<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
For the quarterly period ended October 9, 1999
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
For the transition period from ______________ to ______________
Commission File Number 1-4455
------------------------
DOLE FOOD COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
HAWAII 99-0035300
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
31365 OAK CREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91361
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (818) 879-6600
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
Class Shares Outstanding at October 31, 1999
- -------------------------- ------------------------------------
Common Stock, No Par Value 55,835,218
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DOLE FOOD COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
--------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income--quarters and three
quarters ended October 9, 1999 and October 10, 1998....... 3
Consolidated Balance Sheets--October 9, 1999 and
January 2, 1999........................................... 5
Consolidated Statements of Cash Flows--three quarters ended
October 9, 1999 and October 10, 1998...................... 6
Notes to Consolidated Financial Statements.................. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 15
ITEM 6. Exhibits and Reports on Form 8-K............................ 15
Signatures.................................................. 16
</TABLE>
2
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOLE FOOD COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN 000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------
OCTOBER 9, OCTOBER 10,
1999 1998
----------- -----------
<S> <C> <C>
Revenue..................................................... $ 1,412,098 $ 1,209,794
Cost of products sold....................................... (1,232,917) (1,035,312)
----------- -----------
Gross margin.............................................. 179,181 174,482
Selling, marketing and administrative expenses.............. (157,732) (133,981)
Hurricane Mitch rehabilitation expenses..................... (7,826) --
----------- -----------
Operating income.......................................... 13,623 40,501
Interest income............................................. 3,282 2,321
Other income (expense)--net................................. 1,081 (3,129)
----------- -----------
Earnings before interest and taxes........................ 17,986 39,693
Interest expense............................................ (28,182) (20,731)
----------- -----------
Income (loss) before income taxes......................... (10,196) 18,962
Income taxes................................................ 2,200 (3,400)
----------- -----------
Net income (loss)......................................... $ (7,996) $ 15,562
=========== ===========
Net income (loss) per common share
Basic..................................................... $ (0.14) $ 0.26
Diluted................................................... (0.14) 0.26
=========== ===========
Diluted average number of common shares outstanding......... 56,933 60,704
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
DOLE FOOD COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN 000S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
-------------------------
OCTOBER 9, OCTOBER 10,
1999 1998
----------- -----------
<S> <C> <C>
Revenue..................................................... $ 3,917,089 $ 3,385,764
Cost of products sold....................................... (3,394,001) (2,864,063)
----------- -----------
Gross margin.............................................. 523,088 521,701
Selling, marketing and administrative expenses.............. (380,491) (324,707)
Hurricane Mitch insurance proceeds--net..................... 18,689 --
----------- -----------
Operating income.......................................... 161,286 196,994
Interest income............................................. 8,578 5,652
Other income (expense)--net................................. 30 (5,229)
----------- -----------
Earnings before interest and taxes........................ 169,894 197,417
Interest expense............................................ (71,016) (50,599)
----------- -----------
Income before income taxes................................ 98,878 146,818
Income taxes................................................ (21,800) (26,400)
----------- -----------
Net income................................................ $ 77,078 $ 120,418
=========== ===========
Net income per common share
Basic..................................................... $ 1.35 $ 2.00
Diluted................................................... 1.35 1.98
=========== ===========
Diluted average number of common shares outstanding......... 57,270 60,788
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
DOLE FOOD COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN 000S)
<TABLE>
<CAPTION>
OCTOBER 9, JANUARY 2,
1999 1999
----------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments........................... $ 34,503 $ 35,352
Receivables--net.......................................... 560,791 616,579
Inventories
Finished products....................................... 162,707 168,423
Raw materials and work in progress...................... 150,287 156,623
Growing crops........................................... 50,211 47,676
Operating supplies and other............................ 126,089 102,802
---------- ----------
489,294 475,524
