|
1,305,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
32,781
|
|
|
|
43,440
|
|
|
|
148,882
|
|
|
|
(4,311
|
)
|
|
|
220,792
|
|
Selling, marketing and general and
administrative expenses
|
|
|
28,037
|
|
|
|
31,331
|
|
|
|
52,325
|
|
|
|
(4,311
|
)
|
|
|
107,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,744
|
|
|
|
12,109
|
|
|
|
96,557
|
|
|
|
|
|
|
|
113,410
|
|
Equity in subsidiary income
|
|
|
97,586
|
|
|
|
87,213
|
|
|
|
|
|
|
|
(184,799
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(43,699
|
)
|
|
|
549
|
|
|
|
2,217
|
|
|
|
|
|
|
|
(40,933
|
)
|
Interest income
|
|
|
119
|
|
|
|
17
|
|
|
|
834
|
|
|
|
|
|
|
|
970
|
|
Interest expense
|
|
|
25,112
|
|
|
|
70
|
|
|
|
7,216
|
|
|
|
|
|
|
|
32,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes,
minority interests and equity earnings
|
|
|
33,638
|
|
|
|
99,818
|
|
|
|
92,392
|
|
|
|
(184,799
|
)
|
|
|
41,049
|
|
Income taxes
|
|
|
1,016
|
|
|
|
2,411
|
|
|
|
6,262
|
|
|
|
|
|
|
|
9,689
|
|
Minority interests, net of income
taxes
|
|
|
294
|
|
|
|
186
|
|
|
|
167
|
|
|
|
|
|
|
|
647
|
|
Equity in earnings of
unconsolidated subsidiaries, net of income taxes
|
|
|
|
|
|
|
(70
|
)
|
|
|
(1,545
|
)
|
|
|
|
|
|
|
(1,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,328
|
|
|
$
|
97,291
|
|
|
$
|
87,508
|
|
|
$
|
(184,799
|
)
|
|
$
|
32,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
CONDENSED
CONSOLIDATING STATEMENT OF INCOME
For the Half Year Ended June 17, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dole Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company, Inc.
|
|
|
Guarantors
|
|
|
Non Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net
|
|
$
|
26,734
|
|
|
$
|
1,464,989
|
|
|
$
|
2,110,002
|
|
|
$
|
(612,682
|
)
|
|
$
|
2,989,043
|
|
Cost of products sold
|
|
|
23,019
|
|
|
|
1,311,843
|
|
|
|
1,945,989
|
|
|
|
(603,858
|
)
|
|
|
2,676,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
3,715
|
|
|
|
153,146
|
|
|
|
164,013
|
|
|
|
(8,824
|
)
|
|
|
312,050
|
|
Selling, marketing and general and
administrative expenses
|
|
|
27,240
|
|
|
|
93,398
|
|
|
|
104,561
|
|
|
|
(8,824
|
)
|
|
|
216,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(23,525
|
)
|
|
|
59,748
|
|
|
|
59,452
|
|
|
|
|
|
|
|
95,675
|
|
Equity in subsidiary income
|
|
|
54,516
|
|
|
|
25,198
|
|
|
|
|
|
|
|
(79,714
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(3,206
|
)
|
|
|
|
|
|
|
(1,909
|
)
|
|
|
|
|
|
|
(5,115
|
)
|
Interest income
|
|
|
744
|
|
|
|
195
|
|
|
|
2,240
|
|
|
|
|
|
|
|
3,179
|
|
Interest expense
|
|
|
50,676
|
|
|
|
157
|
|
|
|
23,599
|
|
|
|
|
|
|
|
74,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes,
minority interests and equity earnings
|
|
|
(22,147
|
)
|
|
|
84,984
|
|
|
|
36,184
|
|
|
|
(79,714
|
)
|
|
|
19,307
|
|
Income taxes
|
|
|
(34,800
|
)
|
|
|
31,507
|
|
|
|
12,146
|
|
|
|
|
|
|
|
8,853
|
|
Minority interests, net of income
taxes
|
|
|
72
|
|
|
|
112
|
|
|
|
534
|
|
|
|
|
|
|
|
718
|
|
Equity in earnings of
unconsolidated subsidiaries, net of income taxes
|
|
|
|
|
|
|
(403
|
)
|
|
|
(2,442
|
)
|
|
|
|
|
|
|
(2,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,581
|
|
|
$
|
53,768
|
|
|
$
|
25,946
|
|
|
$
|
(79,714
|
)
|
|
$
|
12,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Half Year Ended June 18, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dole Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company, Inc.
|
|
|
Guarantors
|
|
|
Non Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net
|
|
$
|
253,155
|
|
|
$
|
1,181,056
|
|
|
$
|
2,118,658
|
|
|
$
|
(584,385
|
)
|
|
$
|
2,968,484
|
|
Cost of products sold
|
|
|
188,610
|
|
|
|
1,073,820
|
|
|
|
1,846,933
|
|
|
|
(577,618
|
)
|
|
|
2,531,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
64,545
|
|
|
|
107,236
|
|
|
|
271,725
|
|
|
|
(6,767
|
)
|
|
|
436,739
|
|
Selling, marketing and general and
administrative expenses
|
|
|
60,324
|
|
|
|
59,255
|
|
|
|
109,388
|
|
|
|
(6,767
|
)
|
|
|
222,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,221
|
|
|
|
47,981
|
|
|
|
162,337
|
|
|
|
|
|
|
|
214,539
|
|
Equity in subsidiary income
|
|
|
183,943
|
|
|
|
152,248
|
|
|
|
|
|
|
|
(336,191
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(43,700
|
)
|
|
|
550
|
|
|
|
5,167
|
|
|
|
|
|
|
|
(37,983
|
)
|
Interest income
|
|
|
145
|
|
|
|
75
|
|
|
|
1,825
|
|
|
|
|
|
|
|
2,045
|
|
Interest expense
|
|
|
57,057
|
|
|
|
112
|
|
|
|
11,288
|
|
|
|
|
|
|
|
68,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes,
minority interests and equity earnings
|
|
|
87,552
|
|
|
|
200,742
|
|
|
|
158,041
|
|
|
|
(336,191
|
)
|
|
|
110,144
|
|
Income taxes
|
|
|
37,482
|
|
|
|
17,447
|
|
|
|
8,181
|
|
|
|
|
|
|
|
63,110
|
|
Minority interests, net of income
taxes
|
|
|
588
|
|
|
|
212
|
|
|
|
346
|
|
|
|
|
|
|
|
1,146
|
|
Equity in earnings of
unconsolidated subsidiaries, net of income taxes
|
|
|
|
|
|
|
(297
|
)
|
|
|
(3,297
|
)
|
|
|
|
|
|
|
(3,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,482
|
|
|
$
|
183,380
|
|
|
$
|
152,811
|
|
|
$
|
(336,191
|
)
|
|
$
|
49,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of June 17, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dole Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company, Inc.
