<PAGE>
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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 7, 2000
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
incorporation or organization) Identification No.)
</TABLE>
ONE DOLE DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(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>
CLASS SHARES OUTSTANDING AT OCTOBER 31, 2000
----- --------------------------------------
<S> <C>
Common Stock, No Par Value 55,844,853
</TABLE>
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<PAGE>
DOLE FOOD COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income--Quarters and Three
Quarters Ended October 7, 2000 and October 9, 1999........ 3
Consolidated Balance Sheets--October 7, 2000 and January 1,
2000...................................................... 5
Consolidated Statements of Cash Flows--Three Quarters Ended
October 7, 2000 and October 9, 1999....................... 6
Notes to Consolidated Financial Statements.................. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 17
ITEM 6. Exhibits and Reports on Form 8-K............................ 17
Signatures.................................................. 18
</TABLE>
2
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOLE FOOD COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------
OCTOBER 7, OCTOBER 9,
2000 1999
---------- ----------
<S> <C> <C>
Revenue..................................................... $1,436,880 $1,412,098
Cost of products sold....................................... 1,259,742 1,232,917
---------- ----------
Gross margin.............................................. 177,138 179,181
Selling, marketing and administrative expenses.............. 158,157 157,732
Hurricane Mitch (insurance proceeds) rehabilitation
expenses--net............................................. (42,506) 7,826
Business downsizing charge.................................. 45,761 --
Gain on sale of citrus assets............................... (8,142) --
---------- ----------
Operating income.......................................... 23,868 13,623
Interest income............................................. 8,829 3,282
Other income--net........................................... 706 1,081
---------- ----------
Earnings before interest and taxes........................ 33,403 17,986
Interest expense............................................ 30,148 28,182
---------- ----------
Income (loss) before income taxes......................... 3,255 (10,196)
Income taxes................................................ 10,605 (2,200)
---------- ----------
Net loss.................................................. (7,350) (7,996)
========== ==========
Net loss per common share
Basic..................................................... $ (0.13) $ (0.14)
Diluted................................................... (0.13) (0.14)
========== ==========
Diluted average number of common shares outstanding......... 55,857 56,933
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
DOLE FOOD COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
-----------------------
OCTOBER 7, OCTOBER 9,
2000 1999
---------- ----------
<S> <C> <C>
Revenue..................................................... $3,894,075 $3,917,089
Cost of products sold....................................... 3,315,563 3,394,001
---------- ----------
Gross margin.............................................. 578,512 523,088
Selling, marketing and administrative expenses.............. 410,810 380,491
Hurricane Mitch insurance proceeds--net..................... (42,506) (18,689)
Business downsizing charge.................................. 45,761 --
Gain on sale of citrus assets............................... (8,142) --
---------- ----------
Operating income.......................................... 172,589 161,286
Interest income............................................. 12,886 8,578
Other income--net........................................... 548 30
---------- ----------
Earnings before interest and taxes........................ 186,023 169,894
Interest expense............................................ 76,945 71,016
---------- ----------
Income before income taxes................................ 109,078 98,878
Income taxes................................................ 34,905 21,800
---------- ----------
Net income................................................ 74,173 77,078
========== ==========
Net income per common share
Basic..................................................... $ 1.33 $ 1.35
Diluted................................................... 1.33 1.35
========== ==========
Diluted average number of common shares outstanding......... 55,920 57,270
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
DOLE FOOD COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
OCTOBER 7, JANUARY 1,
2000 2000
----------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 26,287 $ 42,427
Receivables............................................... 563,223 600,671
Inventories
Finished products......................................... 183,336 175,574
Raw materials and work in progress...................... 145,963 181,690
Crop growing costs...................................... 42,521 55,221
Operating supplies and other............................ 99,333 112,090
---------- ----------
Total inventories....................................... 471,153 524,575
Prepaid expenses.......................................... 60,221 45,244