Prepaid expenses.......................................... 49,451 43,200
---------- ----------
Total current assets.................................... 1,134,039 1,170,655
Investments................................................. 76,611 71,923
Property, plant and equipment--net.......................... 1,115,989 1,102,285
Goodwill--net............................................... 295,762 277,962
Other assets................................................ 281,963 292,228
---------- ----------
TOTAL ASSETS............................................ $2,904,364 $2,915,053
========== ==========
CURRENT LIABILITIES
Notes payable............................................. $ 28,849 $ 29,637
Current portion of long-term debt......................... 5,947 6,451
Accounts payable and accrued liabilities.................. 687,093 768,790
---------- ----------
Total current liabilities............................... 721,889 804,878
Long-term debt.............................................. 1,239,664 1,116,422
Other long-term liabilities................................. 315,696 314,527
Minority interests.......................................... 50,423 57,394
Commitments and contingencies
Common shareholders' equity
Common stock.............................................. 316,478 319,937
Additional paid-in capital................................ 56,796 144,515
Retained earnings......................................... 307,426 247,508
Accumulated other comprehensive loss...................... (104,008) (90,128)
---------- ----------
Total common shareholders' equity....................... 576,692 621,832
---------- ----------
TOTAL LIABILITIES AND EQUITY............................ $2,904,364 $2,915,053
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
DOLE FOOD COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN 000S)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
------------------------
OCTOBER 9, OCTOBER 10,
1999 1998
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 77,078 $ 120,418
Adjustments to net income
Depreciation and amortization........................... 100,675 88,181
Provision for deferred income taxes..................... 6,133 10,289
Hurricane Mitch insurance proceeds...................... (38,331) --
Other................................................... (1,636) (297)
Change in operating assets and liabilities,
net of effects from acquisitions and non-cash
transactions
Receivables--net........................................ 30,600 32,198
Inventories............................................. (16,625) 28,583
Prepaid expenses and other assets....................... (27,964) (4,252)
Accounts payable and accrued liabilities................ (61,272) (64,468)
Internal Revenue Service refund (payment) related to
prior years' audits................................... 14,550 (17,145)
Other................................................... (884) (16,486)
--------- ---------
Cash flow provided by operating activities.................. 82,324 177,021
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of assets............................. 3,406 10,054
Capital additions......................................... (100,764) (97,735)
Purchases of investments and acquisitions, net of cash
acquired................................................ (16,747) (196,329)
Hurricane Mitch insurance proceeds........................ 38,331 --
--------- ---------
Cash flow used in investing activities.................... (75,774) (284,010)
--------- ---------
FINANCING ACTIVITIES
Short-term debt borrowings (repayments)--net.............. (2,485) 5,061
Long-term borrowings--net................................. 103,424 273,758
Cash dividends paid....................................... (17,160) (18,103)
Issuance of common stock.................................. 717 10,368
Repurchase of common stock................................ (91,895) (42,085)
--------- ---------
Cash flow provided by (used in) financing activities...... (7,399) 228,999
--------- ---------
Increase (decrease) in cash and short-term investments...... (849) 122,010
Cash and short-term investments at beginning of period...... 35,352 31,202
--------- ---------
Cash and short-term investments at end of period............ $ 34,503 $ 153,212
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
DOLE FOOD COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements of Dole Food Company, Inc. (the "Company") include all
adjustments necessary to present fairly its financial position as of
October 9, 1999 and January 2, 1999 (audited), its results of operations for
the quarters and three quarters ended October 9, 1999 and October 10, 1998
and its cash flows for the three quarters then ended. For additional
information, refer to the notes to the Company's audited consolidated
financial statements for the year ended January 2, 1999. Certain prior year
amounts have been reclassified to conform with the 1999 presentation.
Interim results are subject to significant seasonal variations and are not
necessarily indicative of the results of operations for a full year. The
Company's operations are sensitive to a number of factors including
weather-related phenomena and their effects on industry volumes, prices,
product quality and costs. Operations are also sensitive to fluctuations in
currency exchange rates in both sourcing and selling locations. While the
Company has historically not attempted to hedge foreign currency
fluctuations, it occasionally enters into forward contracts related to
specific foreign currency denominated purchase commitments and sales.