|
|
|
Guarantors
|
|
|
Non Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,558
|
|
|
$
|
(9,448
|
)
|
|
$
|
47,193
|
|
|
$
|
|
|
|
$
|
51,303
|
|
Receivables, net of allowances
|
|
|
84,574
|
|
|
|
179,420
|
|
|
|
542,237
|
|
|
|
|
|
|
|
806,231
|
|
Inventories
|
|
|
6,564
|
|
|
|
246,348
|
|
|
|
379,701
|
|
|
|
|
|
|
|
632,613
|
|
Prepaid expenses
|
|
|
3,241
|
|
|
|
12,648
|
|
|
|
52,049
|
|
|
|
|
|
|
|
67,938
|
|
Deferred income tax assets
|
|
|
9,185
|
|
|
|
24,778
|
|
|
|
3,632
|
|
|
|
|
|
|
|
37,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
117,122
|
|
|
|
453,746
|
|
|
|
1,024,812
|
|
|
|
|
|
|
|
1,595,680
|
|
Investments
|
|
|
2,472,295
|
|
|
|
1,746,068
|
|
|
|
81,192
|
|
|
|
(4,216,702
|
)
|
|
|
82,853
|
|
Property, plant and equipment, net
|
|
|
297,193
|
|
|
|
382,848
|
|
|
|
825,213
|
|
|
|
|
|
|
|
1,505,254
|
|
Goodwill
|
|
|
|
|
|
|
163,925
|
|
|
|
376,355
|
|
|
|
|
|
|
|
540,280
|
|
Intangible assets, net
|
|
|
690,242
|
|
|
|
32,490
|
|
|
|
1,948
|
|
|
|
|
|
|
|
724,680
|
|
Other assets, net
|
|
|
30,282
|
|
|
|
9,075
|
|
|
|
109,469
|
|
|
|
|
|
|
|
148,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,607,134
|
|
|
$
|
2,788,152
|
|
|
$
|
2,418,989
|
|
|
$
|
(4,216,702
|
)
|
|
$
|
4,597,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS
EQUITY
|
Accounts payable
|
|
$
|
2,817
|
|
|
$
|
141,917
|
|
|
$
|
316,818
|
|
|
$
|
|
|
|
$
|
461,552
|
|
Accrued liabilities
|
|
|
70,330
|
|
|
|
187,670
|
|
|
|
189,812
|
|
|
|
|
|
|
|
447,812
|
|
Current portion of long-term debt
|
|
|
1,950
|
|
|
|
1,005
|
|
|
|
11,688
|
|
|
|
|
|
|
|
14,643
|
|
Notes payable
|
|
|
|
|
|
|
1,395
|
|
|
|
33,424
|
|
|
|
|
|
|
|
34,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
75,097
|
|
|
|
331,987
|
|
|
|
551,742
|
|
|
|
|
|
|
|
958,826
|
|
Intercompany payables (receivables)
|
|
|
946,232
|
|
|
|
(96,661
|
)
|
|
|
(849,571
|
)
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,378,180
|
|
|
|
2,483
|
|
|
|
825,104
|
|
|
|
|
|
|
|
2,205,767
|
|
Deferred income tax liabilities
|
|
|
284,587
|
|
|
|
40,283
|
|
|
|
30,764
|
|
|
|
|
|
|
|
355,634
|
|
Other long-term liabilities
|
|
|
423,180
|
|
|
|
40,029
|
|
|
|
93,332
|
|
|
|
|
|
|
|
556,541
|
|
Minority interests
|
|
|
|
|
|
|
5,400
|
|
|
|
15,547
|
|
|
|
|
|
|
|
20,947
|
|
Total shareholders equity
|
|
|
499,858
|
|
|
|
2,464,631
|
|
|
|
1,752,071
|
|
|
|
(4,216,702
|
)
|
|
|
499,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
3,607,134
|
|
|
$
|
2,788,152
|
|
|
$
|
2,418,989
|
|
|
$
|
(4,216,702
|
)
|
|
$
|
4,597,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dole Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company, Inc.
|
|
|
Guarantors
|
|
|
Non Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,698
|
|
|
$
|
(5,453
|
)
|
|
$
|
41,567
|
|
|
$
|
|
|
|
$
|
48,812
|
|
Receivables, net of allowances
|
|
|
121,316
|
|
|
|
116,226
|
|
|
|
400,094
|
|
|
|
|
|
|
|
637,636
|
|
Inventories
|
|
|
101,935
|
|
|
|
171,601
|
|
|
|
349,961
|
|
|
|
|
|
|
|
623,497
|
|
Prepaid expenses
|
|
|
5,663
|
|
|
|
10,071
|
|
|
|
43,130
|
|
|
|
|
|
|
|
58,864
|
|
Deferred income tax assets
|
|
|
15,946
|
|
|
|
15,282
|
|
|
|
3,528
|
|
|
|
|
|
|
|
34,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
257,558
|
|
|
|
307,727
|
|
|
|
838,280
|
|
|
|
|
|
|
|
1,403,565
|
|
Investments
|
|
|
2,271,031
|
|
|
|
1,708,078
|
|
|
|
75,200
|
|
|
|
(3,977,556
|
)
|
|
|
76,753
|
|
Property, plant and equipment, net
|
|
|
299,100
|
|
|
|
360,886
|
|
|
|
848,611
|
|
|
|
|
|
|
|
1,508,597
|
|
Goodwill
|
|
|
18,224
|
|
|
|
145,702
|
|
|
|
376,354
|
|
|
|
|
|
|
|
540,280
|
|
Intangible assets, net
|
|
|
710,743
|
|
|
|
13,687
|
|
|
|
2,270
|
|
|
|
|
|
|
|
726,700
|
|
Other assets, net
|
|
|
34,679
|
|
|
|
9,643
|
|
|
|
109,510
|
|
|
|
|
|
|
|
153,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,591,335
|
|
|
$
|
2,545,723
|
|
|
$
|
2,250,225
|
|
|
$
|
(3,977,556
|
)
|
|
$
|
4,409,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Accounts payable
|
|
$
|
(121,890
|
)
|
|
$
|
249,560
|
|
|
$
|
283,781
|
|
|
$
|
|
|
|
$
|
411,451
|
|
Accrued liabilities
|
|
|
97,397
|
|
|
|
178,582
|
|
|
|
155,058
|
|
|
|
|
|
|
|
431,037
|
|
Current portion of long-term debt
|
|
|
(300
|
)
|
|
|
885
|
|
|
|
24,435
|
|
|
|
|
|
|
|
25,020
|
|
Notes payable
|
|
|
|
|
|
|
1,119
|
|
|
|
275
|
|
|
|
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(24,793
|
)
|
|
|
430,146
|
|
|
|
463,549
|
|
|
|
|
|
|
|
868,902
|
|
Intercompany payables (receivables)
|
|
|
1,072,418
|
|
|
|
(229,126
|
)
|
|
|
(843,292
|
)
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,216,090
|
|
|
|
2,451
|
|
|
|
782,302
|
|
|
|
|
|
|
|
2,000,843
|
|
Deferred income tax liabilities
|
|
|
294,420
|
|
|
|
32,128
|
|
|
|
29,099
|
|
|
|
|
|
|
|
355,647
|
|
Other long-term liabilities
|
|
|
416,657
|
|
|
|
39,684
|
|
|
|
89,964
|
|
|
|
|
|
|
|
546,305
|
|
Minority interests
|
|
|
|
|
|
|
6,325
|
|
|
|
15,162
|
|
|
|
|
|
|
|
21,487
|
|
Total shareholders equity
|
|
|
616,543
|
|
|
|
2,264,115
|
|
|
|
1,713,441
|
|
|
|
(3,977,556
|
)
|
|
|
616,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
3,591,335
|
|
|
$
|
2,545,723
|
|
|
$
|
2,250,225
|
|
|
$
|
(3,977,556
|
)
|
|
$
|
4,409,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Half Year Ended June 17, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dole Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company, Inc.
|
|
|
Guarantors
|
|
|
Non Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in)
operating activities
|
|
$
|
(20,921
|
)
|
|
$
|
17,898
|
|
|
$
|
(40,148
|
)
|
|
$
|
|
|
|
$
|
(43,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of assets
|
|
|
168
|
|
|
|
97
|
|
|
|
2,020
|
|
|
|
|
|
|
|
2,285
|
|
Capital additions
|
|
|
(680
|
)
|
|
|
(20,948
|
)
|
|
|
(23,096
|
)
|
|
|
|
|
|
|
(44,724
|
)
|
Repurchase of common stock in the
going-private merger transaction
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing
activities
|
|
|
(612
|
)
|
|
|
(20,851
|
)
|
|
|
(21,076
|
)
|
|
|
|
|
|
|
(42,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt borrowings
|
|
|
|
|
|
|
(6
|
)
|
|
|
51,366
|
|
|
|
|
|
|
|
51,360
|
|
Short-term debt repayments
|
|
|
|
|
|
|
(752
|
)
|
|
|
(17,669
|
)
|
|
|
|
|
|
|
(18,421
|
)
|
Long-term debt borrowings
|
|
|
654,383
|
|
|
|
565
|
|
|
|
907,113
|
|
|
|
|
|
|
|
1,562,061
|
|
Long-term debt repayments
|
|
|
(496,689
|
)
|
|
|
(412
|
)
|
|
|
(881,457
|
)
|
|
|
|
|
|
|
(1,378,558
|
)
|
Capital contributions
|
|
|
28,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,390
|
|
Dividends paid to minority
shareholders
|
|
|
|
|
|
|
(437
|
)
|
|
|
(859
|
)
|
|
|
|
|
|
|
(1,296
|
)
|
Dividends paid
|
|
|
(163,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in)
financing activities
|
|
|
22,393
|
|
|
|
(1,042
|
)
|
|
|
58,494
|
|
|
|
|
|
|
|
79,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate
changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
8,356
|
|
|
|
|
|
|
|
8,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
860
|
|
|
|
(3,995
|
)
|
|
|
5,626
|
|
|
|
|
|
|
|
2,491
|
|
Cash and cash equivalents at
beginning of period
|
|
|
12,698
|
|
|
|
(5,453
|
)
|
|
|
41,567
|
|
|
|
|
|
|
|
48,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
$
|
13,558
|
|
|
$
|
(9,448
|
)
|
|
$
|
47,193
|
|
|
$
|
|
|
|
$
|
51,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
DOLE FOOD
COMPANY, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Half Year Ended June 18, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dole Food
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company, Inc.