---------- ----------
Total current assets.................................... 1,120,884 1,212,917
Investments................................................. 82,381 78,899
Property, plant and equipment............................... 1,054,243 1,125,389
Goodwill.................................................... 280,165 297,147
Other assets................................................ 274,061 320,106
---------- ----------
TOTAL ASSETS............................................ 2,811,734 3,034,458
========== ==========
CURRENT LIABILITIES
Short-term borrowings..................................... $ 26,615 $ 30,098
Current portion of long-term debt......................... 9,702 9,546
Accounts payable and accrued liabilities.................. 690,131 792,578
---------- ----------
Total current liabilities............................... 726,448 832,222
Long-term debt.............................................. 1,153,669 1,285,716
Other long-term liabilities................................. 323,524 335,967
Minority interests.......................................... 45,637 48,628
Commitments and contingencies
Common shareholders' equity
Common stock.............................................. 316,488 316,478
Additional paid-in capital................................ 56,912 56,795
Retained earnings......................................... 330,729 273,309
Accumulated other comprehensive loss...................... (141,673) (114,657)
---------- ----------
Total common shareholders' equity....................... 562,456 531,925
---------- ----------
TOTAL LIABILITIES AND EQUITY............................ 2,811,734 3,034,458
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
DOLE FOOD COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
-----------------------
OCTOBER 7, OCTOBER 9,
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 74,173 $ 77,078
Adjustments to net income
Depreciation and amortization........................... 105,166 100,675
Provision for deferred income taxes..................... 15,759 6,133
Hurricane Mitch insurance proceeds...................... (52,856) (38,331)
Non-cash portion of downsizing charge................... 45,126 --
Cash portion of charges not included in net income...... (16,849) (3,838)
Gain on sale of citrus assets........................... (8,142) --
Other adjustments to net income......................... (7,645) (1,636)
Change in operating assets and liabilities,
net of effects from acquisitions and non-cash transactions
Receivables............................................. 34,555 30,600
Inventories............................................. 36,785 (16,625)
Prepaid expenses and other assets....................... (20,379) (27,964)
Accounts payable and accrued liabilities................ (85,171) (57,434)
Internal Revenue Service refund related to prior years'
audits................................................ -- 14,550
Other................................................... (1,137) (884)
--------- ---------
Cash flow provided by operating activities.................. 119,385 82,324
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of assets............................... 55,441 3,406
Capital additions........................................... (92,034) (100,764)
Purchases of investments and acquisitions, net of cash
acquired.................................................. (1,548) (16,747)
Hurricane Mitch insurance proceeds.......................... 52,856 38,331
--------- ---------
Cash flow provided by (used in) investing activities........ 14,715 (75,774)
--------- ---------
FINANCING ACTIVITIES
Short-term debt repayments--net............................. (11,074) (2,485)
Long-term borrowings (repayments)--net...................... (122,540) 103,424
Cash dividends paid......................................... (16,753) (17,160)
Issuance of common stock.................................... 127 717
Repurchase of common stock.................................. -- (91,895)
--------- ---------
Cash flow used in financing activities...................... (150,240) (7,399)
--------- ---------
Decrease in cash and cash equivalents....................... (16,140) (849)
Cash and cash equivalents at beginning of period............ 42,427 35,352
--------- ---------
Cash and cash equivalents at end of period.................. 26,287 34,503
========= =========
</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. and its consolidated
subsidiaries (the "company") include all adjustments necessary to present
fairly the company's financial position as of October 7, 2000 and
January 1, 2000 (audited), its results of operations for the quarters and
three quarters ended October 7, 2000 and October 9, 1999 and its cash flows
for the three quarters then ended. For additional information, including a
summary of significant accounting policies used in the preparation of these
financial statements, refer to the Notes to Consolidated Financial
Statements in the company's Annual Report on Form 10-K for the year ended
January 1, 2000.
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. The company
has historically, with certain minor exceptions, not attempted to hedge
fluctuations resulting from foreign currency denominated transactions.
Certain prior year amounts have been reclassified to conform with the 2000
presentation.
2. The company has four reportable segments: fresh fruit, fresh vegetables,
processed foods and fresh-cut flowers.