As of October 9, 1999, the Company had contracted to purchase German marks,
primarily at fixed exchange rates. These contracts were originally intended
to facilitate payment for two German-made refrigerated container vessels at
a weighted-average exchange rate of DM 1.81 to $1.00 for a total notional
value of $97.3 million. Of the DM 175 million originally contracted, DM
50 million of contracts carried a variable rate component whereby the
contracted exchange rates varied with the spot rate to the extent the spot
rate exceeded the initial contracted rates. If the spot rate would have met
or exceeded DM 2.00 to $1.00 during the lives of the contracts, the exchange
rates would have reverted to the initial contracted rates. As of the
October 9, 1999, the fair value of these contracts was $95.2 million.
2. During the first three quarters of 1999, the Company declared and paid
dividends of $17.2 million on its common stock representing three regular
quarterly dividends of 10 cents per share. For the same period of 1998, the
Company declared dividends of $24.0 million of which $18.1 million were
paid. The dividends declared during the first three quarters of 1998
represented regular quarterly dividends of 10 cents per share for the four
quarters of that year.
3. The Company paid interest of $69.1 million during the first three quarters
of 1999 and $49.9 million for the same period of 1998. For the first three
quarters of 1999, the Company paid a net amount of $8.7 million for income
taxes, which was comprised of $23.3 million of payments offset by
$14.6 million of refunds related to the partial settlement of disputed items
from prior years' audits. For the same period of 1998, the Company paid
$36.9 million of income taxes, of which $17.1 million related to disputed
items from prior years' audits.
7
<PAGE>
DOLE FOOD COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. During the latter part of 1998, the Company acquired and invested in
operations in Latin America, North America and Europe. The acquisitions were
comprised primarily of the purchases of Sunburst Farms, Inc., Four
Farmers, Inc., Finesse Farms, Colombian Carnations, Inc. and their
affiliated companies and 60% of the Saba Trading AB Scandinavian
distribution business. If the acquisitions had taken place on January 4,
1998, pro forma revenue and net income for the quarter and three quarters
ended October 10, 1998 would have been $1,372.9 million and $9.3 million,
and $3,877.0 million and $122.7 million, respectively. Basic and diluted net
income per common share for the quarter ended October 10, 1998 would have
been $0.15. Basic and diluted net income per common share for the three
quarters ended October 10, 1998 would have been $2.04 and $2.02,
respectively.
These pro forma results of operations have been prepared for comparative
purposes only and may not be indicative of the Company's results of
operations had the acquisitions occurred on the date indicated or of its
future results of operations.
5. The Company recognized comprehensive income which consisted of net income
and unrealized foreign currency translation gains (losses) as follows (in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
------------------------ ------------------------
OCTOBER 9, OCTOBER 10, OCTOBER 9, OCTOBER 10,
1999 1998 1999 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net income (loss).............................. $(7,996) $15,562 $ 77,078 $120,418
Foreign currency translation gain (loss)....... 3,025 11,507 (13,880) 5,265
------- ------- -------- --------
Comprehensive income (loss).................... $(4,971) $27,069 $ 63,198 $125,683
======= ======= ======== ========
</TABLE>
The change in operating assets and liabilities shown in the Consolidated
Statements of Cash Flows excludes the effects of foreign currency
translation. Such translation reduced assets and liabilities by
$31.2 million and $17.3 million, respectively, during the three quarters
ended October 9, 1999 and increased assets and liabilities by $38.6 million
and $33.3 million, respectively, during the three quarters ended
October 10, 1998.
6. The weighted-average number of common shares outstanding used to calculate
basic net income per share was 56.9 million and 60.2 million for the
quarters ended and 57.2 million and 60.3 million for the three quarters
ended October 9, 1999 and October 10, 1998, respectively.
8
<PAGE>
DOLE FOOD COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. The Company has four reportable segments: fresh fruit, fresh vegetables,
processed foods and fresh-cut flowers. Businesses in the Company's fresh-cut
flowers segment source, import and market fresh-cut flowers grown in
Colombia, Ecuador and Mexico primarily to wholesale florists and
supermarkets in the United States. Businesses in this segment were acquired
during the latter part of 1998 and reported in other operating segments in
the Company's 1998 Annual Report on Form 10-K.