|
|
|
Guarantors
|
|
|
Non Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operating
activities
|
|
$
|
550,925
|
|
|
$
|
587,892
|
|
|
$
|
71,582
|
|
|
$
|
(1,136,713
|
)
|
|
$
|
73,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of assets
|
|
|
1,651
|
|
|
|
80
|
|
|
|
5,275
|
|
|
|
|
|
|
|
7,006
|
|
Investments and acquisitions
|
|
|
|
|
|
|
|
|
|
|
(51,010
|
)
|
|
|
|
|
|
|
(51,010
|
)
|
Capital additions
|
|
|
(1,916
|
)
|
|
|
(14,033
|
)
|
|
|
(28,529
|
)
|
|
|
|
|
|
|
(44,478
|
)
|
Repurchase of common stock in the
going-private merger transaction
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing
activities
|
|
|
(614
|
)
|
|
|
(13,953
|
)
|
|
|
(74,264
|
)
|
|
|
|
|
|
|
(88,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt borrowings
|
|
|
|
|
|
|
663
|
|
|
|
6,308
|
|
|
|
|
|
|
|
6,971
|
|
Short-term debt repayments
|
|
|
|
|
|
|
(15,313
|
)
|
|
|
(6,308
|
)
|
|
|
|
|
|
|
(21,621
|
)
|
Long-term debt borrowings
|
|
|
287,400
|
|
|
|
434
|
|
|
|
902,815
|
|
|
|
|
|
|
|
1,190,649
|
|
Long-term debt repayments
|
|
|
(815,447
|
)
|
|
|
(349
|
)
|
|
|
(339,256
|
)
|
|
|
|
|
|
|
(1,155,052
|
)
|
Intercompany dividends
|
|
|
|
|
|
|
(566,713
|
)
|
|
|
(570,000
|
)
|
|
|
1,136,713
|
|
|
|
|
|
Dividends paid to minority
shareholders
|
|
|
|
|
|
|
(1,545
|
)
|
|
|
(837
|
)
|
|
|
|
|
|
|
(2,382
|
)
|
Dividends paid
|
|
|
(12,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in financing
activities
|
|
|
(540,347
|
)
|
|
|
(582,823
|
)
|
|
|
(7,278
|
)
|
|
|
1,136,713
|
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate
changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(1,761
|
)
|
|
|
|
|
|
|
(1,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
9,964
|
|
|
|
(8,884
|
)
|
|
|
(11,721
|
)
|
|
|
|
|
|
|
(10,641
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
9,236
|
|
|
|
3,279
|
|
|
|
66,702
|
|
|
|
|
|
|
|
79,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
$
|
19,200
|
|
|
$
|
(5,605
|
)
|
|
$
|
54,981
|
|
|
$
|
|
|
|
$
|
68,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
DOLE FOOD
COMPANY, INC.
AND
RESULTS OF OPERATIONS
Overview
For the second quarter of 2006, Dole Food Company, Inc. and its
consolidated subsidiaries (Dole or the
Company) generated revenues of $1.59 billion,
reflecting a 4% increase compared to the prior year. Higher
revenues were reported in all four of the Companys
operating segments. The Company earned operating income of
$72.7 million compared to $113.4 million earned in the
prior year. Operating income decreased due to lower earnings in
the Companys fresh fruit and fresh-cut flowers operating
segments as a result of higher production, shipping and
distribution costs and the impact of unfavorable foreign
currency exchange movements. Net income was $18.5 million
for the second quarter of 2006 compared to $32.3 million in
the second quarter of 2005.
For the first half of 2006, the Company generated revenues of
$2.99 billion, reflecting a 1% increase compared to the
prior year. Higher revenues were due to sales growth in the
Companys fresh vegetables, packaged foods and fresh-cut
flowers operating segments. The Company earned operating income
of $95.7 million compared to $214.5 million earned in
the prior year. Lower operating income was reported by all four
of the Companys operating segments. The decrease in
operating income was primarily due to similar factors that
impacted the second quarter operating results. Net income was
$12.6 million for the first half of 2006 compared to
$49.5 million in the first half of 2005.
Results
of Operations
Selected results of operations for the quarters ended and half
years ended June 17, 2006 and June 18, 2005 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
Revenues, net
|
|
$
|
1,589,037
|
|
|
$
|
1,526,351
|
|
Operating income
|
|
|
72,680
|
|
|
|
113,410
|
|
Interest income and other income
(expense), net
|
|
|
(2,324
|
)
|
|
|
(39,963
|
)
|
Interest expense
|
|
|
40,007
|
|
|
|
32,398
|
|
Minority interests and equity in
earnings of unconsolidated subsidiaries, net of income taxes
|
|
|
(1,222
|
)
|
|
|
(968
|
)
|
Income taxes
|
|
|
13,071
|
|
|
|
9,689
|
|
Net income
|
|
|
18,500
|
|
|
|
32,328
|
|
|
|
|
|
|
|
|
|
|
|
|
Half Year Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
Revenues, net
|
|
$
|
2,989,043
|
|
|
$
|
2,968,484
|
|
Operating income
|
|
|
95,675
|
|
|
|
214,539
|
|
Interest income and other income
(expense), net
|
|
|
(1,936
|
)
|
|
|
(35,938
|
)
|
Interest expense
|
|
|
74,432
|
|
|
|
68,457
|
|
Minority interests and equity in
earnings of unconsolidated subsidiaries, net of income taxes
|
|
|
(2,127
|
)
|
|
|
(2,448
|
)
|
Income taxes
|
|
|
8,853
|
|
|
|
63,110
|
|
Net income
|
|
|
12,581
|
|
|
|
49,482
|
|
25
Revenues
For the quarter ended June 17, 2006, revenues increased 4%
to $1.59 billion from $1.53 billion in the quarter
ended June 18, 2005. The increase is due to higher sales in
all four of the Companys operating segments. Fresh fruit
sales increased primarily due to higher sales of bananas in
North America and Europe, higher pineapple volumes sold
worldwide and higher deciduous fruit sold in North America. In
addition, revenues benefited from higher sales of commodity
vegetables and packaged foods products, primarily for fruit
parfaits, FRUIT
BOWLS®
and canned products. These increases were partially offset by
lower sales in the Companys European ripening and
distribution operations. During the first quarter of 2006, Dole
ended its commercial relationship with a significant customer of
Saba Trading AB (Saba), which is part of the
European ripening and distribution operations. In addition,
unfavorable foreign currency exchange movements in the
Companys foreign selling locations impacted revenues. If
foreign currency exchange rates in the Companys
significant foreign operations during the second quarter of 2006
had remained unchanged from those experienced in the second
quarter of 2005, the Company estimates that its revenues would
have been higher by approximately $13 million.
For the half year ended June 17, 2006, revenues increased
1% to $2.99 billion from $2.97 billion in the half
year ended June 18, 2005. Revenues benefited from higher
volumes of bananas and pineapples sold in North America and
Europe, higher sales of commodity vegetables and packaged foods
products in North America and higher volumes in the fresh-cut
flowers operations. These increases were partially offset by
lower sales in the Companys European ripening and
distribution operations and lower banana pricing in Asia and
lower volumes of pineapples sold in Asia. In addition,
unfavorable foreign currency exchange movements in the
Companys foreign selling locations impacted revenues. If
foreign currency exchange rates in the Companys
significant foreign operations during the first half year of
2006 had remained unchanged from those experienced in the first
half year of 2005, the Company estimates that its revenues would
have been higher by approximately $65 million.
Operating
Income
For the quarter ended June 17, 2006, operating income
decreased to $72.7 million from $113.4 million in the
quarter ended June 18, 2005. The decrease was primarily
attributable to lower operating results from the Companys
fresh fruit and fresh-cut flowers segments partially offset by
improved operating results in the fresh vegetables and packaged
foods segments. Higher product, distribution and shipping costs,
which resulted primarily from higher commodity costs (including
fuel and tinplate) continued to affect the Companys
operations. Operating income was also impacted by restructuring
costs of $3.6 million incurred at Saba. Unfavorable foreign
currency exchange movements also contributed to lower operating
results. If foreign currency exchange rates in the
Companys significant foreign operations during the second
quarter of 2006 had remained unchanged from those experienced in
the second quarter of 2005, the Company estimates that its
operating income would have been higher by approximately
$7 million.