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 7, OCTOBER 9, OCTOBER 7, OCTOBER 9,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Fresh fruit................................. $ 847,335 $ 853,834 $2,334,100 $2,452,443
Fresh vegetables............................ 276,653 231,854 733,998 641,634
Processed foods............................. 250,091 262,136 638,937 636,571
Fresh-cut flowers........................... 50,533 51,035 157,857 160,797
Other operating segments.................... 12,268 13,239 29,183 25,644
---------- ---------- ---------- ----------
1,436,880 1,412,098 3,894,075 3,917,089
========== ========== ========== ==========
EBIT
Fresh fruit................................. $ (17,723) $ 316 $ 63,799 $ 59,484
Fresh vegetables............................ 28,410 10,994 72,189 41,626
Processed foods............................. 27,167 30,385 70,206 64,639
Fresh-cut flowers........................... (4,218) (9,344) 1,930 6,068
Other operating segments.................... (205) 1,189 (841) 552
---------- ---------- ---------- ----------
Total operating segment..................... 33,431 33,540 207,283 172,369
Corporate and other......................... (4,915) (7,728) (26,147) (21,164)
Hurricane Mitch insurance proceeds
(rehabilitation expenses)--net............ 42,506 (7,826) 42,506 18,689
Business downsizing charge.................. (45,761) -- (45,761) --
Gain on sale of citrus assets............... 8,142 -- 8,142 --
---------- ---------- ---------- ----------
33,403 17,986 186,023 169,894
========== ========== ========== ==========
</TABLE>
7
<PAGE>
Corporate and other EBIT includes general and administrative costs not
allocated to operating segments. Corporate and other EBIT for the first
three quarters of 2000 includes the interest portion of a refund received
from the Internal Revenue Service ("IRS") related to the settlement of
disputed items from certain prior years' audits offset by the write-off of
certain investments and capitalized software costs. Corporate and other EBIT
for the first three quarters of 1999 included lower expense levels related
to bonuses and self-insurance.
3. The weighted-average number of common shares outstanding used to calculate
basic net income (loss) per share, which excludes the dilutive effect of
stock options, was 55.9 million and 56.9 million for the quarters ended, and
55.9 million and 57.2 million for the three quarters ended October 7, 2000
and October 9, 1999, respectively.
4. The company recognized comprehensive income (loss), which consisted of net
income (loss) and unrealized foreign currency translation net gains
(losses), as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
----------------------- -----------------------
OCTOBER 7, OCTOBER 9, OCTOBER 7, OCTOBER 9,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss)............................ $ (7,350) $ (7,996) $ 74,173 $ 77,078
Unrealized foreign currency translation
net gain (loss)............................ (15,787) 3,025 (27,016) (13,880)
-------- -------- -------- --------
Comprehensive income (loss).................. (23,137) (4,971) 47,157 63,198
======== ======== ======== ========
</TABLE>
Foreign currency translation resulted in an unrealized net loss for the
third quarter of 2000 as compared to a net gain for the third quarter of
1999 due to a larger decline in the euro spot rate against the U.S. dollar
during the third quarter of 2000 versus the comparable change during the
third quarter of 1999. The third quarter of 1999 also benefited from a
strengthening of the yen versus the U.S. dollar during that period.
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 $47 million
and $20 million, respectively, during the three quarters ended October 7,
2000 and by $31 million and $17 million, respectively, during the three
quarters ended October 9, 1999.
5. During the first three quarters of 2000 and 1999, the company declared and
paid dividends of $17 million on its common stock representing three regular
quarterly dividends of 10 cents per share.
6. The company paid interest of $75 million during the first three quarters of
2000 and $69 million for the same period of 1999. The company paid net
income taxes of $17 million during the first three quarters of 2000, which
was comprised of $20 million of payments offset by $3 million representing
the principal portion of refunds related to the settlement of disputed items
from certain prior years' IRS audits. During the first three quarters of
1999, the company paid net income taxes of $9 million, which was comprised
of $24 million of payments offset by $15 million of refunds related to the
partial settlement of disputed items from certain prior years' IRS audits.
7. In the first three quarters of 1999, the company received a total of
$38 million of insurance proceeds and incurred $19 million of rehabilitation
expenses related to Hurricane Mitch ("Mitch"), which devastated portions of
Latin America in the fourth quarter of 1998. In the third quarter of 1999,
the company received no insurance proceeds and incurred $8 million of
rehabilitation expenses. In the third quarter of 2000, the company received
additional proceeds of $53 million in final settlement of substantially all
of the insurance claims related to losses sustained from Mitch. These
proceeds were offset by claims-preparation and other Mitch-related costs.
The net proceeds of $43 million received in the third quarter of 2000, as
well as the related amounts in 1999, have been reported on a separate line
in the Consolidated Statements of Income for the third quarter and the first
three quarters of each year.