Management evaluates and monitors segment performance primarily through
earnings before interest and taxes ("EBIT"). Revenue and EBIT for the
reportable segments, other operating segments, and corporate and other were
as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
------------------------ ------------------------
OCTOBER 9, OCTOBER 10, OCTOBER 9, OCTOBER 10,
1999 1998 1999 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue
Fresh fruit............................. $ 853,834 $ 716,684 $2,452,443 $2,102,197
Fresh vegetables........................ 231,854 210,012 641,634 598,618
Processed foods......................... 262,136 245,929 636,571 629,288
Fresh-cut flowers....................... 51,035 26,478 160,797 26,478
Other operating segments................ 13,239 10,691 25,644 29,183
---------- ---------- ---------- ----------
$1,412,098 $1,209,794 $3,917,089 $3,385,764
========== ========== ========== ==========
EBIT
Fresh fruit............................. $ 316 $ 15,382 $ 59,484 $ 127,539
Fresh vegetables........................ 10,994 13,832 41,626 41,184
Processed foods......................... 30,385 24,405 64,639 62,672
Fresh-cut flowers....................... (9,344) 709 6,068 709
Other operating segments................ 1,189 576 552 990
---------- ---------- ---------- ----------
Reportable segment EBIT................. 33,540 54,904 172,369 233,094
Corporate and other..................... (7,728) (15,211) (21,164) (35,677)
Hurricane Mitch insurance proceeds
(expenses)--net....................... (7,826) -- 18,689 --
---------- ---------- ---------- ----------
$ 17,986 $ 39,693 $ 169,894 $ 197,417
========== ========== ========== ==========
</TABLE>
Corporate and other EBIT includes general and administrative costs not
allocated to operating segments. Corporate and other EBIT in 1998 includes
certain costs related to the reorganization of the European processed
pineapple business.
8. Subsequent to the third quarter of 1999, the Company entered into an
agreement with a bank to finance the vessels discussed in Note 1 to these
financial statements. These vessels will be operated by the Company under an
operating lease agreement. As such, early in the fourth quarter of 1999, the
currency exchange contracts were terminated resulting in a pretax charge of
$1.95 million.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DOLE FOOD COMPANY, INC.
RESULTS OF OPERATIONS
FRESH FRUIT
Fresh fruit revenues for the first three quarters of 1999 increased 17% to
$2.45 billion from $2.10 billion during the same period of 1998. Revenues for
the third quarter of 1999 increased 19% to $854 million from $717 million for
the third quarter of 1998. Fresh fruit revenues increased primarily due to the
inclusion of the Saba Trading AB Scandinavian distribution business acquired
during the fourth quarter of 1998. Higher fresh fruit revenues were partially
offset by lower revenues in the banana business due to weak pricing, primarily
in the European market. An above-normal allocation of European Union banana
import licenses in the second and third quarters of 1999, when combined with
high industry production levels, resulted in market oversupply conditions, which
drove prices lower. Additionally, low volumes in the California citrus business
due to crop losses as a result of last year's freezing temperatures in the San
Joaquin valley further offset increased revenues in the segment.
Earnings before interest and taxes ("EBIT") in the fresh fruit segment for
the first three quarters of 1999 decreased 53% to $59.5 million from
$127.5 million during the same period of 1998. EBIT for the third quarter of
1999 decreased 98% to $0.3 million from $15.4 million for the third quarter of
1998. Fresh fruit EBIT declined primarily due to the weak banana pricing
conditions experienced in the European market during the second and third
quarters of 1999 combined with lost volumes in the California citrus business
for the first three quarters of 1999. Additionally, during 1999, the Company
consolidated the management of its North American sourced fresh product
administration and sales operations. One-time consolidation costs during the
third quarter of 1999 totaled approximately $6 million and were reported as a
component of ongoing operations as incurred. The Company will continue to incur
similar consolidation costs through the fourth quarter of 1999.
FRESH VEGETABLES
Fresh vegetables revenues for the first three quarters of 1999 increased 7%
to $642 million from $599 million during the same period of 1998. Revenues for
the third quarter of 1999 increased 10% to $232 million from $210 million for
the third quarter of 1998. Fresh vegetables revenues increased during the three
quarters of 1999 primarily due to category growth in the fresh-cut salads
business. Revenues in the North American commodity business were up slightly, as
higher volumes were largely offset by a return to more traditional pricing.