For the half year ended June 17, 2006, operating income
decreased to $95.7 million from $214.5 million in the
half year ended June 18, 2005. Lower operating income was
reported by all four of the Companys operating segments
due primarily to higher production, shipping and distribution
costs. In addition, operating income includes restructuring
costs of approximately $8.9 million incurred at Saba.
Unfavorable foreign currency exchange movements also contributed
to lower operating results. If foreign currency exchange rates
in the Companys significant foreign operations during the
first half of 2006 had remained unchanged from those experienced
in the first half of 2005, the Company estimates that its
operating income would have been higher by approximately
$24 million.
Interest
Income and Other Income (Expense), Net
For the quarter ended June 17, 2006, interest income and
other income (expense), net improved to an expense of
$2.3 million from an expense of $40 million in the
prior year. The improvement was primarily due to the write-off
of deferred debt issuance costs of $8.1 million associated
with the Companys April 2006 debt refinancing transaction
compared to $43.8 million of expenses related to the early
extinguishment of debt in connection with Companys April
2005 refinancing and bond tender transactions. In addition, in
the quarter ended June 17, 2006, the Company recorded a
gain of $6.5 million on the settlement of the
Companys interest rate swap and a $2.2 million
26
foreign currency exchange gain related to repayment of the
Japanese yen denominated term loan. These improvements were
partially offset by a $5.2 million foreign currency
exchange loss on the British pound sterling denominated vessel
lease obligation in 2006 compared to a foreign currency exchange
gain of $2.2 million in the prior year.
For the half year ended June 17, 2006, interest income and
other income (expense), net improved to an expense of
$1.9 million from an expense of $35.9 million in the
half year ended June 18, 2005. The improvement was
primarily attributable to the same factors that impacted the
quarter. The Companys Japanese yen denominated term loan
generated a foreign currency exchange gain of $1.5 million
in 2006 compared to a foreign currency exchange gain of
$0.6 million in 2005. The Companys British pound
sterling denominated vessel lease obligation generated a foreign
currency exchange loss of $5.7 million in 2006 compared to
a foreign currency exchange gain of $4.9 million in 2005.
Interest
Expense
Interest expense for the quarter ended June 17, 2006 was
$40 million compared to $32.4 million in the quarter
ended June 18, 2005. Interest expense increased primarily
as a result of additional borrowings and higher effective
borrowing rates on the Companys debt facilities.
Interest expense for the half year ended June 17, 2006 was
$74.4 million compared to $68.5 million in the half
year ended June 18, 2005. The increase in interest expense
was primarily attributable to the same factors that impacted the
quarter.
Income
Tax Expense
Income tax expense for the quarter and half year ended
June 17, 2006 of $13.1 million and $8.9 million,
respectively, reflects the Companys expected effective
income tax rate of approximately 45.9% for the full fiscal year
ending December 30, 2006. Income tax expense of
approximately $9.2 million and $24 million for the
quarter and half year ended June 18, 2005, respectively,
which excludes the $0.5 million and $39.1 million
impact of the repatriation of certain foreign earnings, reflects
the Companys then expected effective income tax rate of
approximately 21% for the full fiscal year ending
December 31, 2005. The increase in the effective tax rate
for the full year of 2006 compared to the expected tax rate for
the full year of 2005 is principally due to earnings from
operations decreasing by a larger relative percentage than the
associated taxes required to be provided on such earnings.
For 2005, the Companys effective income tax rate differs
from the U.S. federal statutory rate primarily due to
earnings from operations being taxed in foreign jurisdictions at
a net effective rate lower than the U.S. rate. For 2006,
the Companys effective income tax rate is higher than the
U.S. federal statutory rate primarily due to the accrual of tax
related contingencies partially offset by earnings from foreign
jurisdictions that are taxed at a rate lower than the U.S.
federal statutory rate. Other than the taxes provided on the
$570 million of repatriated foreign earnings, no
U.S. taxes have been provided on foreign earnings because
such earnings are intended to be indefinitely invested outside
the U.S.
Segment
Results of Operations
The Company has four primary reportable operating segments:
fresh fruit, fresh vegetables, packaged foods and fresh-cut
flowers. These reportable segments are managed separately due to
differences in their products, production processes,
distribution channels and customer bases.
The Companys management evaluates and monitors segment
performance primarily through earnings before interest expense
and income taxes (EBIT). EBIT is calculated by
adding income taxes and interest expense to net income.
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 the Company as a whole.
EBIT is not defined under accounting principles generally
accepted in the United States of America (GAAP) and
should not be considered in isolation or as a substitute for net
income measures prepared in accordance with GAAP or as a measure
of the Companys profitability. Additionally, the
Companys computation
27
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.
Revenues from external customers and EBIT for the reportable
operating segments and corporate were as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
Fresh fruit
|
|
$
|
1,003,909
|
|
|
$
|
984,077
|
|
Fresh vegetables
|
|
|
304,403
|
|
|
|
290,223
|
|
Packaged foods
|
|
|
221,723
|
|
|
|
195,363
|
|
Fresh-cut flowers
|
|
|
44,869
|
|
|
|
44,360
|
|
Other operating segments
|
|
|
14,133
|
|
|
|
12,328
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,589,037
|
|
|
$
|
1,526,351
|
|
|
|
|
|
|
|
|
|
|
EBIT:
|
|
|
|
|
|
|
|
|
Fresh fruit
|
|
$
|
52,470
|
|
|
$
|
94,957
|
|
Fresh vegetables
|
|
|
11,791
|
|
|
|
10,670
|
|
Packaged foods
|
|
|
22,002
|
|
|
|
20,792
|
|
Fresh-cut flowers
|
|
|
(5,083
|
)
|
|
|
(666
|
)
|
Other operating segments
|
|
|
423
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
Total operating segments
|
|
|
81,603
|
|
|
|
126,191
|
|
Corporate
|
|
|
(10,025
|
)
|
|
|
(51,776
|
)
|
Interest expense
|
|
|
40,007
|
|
|
|
32,398
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
31,571
|
|
|
$
|
42,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half Year Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
Fresh fruit
|
|
$
|
1,900,933
|
|
|
$
|
1,923,604
|
|
Fresh vegetables
|
|
|
547,606
|
|
|
|
543,829
|
|
Packaged foods
|
|
|
417,670
|
|
|
|
385,653
|
|
Fresh-cut flowers
|
|
|
103,033
|
|
|
|
97,079
|
|
Other operating segments
|
|
|
19,801
|
|
|
|
18,319
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,989,043
|
|
|
$
|
2,968,484
|
|
|
|
|
|
|
|
|
|
|
EBIT:
|
|
|
|
|
|
|
|
|
Fresh fruit
|
|
$
|
72,693
|
|
|
$
|
171,466
|
|
Fresh vegetables
|
|
|
16,351
|
|
|
|
29,874
|
|
Packaged foods
|
|
|
36,883
|
|
|
|
38,719
|
|
Fresh-cut flowers
|
|
|
(5,478
|
)
|
|
|
3,892
|
|
Other operating segments
|
|
|
573
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
Total operating segments
|
|
|
121,022
|
|
|
|
244,464
|
|
Corporate
|
|
|
(25,156
|
)
|
|
|
(63,415
|
)
|
Interest expense
|
|
|
74,432
|
|
|
|
68,457
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
21,434
|
|
|
$
|
112,592
|
|
|
|
|
|
|
|
|
|
|
28
Fresh
Fruit
Fresh fruit revenues in the quarter ended June 17, 2006
increased 2% to $1,004 million from $984 million in
the quarter ended June 18, 2005. The increase in fresh
fruit revenues was primarily due to the following: higher banana
volumes sold in Europe, higher pricing and surcharges for
bananas sold in North America, higher pricing and volumes of
deciduous fruit sold in North America and higher volumes of
pineapples sold worldwide. The increase in volumes of European
bananas was related to the implementation by the European Union
(EU) of a new tariff only import fee on
bananas effective January 1, 2006 which ended volume
restrictions applicable to Latin American imported bananas.
These factors were partially offset by lower sales in the
European ripening and distribution operations due mainly to the
substantial end of a customer relationship at Saba, lower banana
pricing in Asia, and lower navel orange pricing in North
America. Fresh fruit revenues in the half year ended
June 17, 2006 decreased 1.2% to $1.9 billion from
$1.92 billion in the half year ended June 18, 2005.