8
<PAGE>
8. In the fourth quarter of 1999, the company took a $48 million special charge
related to the planned downsizing of certain of its operations, primarily in
its fresh fruit segment. In connection with this plan, the company has
ceased operations in Nicaragua and Venezuela, terminated certain ship
charters and grower contracts, and closed a majority of the production sites
and sales offices included in the plan. Included in this charge were
$31 million of accrued costs primarily related to the termination of certain
grower contracts and ship charters as well as the severance of employees.
During the first three quarters of 2000, the company paid $9 million,
$4 million and $4 million for contract terminations, severance and other
costs, respectively. These costs were accounted for as a utilization of the
related accrual recorded as of January 1, 2000. Also included in the
$31 million of accrued costs at the end of 1999 was $11 million related to
the early retirement of employees. In the second quarter of 2000, these
employee retirements became effective, and the related early retirement
benefits were transferred from accrued liabilities to non-current accrued
pension cost. As of October 7, 2000, accrued charge-related costs totaling
$3 million remained to be utilized.
In the third quarter of 2000, the company initiated a plan to further
downsize its fresh fruit operations, including the complete shutdown of
certain activities. As such, the company has recorded a charge of
$46 million in the third quarter of 2000 reported on a separate line in the
Consolidated Statements of Income. The charge includes costs to reduce the
company's existing productive capacity in its banana operations in Latin
America and Asia. The company is also shutting down its melon and citrus
activities in Honduras and downsizing its distribution network in Europe. In
its Latin American banana operations, the company is closing select
production sites, severing certain employee arrangements, terminating
certain contracts with independent growers, and divesting of its controlling
interest in a production joint venture in South America. In its Asian banana
operations, the company is exiting production on select agricultural lands
and terminating certain employees and contracts with independent growers. In
its European operations, the company is reducing its sales force and
administrative staff, primarily in Northern Europe. A total of 1,853
employees in the company's operations are being severed under these plans,
of which 1,706 have been severed as of November 21, 2000.
The amount recorded, utilized and to be utilized as of October 7, 2000 in
each asset, liability and expense category is as follows:
<TABLE>
<CAPTION>
2000 TO BE
(IN THOUSANDS) CHARGE UTILIZED UTILIZED
-------------- -------- -------- --------
<S> <C> <C> <C>
Receivables and other assets............................. $ 5,155 $ 5,155 $ --
Inventories.............................................. 3,153 3,153 --
Property, plant and equipment............................ 12,430 12,430 --
Goodwill................................................. 7,376 7,376 --
Accrued liabilities:
Employee severance payments............................ 10,308 635 9,673
Contract terminations.................................. 4,570 -- 4,570
Other accrued costs.................................... 2,769 -- 2,769
------- ------- -------
Total business downsizing charge....................... 45,761 28,749 17,012
======= ======= =======
</TABLE>
9. On September 27, 2000, the company sold the assets of its citrus operations
located in California and Arizona for approximately $55 million. Production
assets were transferred to the buyer in the third quarter for cash proceeds
of $45 million, resulting in a net gain of $8 million. This net gain has
been reported on a separate line in the Consolidated Statements of Income
for the third quarter and the first three quarters of 2000. The sale
agreement also provides that title to the remaining assets, which represent
secured grower contracts, be transferred to the buyer during the fourth
quarter of 2000 and first quarter of 2001 for cash proceeds of approximately
$10 million. Any additional net gain would be recognized as these contracts
are transferred.
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 2000 decreased 5% to
$2.3 billion from $2.5 billion for the first three quarters of 1999. Revenues
for the third quarter of 2000 decreased slightly to $847 million from
$854 million for the third quarter of 1999. These decreases were primarily due
to the negative impact on U.S. dollar-equivalent revenues in the European market
as a result of the euro's decline against the U.S. dollar since the comparable
periods of 1999. Also contributing to these decreases were lower volumes sold in
the European banana business, as sales to secondary markets in Eastern Europe
were reduced through the company's planned exit from unprofitable markets. This
overall decrease in fresh fruit revenues was partially offset by higher revenues
in North America and Asia as a result of increased volumes of fruit sold in
those markets.