Commodity pricing was higher during 1998 as a result of the El Nino weather
pattern's impact on production levels.
EBIT in the fresh vegetables segment for the first three quarters of 1999
was largely unchanged, increasing 1% to $41.6 million from $41.2 million during
the same period of 1998. EBIT for the third quarter of 1999 decreased 21% to
$11.0 million from $13.8 million for the third quarter of 1998. The decrease in
third quarter EBIT was largely due to lower pricing in the North American
commodity business partially offset by growth in the fresh-cut salads business.
Growth in the fresh-cut salads business also resulted in higher marketing
expenses during the quarter and three quarters ended October 9, 1999.
PROCESSED FOODS
Processed foods revenues for the first three quarters of 1999 increased 1%
to $637 million from $629 million during the same period of 1998. Revenues for
the third quarter of 1999 increased 7% to $262 million from $246 million for the
third quarter of 1998. Processed foods revenues increased primarily due to
higher volumes in the processed pineapple business, largely in the second and
third quarters, as that business began to recover from long-term drought
conditions in sourcing locations. Additionally, the
10
<PAGE>
successful launch of new products in the North American processed pineapple
business contributed to higher third quarter revenues. These higher revenues
were partially offset by continued weak pricing in the California almond
business. Commodity pricing in the California almond industry declined during
the first three quarters of 1999 as a result of significantly higher industry
crop levels. This downward trend in pricing experienced during 1999 is not
expected to improve in the fourth quarter. Conversely, the Honduran beverage
business has shown a steady recovery of volumes lost due to the infrastructure
and market impacts of Hurricane Mitch ("Mitch"), which devastated that region
during the fourth quarter of 1998. Volumes in the beverage business for the
third quarter of 1999 were down only slightly as compared to pre-Mitch levels
during the third quarter of 1998.
EBIT in the processed foods segment for the first three quarters of 1999
increased 3% to $64.6 million from $62.7 million during the same period of 1998.
EBIT for the third quarter of 1999 increased 25% to $30.4 million from
$24.4 million for the third quarter of 1998. Processed foods EBIT increased
primarily due to volume improvements in the processed pineapple business as a
combined result of increased supply and the launch of new products in North
America. Additionally, the North American processed pineapple business benefited
from better-than-anticipated market acceptance of its new products launched
during 1999, which resulted in lower inventory reserve requirements. Increased
selling and marketing costs associated with the development and launch of these
new products partially offset the earnings improvement. Also, improvements in
the processed pineapple business were partially offset by the negative impacts
of poor pricing in the California almond business.
FRESH-CUT FLOWERS
Fresh-cut flowers revenues for the first three quarters of 1999 increased to
$161 million from $26 million during the same period of 1998. Revenues for the
third quarter of 1999 increased to $51 million from $26 million for the third
quarter of 1998. Fresh-cut flowers revenues increased due to the acquisitions of
businesses comprising the fresh-cut flowers segment during the second half of
1998.
EBIT in the fresh-cut flowers segment for the first three quarters of 1999
increased to $6.1 million from $0.7 million during the same period of 1998. EBIT
for the third quarter of 1999 decreased to $(9.3) million from $0.7 million for
the third quarter of 1998. Fresh-cut flowers EBIT for the first three quarters
of 1999 increased due to the acquisitions during the second half of 1998. During
the second half of 1999, the segment began the process of consolidating the
individually acquired operations. Costs associated with this consolidation were
reported as a component of ongoing operations as incurred. These costs when
combined with weaker pricing in key markets and seasonally low sales in the
second half of the year resulted in the EBIT loss for the third quarter of 1999.
The Company anticipates further losses in this segment during the fourth quarter
of 1999.