Revenues for the half year were impacted mainly by the same
factors affecting sales in the second quarter, except for lower
pineapple sales in Asia during the half year. Unfavorable
foreign currency exchange movements in the Companys
foreign selling locations impacted revenues during the second
quarter and half year. If foreign currency exchange rates in the
Companys significant fresh fruit foreign operations during
the second quarter and half year of 2006 had remained unchanged
from those experienced in the second quarter and half year of
2005, the Company estimates that its fresh fruit revenues would
have been higher by approximately $13 million and
$65 million, respectively.
Fresh fruit EBIT in the quarter ended June 17, 2006
decreased to $52.5 million from $95 million in the
quarter ended June 18, 2005. EBIT decreased primarily as a
result of higher product costs that impacted worldwide banana
operations and deciduous fruit sold in North America. There were
also higher costs in the European banana business related to the
new tariff fees imposed by the EU in connection with the new
import regime. EBIT also decreased due to higher shipping and
distribution costs across most businesses due to significantly
higher fuel costs. In addition, the Company incurred
restructuring costs of approximately $3.6 million at Saba.
Fresh fruit EBIT in the half year ended June 17, 2006
decreased to $72.7 million from $171.5 million in the
half year ended June 18, 2005. EBIT decreased primarily as
a result of the same factors that decreased EBIT in the second
quarter. If foreign currency exchange rates in the
Companys significant fresh fruit foreign operations during
the second quarter and half year of 2006 had remained unchanged
from those experienced in the second quarter and half year of
2005, the Company estimates that fresh fruit EBIT would have
been higher by approximately $7 million and
$23 million, respectively. In addition, EBIT included
unrealized foreign currency exchange losses related to the
Companys British pound sterling vessel capital lease
obligation of $5.2 million and $5.7 million for the
second quarter and half year ended June 17, 2006,
respectively.
Fresh
Vegetables
Fresh vegetables revenues for the quarter ended June 17,
2006 increased 5% to $304.4 million from
$290.2 million in the quarter ended June 18, 2005. The
increase was mainly due to higher pricing in the
North America commodity vegetables business, primarily for
celery, lettuce, berries, broccoli, and cauliflower. Sales in
the North America commodity vegetables and packaged salads
businesses also benefited from surcharges. Fresh vegetables
revenues in the half year ended June 17, 2006 increased 1%
to $547.6 million from $543.8 million in the half year
ended June 18, 2005. Revenues for the half year were
impacted by higher surcharges and higher berry sales partially
offset by lower packaged salads volumes and lower pricing in
commodity vegetables.
Fresh vegetables EBIT for the quarter ended June 17, 2006
increased 11% to $11.8 million from $10.7 million in
the quarter ended June 18, 2005. The increase in EBIT was
mainly attributable to the same factors that drove the increase
in sales as well as lower selling, marketing and general
administrative expenses, partially offset by higher distribution
costs for packaged salads and higher product costs in North
America commodity vegetables. Fresh vegetables EBIT for the half
year ended June 17, 2006 decreased to $16.4 million
from $29.9 million in the half year ended June 18,
2005. EBIT decreased primarily as a result of higher growing,
harvesting and packing costs in the commodity vegetables
business and lower sales and higher distribution and product
costs for packaged salads.
29
Packaged
Foods
Packaged foods revenues for the quarter ended June 17, 2006
increased 13% to $221.7 million from $195.4 million in
the quarter ended June 18, 2005. The increase in revenues
was primarily due to higher volumes of canned products sold as a
result of the timing of Easter sales activity, which occurred
during the second quarter of 2006, and higher volumes of fruit
parfaits and FRUIT BOWLS sold in North America. These increases
were partially offset by lower pricing and volume of canned
fruit sold in Japan. Packaged foods revenues for the half year
ended June 17, 2006 increased 8% to $417.7 million
from $385.7 million in the half year ended June 18,
2005. The increase in revenues was primarily due to higher
volume and pricing for FRUIT BOWLS, higher volume of fruit
parfaits due to its national retail rollout, higher volume of
fruit in plastic jars and higher pricing for canned solid
pineapple and pineapple juice in North America. These increases
were partially offset by lower volume of canned solid pineapple
sold in Europe and lower pricing of canned fruit in Japan.
EBIT in the packaged foods segment for the quarter ended
June 17, 2006 increased 6% to $22 million from
$20.8 million in the quarter ended June 18, 2005. EBIT
for the quarter increased primarily as a result of the same
factors that drove the increase in sales, partially offset by
higher product, shipping and distribution costs and higher
marketing costs. EBIT for the half year ended June 17, 2006
decreased to $36.9 million from $38.7 million in the
half year ended June 18, 2005. The decrease in EBIT was
primarily due to higher product, shipping and distribution costs.
Fresh-Cut
Flowers
Fresh-cut flowers revenues for the quarter ended June 17,
2006 increased to $44.9 million from $44.4 million in
the quarter ended June 18, 2005. The increase in revenues
was due primarily to higher volumes as a result of the timing of
Easter sales activity, which occurred in the second quarter of
2006. Revenues for the half year ended June 17, 2006
increased 6% to $103 million from $97.1 million in the
half year ended June 18, 2005. The increase in revenues was
due to higher sales in the retail market.
EBIT in the fresh-cut flowers segment for the quarter ended
June 17, 2006 decreased to a loss of $5.1 million from
a loss of $0.7 million in the quarter ended June 18,
2005. The decrease in EBIT was primarily due to higher product
costs as a result of poor weather conditions in Colombia which
resulted in higher third party flower purchases and higher
shipping and distribution costs. Fresh-cut flowers EBIT for the
half year ended June 17, 2006 decreased to a loss of
$5.5 million from earnings of $3.9 million in the half
year ended June 18, 2005. The decrease in EBIT was
attributable to the same factors that drove the decrease in the
second quarter.
Corporate
Corporate EBIT was a loss of $10 million in the quarter
ended June 17, 2006 compared to a loss of
$51.8 million in the quarter ended June 18, 2005. The
change in EBIT for the quarter was primarily due to the absence
of $43.8 million of expenses related to the early
extinguishment of debt in connection with the Companys
April 2005 refinancing and bond tender transactions. In
addition, Corporate EBIT for the quarter ended June 17,
2006, included a $6.5 million gain related to the
settlement of an interest rate swap, a $2.2 million gain
related to the settlement of the Japanese yen denominated term
loan, and $8.1 million of expenses incurred in connection
with the April 2006 debt refinancing transaction. These costs
were offset by lower Corporate general and administrative
expenses compared to the prior year. Corporate EBIT was a loss
of $25.2 million for the half year ended June 17, 2006
compared to a loss of $63.4 million in the half year ended
June 18, 2005. The change in EBIT for the half year is
primarily due to the same factors that impacted EBIT for the
quarter ended June 17, 2006.
Recent
Accounting Pronouncements
During June 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48
Accounting for Uncertainty in Income Taxes (an
interpretation of FASB Statement No. 109) which
is effective for fiscal years beginning after December 15,
2006 with earlier adoption encouraged. This interpretation was
issued to clarify the accounting for uncertainty in income taxes
recognized in the financial statements by prescribing a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
30
position taken or expected to be taken in a tax return. The
Company is in the process of evaluating the impact of this
interpretation.
Liquidity
and Capital Resources
In the half year ended June 17, 2006, cash flows used in
operating activities were $43.2 million compared to cash
flows provided by operating activities of $73.7 million in
the half year ended June 18, 2005. Cash flows used in
operating activities were $116.9 higher, primarily due to lower
earnings, lower payables and accrued liabilities, due in part to
the 2005 accrual of income taxes payable related to the
provision on repatriated foreign earnings, as well as the timing
of payments, and higher receivables.
Cash flows used in investing activities were approximately
$43 million in the half year ended June 17, 2006,
compared to cash flows used in investing activities of
$88.8 million in the half year ended June 18, 2005.
The decrease in cash outflow during 2006 was primarily due to
the first quarter 2005 payment of $47.1 million to Saba
shareholders in connection with the Companys purchase of
the remaining 40% minority interest.
Cash flows provided by financing activities increased to
$79.8 million in the half year ended June 17, 2006
compared to cash flows provided by financing activities of
$6.3 million in the half year ended June 18, 2005. The
increase of $73.5 million is due to higher current year
debt borrowings of $195.5 million, net of repayments and an
equity contribution of $28.4 million made by Dole Holding
Company, LLC, the Companys immediate parent during 2006.
These items were offset by an increase in dividends of
$151.4 million paid to Dole Holding Company, LLC, the
Companys immediate parent, during the first half of 2006
compared to the first half of 2005.
On April 12, 2006, the Company completed an amendment and
restatement of its senior secured credit facilities. The Company
obtained $975 million of term loan facilities and
$100 million in a pre-funded letter of credit facility. The
proceeds of the term loans were used to repay the outstanding
term loans under the Companys existing senior secured
credit facilities. In addition, the Company paid a dividend of
$160 million to its immediate parent, Dole Holding Company,
LLC, which proceeds were used to repay in full its Second Lien
Senior Credit Facility. The terms and covenants under the new
senior secured credit facilities are similar to those under the
Companys existing senior secured credit facilities except
that the new facilities do not contain financial maintenance or
maximum capital expenditure covenants. At June 17, 2006,
the Company was in compliance with all applicable covenants.
Additionally, the Company entered into a new asset based
revolving credit facility (ABL revolver) of
$350 million. The ABL revolver is secured and is subject to
a borrowing base consisting of up to 85% of eligible accounts
receivable plus a predetermined percentage of eligible
inventory, as defined in the credit facility.
The purpose of the refinancing was to increase the size of the
Companys revolving credit and letter of credit facilities
and eliminate certain financial maintenance covenants, realize
currency gains arising out of the Companys existing senior
secured credit facilities, and refinance the higher-cost bank
indebtedness of Dole Holding Company, LLC, at the lower-cost
Dole Food Company, Inc. level.
As of June 17, 2006, the Company had outstanding balances
under its senior secured term loan facilities of
$975 million. The Company had $51.2 million of
outstanding borrowings under the $350 million ABL revolver,
and after taking into account approximately $3.2 million of
outstanding letters of credit issued under the ABL facility, had
approximately $273 million available for borrowings.
The Company had a cash balance and available borrowings under
the ABL revolver of $51.3 million and $273 million,
respectively, at June 17, 2006. The Company believes that
its existing cash balance and available borrowing capacity under
the ABL revolver together with its future cash flow from
operations and access to capital markets will enable it to meet
its working capital, capital expenditure, debt maturity and
other commitments and funding requirements. Factors impacting
the Companys cash flow from operations include such items
as commodity prices, interest rates and foreign currency
exchange rates, among other things, as set forth in the
Companys
Form 10-K
for the fiscal year ended December 31, 2005 and in
subsequent SEC filings.
31
Other
Matters
European Union Banana Import Regime: On
January 1, 2006, the EU implemented a new tariff
only import regime for bananas. The 2001 EC/US
Understanding on Bananas required the EU to implement a tariff
only banana import system on or before January 1, 2006, and
the EUs banana regime change was therefore expected by
that date.
Banana imports from Latin America are now subject to import
license requirements only and a tariff of 176 euro per
metric ton for entry into the EU market. Under the EUs
previous banana regime, banana imports from Latin America were
subject to a tariff of 75 euro per metric ton and were also
subject to both import license requirements and volume quotas.
License requirements and volume quotas had the effect of
limiting access to the EU banana market.
Although all Latin bananas are now subject to a tariff of 176
euro per metric ton, up to 775,000 metric tons of bananas from
African, Caribbean, and Pacific (ACP) countries may
be imported to the EU duty-free. This preferential treatment of
a zero tariff on up to 775,000 tons of ACP banana imports, as
well as the 176 euro per metric ton tariff applied to Latin
banana imports, are currently being challenged by Panama,
Honduras and Nicaragua at the World Trade Organization
(WTO). The current tariff applied to Latin banana
imports may be lowered and the ACP preference of a zero tariff
may be affected depending on the outcome of these WTO
proceedings, but the WTO proceedings are only in their initial
stage and may take several years to conclude. The Company
encourages efforts to lower the tariff through negotiations with
the EU and is working actively to help achieve this result.
Income Tax Audits: The Company believes its
tax positions comply with the applicable tax laws and that it is
adequately provided for all tax-related matters. The Company is
subject to examination by taxing authorities in the various
jurisdictions in which it files tax returns. Specifically, the
Company is routinely under examination by the Internal Revenue
Service. The current examination includes the years 1995 through
2001. Matters raised upon audit may involve substantial amounts
and could result in material cash payments if resolved
unfavorably; however, the Company does not believe that any
material payments will be made related to these matters within
the next twelve months. In addition, The Company considers it
unlikely that the resolution of these matters will have a
material adverse effect on its results of operations.
Internal Revenue Service Audit: On
June 29, 2006, the IRS completed an examination of the
Companys federal income tax returns for the years 1995 to
2001 and issued a Revenue Agents Report (RAR)
that includes various proposed adjustments. The net tax
deficiency associated with the RAR is $175 million, plus
interest and penalties. The Company timely filed a protest
letter contesting the proposed adjustments contained in the RAR
on July 6, 2006 and will pursue resolution of these issues
with the Appeals Division of the IRS. The Company believes that
its U.S. federal income tax returns were completed in
accordance with applicable laws and regulations and disagrees
with the proposed adjustments. The Company also believes that it
is adequately reserved with respect to this matter. Management
does not believe that any material payments will be made related
to these matters within the next twelve months. In addition,
management considers it unlikely that the resolution of these
matters will have a material adverse effect on its results of
operations.
Honduran Tax Case: In 2005, the Company
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 the Companys interest in
Cervecería Hondureña, S.A in 2001. The Company
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, the Company
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 is
seeking dismissal of the lawsuit and attachment of assets, which
the Company is challenging. No reserve has been provided for
this assessment.
Hurricane Katrina: During the third quarter of
2005, the Companys operations in the Gulf Coast area of
the United States were impacted by Hurricane Katrina. The
Companys fresh fruit division utilizes the Gulfport,
Mississippi port facility to receive and store product from its
Latin American operations. The Gulfport facility, which is
leased from the Mississippi Port Authority, incurred significant
damage from Hurricane Katrina. As a
32
result of the damage sustained at the Gulfport terminal, the
Company diverted shipments to other Dole port facilities
including Freeport, Texas; Port Everglades, Florida; and
Wilmington, Delaware. The Company resumed discharging shipments
of fruit and other cargo in Gulfport at the beginning of the
fourth quarter of 2005. However, the facility has not yet been
fully rebuilt. The financial impact to the Companys fresh
fruit operations includes the loss of cargo and equipment,
property damage and additional costs associated with re-routing
product to other ports in the region. Equipment that was
destroyed or damaged includes refrigerated and dry shipping
containers, as well as chassis and generator-sets used for land
transportation of the shipping containers.
During the half year ended June 17, 2006, the Company
incurred direct incremental expenses of $1.2 million
related to Hurricane Katrina, bringing the total charge to
$11.3 million. The total charge includes direct incremental
expenses of $5.1 million, write-offs of owned assets with a
net book value of $4.1 million and leased assets of
$2.1 million representing amounts due to lessors. The
Company maintains customary insurance for its property,
including shipping containers, as well as for business
interruption. During the half year of 2006, the Company
collected $5.8 million from insurance carriers related to
cargo and property damage bringing the total cash collected to
$11.8 million. The Company is continuing to work with its
insurers to evaluate the extent of the costs incurred as a
result of the hurricane damage and to determine the extent of
the insurance coverage for that damage.
Business Restructuring: During the first
quarter of 2006, the commercial relationship substantially ended
between Doles wholly-owned subsidiary, Saba, and
Sabas largest customer. Saba is a leading importer and
distributor of fruit, vegetables and flowers in Scandinavia.
Sabas financial results are included in Doles fresh
fruit reporting segment. Other than the expected charges
described below, the loss of this customers business is
not expected to be material to Doles ongoing earnings. In
connection with this recent event, Dole plans on restructuring
certain lines of Sabas business and expects to incur
approximately $15 million of total related costs. Total
costs incurred as of June 17, 2006, amounted to
approximately $8.9 million, of which $6.4 million is
in cost of products sold and $2.5 million is in selling,
marketing, and general and administrative expenses in the
Condensed Consolidated Statement of Income. The costs incurred
consist of $7.3 million of employee severance costs,
$1.3 million of contractual lease obligations and
$0.3 million of fixed asset write-offs. The
$7.3 million of employee severance costs relate to 225
employees. As of June 17, 2006, the remaining amounts of
accrued employee severance costs and contractual lease
obligations were $5.4 million and $0.7 million,
respectively. The Company expects to pay these remaining
balances by the end of 2006. The Company currently estimates
that the remaining $6 million of restructuring costs,
primarily related to employee severance and contractual lease
obligations, will be incurred during the third quarter of 2006
and paid by the end of 2006. In addition, Doles potential
contractual claims against this customer are pending the results
of current discussions.