In the fourth quarter of 1998, the Company took a $100 million charge, net
of insurance proceeds received, for damages sustained from Hurricane Mitch. As
of October 9, 1999 the Company received $38 million of additional insurance
proceeds, all of which were received during the first two quarters of the year,
and incurred $19 million of rehabilitation expenses for the first three quarters
of 1999. In the third quarter of 1999, the Company received no insurance
proceeds and incurred $8 million of rehabilitation expenses. The net proceeds of
$19 million for the first three quarters of 1999 and rehabilitation expenses of
$8 million for third quarter of 1999 have been reported on a separate line in
the respective Consolidated Statements of Income. The Company continues to
pursue recovery under various insurance policies for losses sustained.
Subsequent to the end of the third quarter of 1999, and as of November 23, 1999,
the Company received an additional $10 million of insurance proceeds as well as
a commitment from its insurance company to receive another $5 million, for a
total of $15 million, during the fourth quarter of 1999. Future insurance
proceeds, net of rehabilitation expenses, will continue to be reported
separately in the Consolidated Statements of Income.
11
<PAGE>
Other income (expense)--net consists primarily of minority interest expense
and gains and losses on the sale of property. Minority interest expense was
lower during the first three quarters of 1999, as compared to the first three
quarters of 1998, largely due to increased ownership of the Honduran beverage
business.
Interest expense for the first three quarters of 1999 increased to
$71 million from $51 million for the same period of 1998. For the third quarter
of 1999, interest expense increased to $28 million from $21 million for the
third quarter of 1998. The increase was primarily due to higher average debt
levels resulting from the acquisition of businesses during the latter part of
1998 as well as repurchases of the Company's common shares late in the third
quarter of 1998 and in the first and third quarters of 1999.
During the first three quarters of 1999, the Company's effective tax rate
increased to 22% from 18% during the same period of 1998. The increase was
primarily due to income from net insurance proceeds related to last year's
Hurricane Mitch.
The Company has assessed the effect of Year 2000 issues on its information
technology, including computer hardware, software, telecommunications and
embedded chip technology. Remediation of critical information and operating
systems was completed at most of the Company's operating units as of their
December 1998 internal target date. Remaining remediation was primarily related
to operations acquired by the Company during 1998 as well as Honduran operating
units impacted by Mitch. With the exception of certain minor issues related to
non-critical equipment at three operating units in North America, this remaining
remediation was completed by September 1999. Remediation at the three remaining
operating units will be completed in the fourth quarter of 1999. The majority of
necessary remediation was accomplished through normal upgrades and replacements
of hardware, software and embedded technologies. Based on work performed to
date, the Company believes that the total cost of its Year 2000 efforts will not
be material to its results of operations, liquidity or capital resources.
The Company has also completed its process of confirming Year 2000
compliance with its critical business partners, including key suppliers and
service providers. Contingency plans have been developed at the majority of the
Company's operating units as of its September 30, 1999 internal target date with
the few remaining units on target for completion in the fourth quarter of 1999.
The Company anticipates that these plans will continue to be updated through the
fourth quarter as additional information regarding the Year 2000 readiness of
its critical business partners is made available. These contingency plans are
specifically related to the Company's critical business partners in an effort to
reduce, to the extent possible, the risks associated with disruption of the
Company's supply chain or crucial services. Contingency plans include holding
extra inventory, documenting manual processes and identifying alternative
vendors and suppliers. The most likely worst case scenario that could result
from the Year 2000 issue would be the loss of local services such as power and
telecommunications in certain regions in which the Company operates. The Company
believes it has adequate contingency plans in place to mitigate the impact of
these events should they occur.
The preceding discussion contains forward-looking statements regarding the
Company's timetable for solving its Year 2000 issues, costs to remediate and the
ultimate impact on its finances, which involve a number of risks and
uncertainties. The potential risks and uncertainties that could cause actual
results to materially differ from current expectations include: the ability of
third parties to complete their own Year 2000 remediations on time; the ability
of the Company's key suppliers and service providers to continue to provide
these products and services; the ability of the Company to identify and
implement contingency plans for non-compliant critical business partners; and
unforeseen responses by the public to the perceived situation.
The European Union ("EU") banana regulations, which impose quotas and
tariffs on bananas, remained in full effect during the first three quarters of
1999. On April 6, 1999, the World Trade Organization ("WTO") ruled that the
United States could impose tariffs on up to $191 million of EU exports. In
response, the EU has expressed its intent to propose a two-stage plan to
transition from the
12
<PAGE>
current regulatory system of import quotas and licenses to a flat tariff system.