Supplemental
Financial Information
The following financial information has been presented, as
management believes that it is useful information to some
readers of the Companys condensed consolidated financial
statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 17,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Total working capital (current
assets less current liabilities)
|
|
$
|
636,854
|
|
|
$
|
534,663
|
|
Total assets
|
|
$
|
4,597,573
|
|
|
$
|
4,409,727
|
|
Total debt
|
|
$
|
2,255,229
|
|
|
$
|
2,027,257
|
|
Total shareholders equity
|
|
$
|
499,858
|
|
|
$
|
616,543
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Half Year Ended
|
|
|
|
June 17,
|
|
|
June 18,
|
|
|
June 17,
|
|
|
June 18,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,500
|
|
|
$
|
32,328
|
|
|
$
|
12,581
|
|
|
$
|
49,482
|
|
Interest expense
|
|
|
40,007
|
|
|
|
32,398
|
|
|
|
74,432
|
|
|
|
68,457
|
|
Income taxes
|
|
|
13,071
|
|
|
|
9,689
|
|
|
|
8,853
|
|
|
|
63,110
|
|
Depreciation and amortization
|
|
|
33,694
|
|
|
|
34,313
|
|
|
|
66,656
|
|
|
|
67,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
105,272
|
|
|
$
|
108,728
|
|
|
$
|
162,522
|
|
|
$
|
248,828
|
|
EBITDA margin
|
|
|
6.6
|
%
|
|
|
7.1
|
%
|
|
|
5.4
|
%
|
|
|
8.4
|
%
|
Capital expenditures
|
|
$
|
36,332
|
|
|
$
|
29,120
|
|
|
$
|
58,684
|
|
|
$
|
44,478
|
|
EBITDA is defined as earnings before interest
expense, income taxes, and depreciation and amortization. EBITDA
margin is defined as the ratio of EBITDA, as defined, relative
to net revenues. EBITDA is reconciled to net income in the
condensed consolidated financial statements in the tables above.
EBITDA and EBITDA margin fluctuated primarily due to the same
factors that impacted the changes in operating income and
segment EBIT discussed earlier.
The Company presents EBITDA and EBITDA margin because management
believes, similar to EBIT, EBITDA is a useful performance
measure for the Company. In addition, EBITDA is presented
because management believes it is frequently used by securities
analysts, investors and others in the evaluation of companies,
and because certain debt covenants on the Companys Senior
Notes are tied to EBITDA. EBITDA and EBITDA margin should not be
considered in isolation from or as a substitute for net income
and other consolidated income statement data prepared in
accordance with GAAP or as a measure of profitability.
Additionally, the Companys computation of EBITDA and
EBITDA margin may not be comparable to other similarly titled
measures computed by other companies, because all companies do
not calculate EBITDA and EBITDA margin in the same manner.
This Managements Discussion and Analysis contains
forward-looking statements that involve a number of risks and
uncertainties. Forward-looking statements, which are based on
managements assumptions and describe the Companys
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 the Companys actual
results to differ materially from those expressed or implied
herein are set forth in Item 1A and Item 7A of the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005 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
in developing countries; quotas, tariffs and other governmental
actions and international conflict.
ITEM 3. QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
During the second quarter of 2006, the Company entered into
additional foreign currency exchange forward contracts to reduce
its risk related to anticipated dollar equivalent foreign
currency cash flows. The Company also entered into bunker fuel
hedges to reduce its risk related to anticipated bunker fuel
purchases. These hedges have been designated as effective hedges
of cash flows as defined by Statement of Financial Accounting
Standards No. 133 (FAS 133), Accounting
for Derivative Instruments and Hedging Activities, as
amended. Refer to Note 15 in the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2005 for a summary of the
Companys derivative financial instruments outstanding at
December 31, 2005.
At June 17, 2006, the outstanding notional amount of the
Companys euro participating forwards, Japanese yen
forwards and participating forwards, Chilean peso participating
forwards, Colombian peso forwards, Thai baht forwards and
Canadian dollar participating forwards totaled
$92.6 million, $46.7 million, $13.2 million,
$28.5 million, $26.8 million and $10.3 million,
respectively. The average strike prices of the Companys
euro participating forwards, Japanese yen forwards and
participating forwards, Chilean peso participating forwards,
Colombian peso
34
forwards, Thai baht forwards and Canadian dollar participating
forwards were 1.20, ¥112.5, CLP 522, COP 2,285, THB
41.4 and CAD 1.11, respectively. At June 17, 2006, bunker
fuel hedges had an aggregate outstanding notional amount of
$24.6 million. The fair value of the bunker fuel hedges at
June 17, 2006 was ($0.2) million.
During June 2006, the Company entered into an interest rate swap
in order to hedge future changes in interest rates. This
agreement effectively converted $320 million of borrowings
under Term Loan C, which was variable-rate debt, to a
fixed-rate basis through June 2011. The interest rate swap fixed
the interest rate at 7.24%. The paying and receiving rates under
the interest rate swap were 5.49% and 5.19% as of June 17,
2006, with an outstanding notional amount of $320 million.
The critical terms of the interest rate swap were substantially
the same as those of Term Loan C, including quarterly
principal and interest settlements. The fair value of the swap
at June 17, 2006 was $0.6 million. The interest rate
swap hedge has been designated as an effective hedge of cash
flows as defined by FAS 133.
During June 2006, the Company 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 of 7.24% to a Japanese yen
interest rate of 3.60%. Payments under the cross currency swap
were converted from U.S. dollars to Japanese yen at an
exchange rate of ¥111.92 Japanese yen to U.S. dollars.
The cross currency swap does not qualify for hedge accounting
and as a result all gains and losses are recorded through other
income (expense) in the condensed consolidated statements of
income.
For the quarter ended June 17, 2006, there have been no
material changes in the market risk disclosure presented in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005, other than the
transactions described above.
ITEM 4. CONTROLS
AND PROCEDURES
An evaluation was carried out as of June 17, 2006 under the
supervision and with the participation of Doles
management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure
controls and procedures, as defined in
Rule 15d-15(e)
under the Securities Exchange Act. Based upon this evaluation,
Doles Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were
effective as of June 17, 2006. No change in our internal
control over financial reporting identified in connection with
this evaluation that occurred during our second quarter of 2006
has materially affected, or is reasonably likely to materially
affect, Doles internal control over financial reporting.
In connection with the evaluation that was carried out as of
December 31, 2005, we reported in Item 9A of our
annual report on
Form 10-K
for the fiscal year ended December 31, 2005 that there
existed a material weakness in internal
control with respect to certain aspects of accounting for income
taxes as of December 31, 2005. The matter principally
concerns controls and procedures related to the identification
and recording of deferred taxes on the US GAAP vs. income tax
basis difference of Doles foreign equity-method
investments. Such material weakness was first identified
during our second fiscal quarter of 2006, and during the second
fiscal quarter we instituted changes in our internal controls
and procedures relative to the identification and recording of
deferred taxes on the US GAAP vs. income tax basis difference of
Doles foreign equity-method investments. The revised
procedures require the comparison of the book balance sheet
recorded amounts with the tax basis amounts for our minority
investments, so as to identify and record appropriate deferred
tax assets or deferred tax liabilities. We believe that these
changes in our internal control over financial reporting have
materially affected, or are reasonably likely to materially
affect, Doles internal control over financial reporting.
PART II.
OTHER INFORMATION
DOLE FOOD COMPANY, INC.
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Item 1.
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Legal
Proceedings
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Dole is involved from time to time in claims and legal actions
incidental to its operations, both as plaintiff and defendant.
The Company has established what management currently believes
to be adequate reserves for pending
35
legal matters. These reserves are established as part of an
ongoing worldwide assessment of claims and legal actions that
takes into consideration such items as changes in the pending
case load (including resolved and new matters), opinions of
legal counsel, individual developments in court proceedings,
changes in the law, changes in business focus, changes in the
litigation environment, changes in opponent strategy and
tactics, new developments as a result of ongoing discovery, and
past experience in defending and settling similar claims. In the
opinion of management, after consultation with outside counsel,
the claims or actions to which the Company is a party are not
expected to have a material adverse effect, individually or in
the aggregate, on the Companys financial condition or
results of operations.
A significant portion of the Companys legal exposure
relates to lawsuits pending in the United States and in several
foreign countries, alleging injury as a result of exposure to
the agricultural chemical DBCP (1,2-dibromo-3-chloropropane).
DBCP was manufactured by several chemical companies including
Dow and Shell and registered by the U.S. government for use
on food crops. The Company 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. The Company 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 570 lawsuits, in various stages of
proceedings, alleging injury as a result of exposure to DBCP or
seeking enforcement of Nicaraguan judgments. Twenty-five of
these lawsuits (increased from 17 as of March 25,
2006) are currently pending in various jurisdictions in the
United States; the increase results from a redistribution of
claimants by plaintiffs counsel. One case pending in Los
Angeles Superior Court with 13 Nicaraguan plaintiffs has a trial
date of January 24, 2007. Another case in Galveston, Texas
with 439 claimants from Costa Rica has a trial planned for
January 2007. The remaining cases are pending in Latin America
and the Philippines, including 347 labor cases pending in Costa
Rica under that countrys national insurance program.
Claimed damages in DBCP cases worldwide total approximately
$37.5 billion, with the lawsuits in Nicaragua representing
approximately 85% of this amount. In almost all of the non-labor
cases, the Company is a joint defendant with the major DBCP
manufacturers and, typically, other banana growers. Except as
described below, none of these lawsuits has resulted in a
verdict or judgment against the Company.
In Nicaragua, 175 cases are currently filed in various courts
throughout the country, with all but one of the lawsuits brought
pursuant to Law 364, an October 2000 Nicaraguan statute that
contains substantive and procedural provisions that
Nicaraguas 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.
Seventeen cases have resulted in judgments in Nicaragua:
$489.4 million (nine cases consolidated with 468 claimants)
on December 11, 2002; $82.9 million (one case with 58
claimants) on February 25, 2004; $15.7 million (one
case with 20 claimants) on May 25, 2004; $4 million
(one case with four claimants) on May 25, 2004;
$56.5 million (one case with 72 claimants) on June 14,
2004; $64.8 million (one case with 86 claimants) on
June 15, 2004; $27.7 million (one case with 39
claimants) on March 17, 2005; $98.5 million (one case
with 150 claimants) on August 8, 2005; and
$46.4 million (one case with 62 claimants) on
August 20, 2005. The Company has appealed all judgments to
the Nicaragua Courts of Appeal, with the Companys appeal
of the August 8, 2005 $98.5 million judgment now
activated by the court.
There are 32 active cases currently pending in civil courts in
Managua (14), Chinandega (16) and Puerto Cabezas (2), all
of which have been brought under Law 364 except for one of the
cases pending in Chinandega. Six of the active cases pending
before the court in Chinandega have been consolidated for trial,
which seeks $3.4 billion on behalf of 1,708 claimants.
Trial in this consolidated case commenced November 25,
2005. In the 31 active cases under Law 364, except for six cases
in Chinandega and four cases in Managua where the
Company has not yet been ordered to answer, the Company has
sought to have the cases returned to the United States pursuant
to Law
36
364. Notwithstanding, the Chinandega courts have denied the
Companys request in the seven cases (six of which are
consolidated) pending there; the Managua court denied the
Companys request in one of the cases pending there; and
the court in Puerto Cabezas denied the Companys request in
the two cases there. The Companys requests in nine of the
cases in Managua are still pending; and the Company expects to
make similar requests in the remaining four cases at the
appropriate time. The Company has appealed the two decisions of
the court in Puerto Cabezas, the decision of the court in
Managua and the seven decisions of the court in Chinandega.
The claimants attempted enforcement of the
December 11, 2002 judgment for $489.4 million in the
United States resulted in a dismissal with prejudice of
that action by the United States District Court for the Central
District of California on October 20, 2003. The claimants
have voluntarily dismissed their appeal of that decision which
was pending before the United States Court of Appeals for the
Ninth Circuit. Defendants motion for sanctions against
Plaintiffs counsel is still pending before the Court of
Appeals in that case.
Claimants have also indicated their intent to seek enforcement
of the Nicaraguan judgments in Colombia, Ecuador, Venezuela and
other countries in Latin America and elsewhere, including the
United States. In Venezuela, the claimants are attempting to
enforce five of the Nicaraguan judgments in that countrys
Supreme Court: $489.4 million (December 11, 2002);
$82.9 million (February 25, 2004); $15.7 million
(May 25, 2004); $56.5 million (June 14, 2004);
and $64.8 million (June 15, 2004). An action filed to
enforce the $27.7 million Nicaraguan judgment
(March 17, 2005) in the Colombian Supreme Court was
dismissed. In Ecuador, the claimants attempted to enforce the
five Nicaraguan judgments issued between February 25, 2004
through June 15, 2004 in the Ecuador Supreme Court. The
First, Second and Third Chambers of the Ecuador Supreme Court
issued rulings refusing to consider those enforcement actions on
the ground that the Supreme Court was not a court of competent
jurisdiction for enforcement of a foreign judgment. The
plaintiffs subsequently refiled those five enforcement actions
in the civil court in Guayaquil, Ecuador. Two of these
subsequently filed enforcement actions have been dismissed by
the 3rd Civil Court $15.7 million
(May 25, 2004) and the 12th Civil
Court $56.5 million (June 14,
2004) in Guayaquil; plaintiffs have sought
reconsideration of those dismissals. The remaining three
enforcement actions are still pending.
The Company believes that none of the Nicaraguan civil trial
courts judgments will be enforceable against any Dole
entity in the U.S. or in any other country, because
Nicaraguas 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.
As to all the DBCP matters, the Company has denied liability and
asserted substantial defenses. The Company has also engaged in
efforts to resolve pending litigation and claims in the U.S. and
Latin America. Although no assurance can be given concerning the
outcome of these cases, in the opinion of management, after
consultation with legal counsel and based on past experience
defending and settling DBCP claims, the pending lawsuits are not
expected to have a material adverse effect on the Companys
financial condition or results of operations.
European Union Antitrust Inquiry and
U.S. Class Action Lawsuits: The
European Commission (EC) is investigating alleged
violations of European Union competition (antitrust) laws by
banana and pineapple importers and distributors operating within
the European Economic Area. On June 2 and 3, 2005, the EC
conducted a search of certain of the Companys offices in
Europe. During this same period, the EC also conducted similar
unannounced searches of other companies offices located in
the European Union. The Company is cooperating with the EC and
has responded to the ECs information requests. Although no
assurances can be given concerning the course or outcome of that
EC investigation, the Company believes that it has not violated
the European Union competition laws.
Following the public announcement of the EC searches, a number
of class action lawsuits were filed against the Company and
three competitors in the U.S. District Court for the
Southern District of Florida. The lawsuits were filed on behalf
of entities that directly or indirectly purchased bananas from
the defendants and have now been consolidated into two separate
class action lawsuits: one by direct purchasers (customers); and
another by indirect purchasers (those who purchased bananas from
customers). Both consolidated class action lawsuits allege that
the
37
defendants conspired to artificially raise or maintain prices
and control or restrict output of bananas. The Company believes
these lawsuits are without merit.
Honduran Tax Case: In 2005, the Company
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 the Companys interest in
Cervecería Hondureña, S.A in 2001. The Company
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, the Company
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 is
seeking dismissal of the lawsuit and attachment of assets, which
the Company is challenging. No reserve has been provided for
this assessment.
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Item 6.
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Exhibits
and Reports on
Form 8-K
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Exhibit
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Number
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31
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.1*
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Certification by the Chairman and
Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act.
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31
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.2*
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Certification by the Vice
President and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
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32
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.1
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Certification by the Chairman and
Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act.
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32
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.2
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Certification by the Vice
President and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
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* |
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Filed herewith |
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Furnished herewith |
No reports on
Form 8-K
were filed during the quarter ended June 17, 2006.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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August 1, 2006
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DOLE FOOD COMPANY, INC.
REGISTRANT
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By:
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/s/ Joseph
S. Tesoriero
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Joseph S. Tesoriero
Vice President and
Chief Financial Officer
Yoon J. Hugh
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
39
EXHIBIT INDEX
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Exhibit
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Number
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|
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31
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.1*
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Certification by the Chairman and
Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act.
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31
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.2*
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Certification by the Vice
President and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
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32
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.1
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Certification by the Chairman and
Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act.
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32
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.2
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Certification by the Vice
President and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
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* |
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Filed herewith |
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Furnished herewith |
40