Under the plan, the EU would maintain its system of regional import quotas and
licenses for approximately five years, during which it would negotiate and
finalize a flat tariff system. The net impact of this announced plan, the WTO
ruling and any future changes to EU import regulations on the Company's future
results of operations is not determinable at this time.
The Company recently announced that it has undertaken initiatives which are
designed to reduce costs, enhance earnings and pay down debt. In its banana
operations, the Company has begun to significantly downsize its global
operations. This involves closing certain production sites, reducing purchases
from independent growers and ceasing operations in Nicaragua and Venezuela.
These changes will eliminate over 25 million boxes from the Company's worldwide
sourcing and affect nearly 9,000 workers, most of whom are employed by
associated producers and independent growers. The downsizing also will affect
the Company's shipping operation, where the Company will operate with seven
fewer vessels next year, and its marketing operation, where the Company will
significantly reduce its sales into the developing markets of the world,
especially Russia and Eastern Europe. In Europe, the Company will consolidate
its sales and distribution network, closing 15 locations and reducing its staff
by over 300 people. The Company has also consolidated all of its North American
sourced fresh product administration and sales under one unit in Salinas,
California and has closed its fresh fruit offices in Bakersfield, California. In
connection with these downsizings and consolidations, the Company expects to
take a special charge of $30 million to $40 million in the fourth quarter
of 1999.
The Company further announced it has initiated a review of all its non-core
assets or under-performing businesses with an intention to sell or liquidate
those that do not meet internal economic return criteria. This initiative is
expected to generate approximately $100 million to $200 million over the next
18 months. These receipts will generally be used to pay down debt. Capital
expenditures will also be reduced to below current levels of depreciation and
amortization.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." In June 1999, the FASB
issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"),
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," which delayed the effective date of
SFAS 133 by one year. The Company is assessing the impact of accounting for
derivative instruments in accordance with SFAS 133. However, adoption of
SFAS 133 is not expected to have a material impact on the Company's financial
condition or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities decreased to $82 million for the
first three quarters of 1999 from $177 million for the same period of 1998. The
decrease was primarily due to lower earnings as well as higher working capital
requirements as product inventory levels in the processed pineapple business
began to recover from drought conditions experienced in prior years and rose due
to the addition of new product lines. During the second quarter of 1999, the
Company received a refund from the Internal Revenue Service of $15 million
related to the partial settlement of certain disputed items from prior years'
audits. During the first quarter of 1998, the Company made a payment of
$17 million to the Internal Revenue Service related to disputed items from prior
years' audits.
Capital expenditures of $101 million for the first three quarters of 1999
were for the acquisition and improvement of productive assets, which included
$19 million for the replacement or capitalizable repair of assets destroyed or
damaged by Hurricane Mitch.
During the first part of 1999, the Company increased its ownership in its
Honduran beverage business and acquired banana production operations in South
America, which totaled $17 million.
13
<PAGE>
In February 1999, the Company increased the number of common shares
authorized under its repurchase program to 8.3 million shares. During January
and February 1999, the Company repurchased 2.3 million of its common shares for
$68 million. The Company purchased an additional 1.2 million of its common
shares for $24 million in October 1999. These share repurchases were funded by
debt. Approximately 3.3 million shares remain authorized for repurchase under
the Company's stock repurchase program after these transactions.
As of October 9, 1999 the Company had $140 million outstanding under its
$400 million, 5-year revolving credit facility. In addition, the Company had
borrowings outstanding under uncommitted lines of credit totaling $48 million.
The Company's total debt increased to $1.27 billion as of October 9, 1999
from $1.15 billion at the end of 1998 largely as a result of repurchases of its
common shares during the first and third quarters of 1999, which also decreased
paid-in capital. As a result, the Company's net debt to net debt and equity
ratio increased from 64% at January 2, 1999 to 68% as of October 9, 1999.
This filing contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The potential
risks and uncertainties that could cause the Company's actual results to differ
materially from those expressed or implied herein include weather-related
phenomena; market responses to industry volume pressures; economic crises in
developing countries; quotas, tariffs and other governmental actions; changes in
currency exchange rates; product supply and pricing; and computer conversion and
Year 2000 issues.
14
<PAGE>
PART II.
OTHER INFORMATION
DOLE FOOD COMPANY, INC.
ITEM 1. LEGAL PROCEEDINGS
In the Company's Form 10-K for the year ended January 2, 1999, the Company
described certain lawsuits that had been filed in Texas, Louisiana, Mississippi
and Hawaii against some of the manufacturers of a formerly widely used
agricultural chemical called DBCP, the Company and several of its competitors.
In these lawsuits, a large number of foreign nationals allege personal injuries
caused by contact with DBCP. The plaintiffs claim that during the 1960's and
1970's they were employees of Company subsidiaries, competitors and independent
local growers. All cases were removed to federal court and most have been
dismissed on the grounds that the plantiffs' home countries are the more
appropriate forums for the claims. A dismissal motion is pending in one Texas
case, and one Louisiana case was remanded to state court. The dismissed cases
are on appeal. The Company was recently served with three additional lawsuits in
Louisiana. The DBCP manufacturers and Company competitors have reported that
they have settled with the majority of the Texas and Louisiana plaintiffs. The
Dow Chemical Company, a manufacturer of DBCP, has filed a lawsuit against a
Company subsidiary seeking indemnification for settlement and defense costs. In
addition, the Company was recently served with a lawsuit filed in Hawaii state
court by the Honolulu Board of Water Supply in which the Board seeks damages for
alleged DBCP contamination of water wells. As to all such matters, the Company
has denied liability and asserted substantial defenses. In the opinion of
management, after consultation with outside counsel, the pending lawsuits are
not expected to have a material adverse effect on the Company's financial
position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------------------
<C> <S>
27 Financial data schedule
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended October 9,
1999
15
<PAGE>
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.
<TABLE>
<S> <C> <C>
DOLE FOOD COMPANY, INC.
REGISTRANT
November 23, 1999 By: /s/ GIL BOROK
-----------------------------------------
Gil Borok
CONTROLLER AND
CHIEF ACCOUNTING OFFICER
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000<F1>
<PERIOD-START> JAN-03-1999<F1>
<PERIOD-END> OCT-09-1999<F1>
<CASH> 34,503
<SECURITIES> 0
<RECEIVABLES> 657,117
<ALLOWANCES> 96,326
<INVENTORY> 489,294
<CURRENT-ASSETS> 1,134,039
<PP&E> 1,911,209
<DEPRECIATION> 795,220
<TOTAL-ASSETS> 2,904,364
<CURRENT-LIABILITIES> 721,889
<BONDS> 1,239,664
0
0
<COMMON> 316,478
<OTHER-SE> 260,214
<TOTAL-LIABILITY-AND-EQUITY> 2,904,364
<SALES> 3,917,089
<TOTAL-REVENUES> 3,917,089
<CGS> 3,394,001
<TOTAL-COSTS> 3,394,001
<OTHER-EXPENSES> 353,194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,016
<INCOME-PRETAX> 98,878
<INCOME-TAX> 21,800
<INCOME-CONTINUING> 77,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,078
<EPS-BASIC> 1.35<F2>
<EPS-DILUTED> 1.35<F3>
<FN>
<F1>THE COMPANY'S FISCAL YEAR ENDS ON THE SATURDAY CLOSEST TO DECEMBER 31. FISCAL
YEAR 1999 ENDS JANUARY 1, 2000 AND INCLUDES 52 WEEKS. ALL QUARTERS INCLUDE 12
WEEKS, EXCEPT FOR THE THIRD QUARTER WHICH HAS 16 WEEKS.
<F2>IN ACCORDANCE WITH SFAS NO. 128, "EARNINGS PER SHARE", THIS ITEM REFLECTS BASIC
EARNINGS PER SHARE.
<F3>IN ACCORDANCE WITH SFAS NO. 128, "EARNINGS PER SHARE", THIS ITEM REFLECTS
DILUTED EARNINGS PER SHARE.
</FN>
</TABLE>