Earnings before interest and taxes ("EBIT") in the fresh fruit segment for
the first three quarters of 2000 increased 7% to $64 million from $59 million
for the first three quarters of 1999. In the third quarter of 2000, the fresh
fruit segment recorded a loss before interest and taxes of $18 million as
compared to breakeven results for the third quarter of 1999. The third quarter
2000 loss was largely due to the negative impact of the euro's decline against
the U.S. dollar combined with increased fuel prices since the same period of
1999. This third quarter loss partially offset the increase in EBIT for the
first half of 2000, which resulted from significant cost-cutting activities in
the company's Latin American-sourced banana business and lower volumes shipped
to secondary (unprofitable) markets in Europe. In addition, the company's
California citrus business, which was sold in the third quarter of 2000,
contributed to improved fresh fruit EBIT. In 1999, earnings in that business
were negatively impacted by one-time consolidation costs and a crop freeze at
the end of 1998.
FRESH VEGETABLES
Fresh vegetables revenues for the first three quarters of 2000 increased 14%
to $734 million from $642 million for the first three quarters of 1999. Revenues
for the third quarter of 2000 increased 19% to $277 million from $232 million
for the third quarter of 1999. Revenues increased in the company's North
American fresh-cut salads business due to continued category and market share
growth during the first three quarters of 2000. In addition, revenues increased
in the company's North American commodity vegetables business due to overall
strong pricing, primarily in the second and third quarters, as a result of lower
market supply.
EBIT in the fresh vegetables segment for the first three quarters of 2000
increased 73% to $72 million from $42 million for the first three quarters of
1999. EBIT for the third quarter of 2000 increased 158% to $28 million from
$11 million in the third quarter of 1999. These increases were primarily due to
strong pricing in the North American commodity vegetables business as well as
continued growth in the North American fresh-cut salads business.
PROCESSED FOODS
Processed foods revenues for the first three quarters of 2000 remained
relatively unchanged at $639 million versus $637 million for the first three
quarters of 1999. Revenues in the third quarter of 2000 decreased to
$250 million from $262 million as the company exited its California almond
operations and sold its almond processing plant located in Orland, California.
This decrease was offset by increased revenues in the company's processed
pineapple business, as the continued success of its new FRUIT
10
<PAGE>
BOWLS-Registered Trademark- and FUN SHAPES-Registered Trademark- products in
North America compensated for lower pricing in traditional pineapple products
sold in both North America and Asia.
EBIT in the processed foods segment for the first three quarters of 2000
increased 9% to $70 million from $65 million for the first three quarters of
1999. EBIT for the third quarter of 2000 decreased to $27 million from
$30 million in the third quarter of 1999. EBIT for the first three quarters of
2000 was higher than the comparable period of 1999 largely due to the company
exiting its California almond business, which had incurred losses in 1999 due to
poor market conditions. Additionally, year-to-date 2000 earnings grew in the
company's Honduran beverage operation largely due to the recovery of the
business from the impacts of Mitch on the comparable period of 1999. In the
company's processed pineapple business, the continued success and higher
earnings from new products were largely offset by weaker pricing in traditional
products. In the third quarter of 1999, processed pineapple EBIT was favorably
impacted by better-than-anticipated market acceptance of the company's new
products launched in that year, which resulted in lower inventory reserve
requirements.
FRESH-CUT FLOWERS
Fresh-cut flowers revenues for the first three quarters of 2000 decreased
slightly to $158 million from $161 million for the first three quarters of 1999.
Revenues for the third quarter of 2000 remained unchanged from their 1999 level
of $51 million. Revenues remained relatively flat in the fresh-cut flowers
segment as improved demand from supermarket customers was offset by lower
pricing and volumes to wholesale customers.
EBIT in the fresh-cut flowers segment for the first three quarters of 2000
decreased to $2 million from $6 million for the first three quarters of 1999.
The loss before interest and taxes for the third quarter of 2000 decreased to
$4 million from a loss of $9 million in the third quarter of 1999. For the first
three quarters of 2000, EBIT was negatively impacted by increased shipping and
airfreight rates, primarily driven by increased fuel prices, combined with
higher logistics and distribution costs. The improvement in the third quarter of
2000 was largely due to lower production costs as compared to the third quarter
of 1999. The company currently anticipates full-year 2000 results to be at or
near breakeven.
In the first three quarters of 1999, the company received a total of
$38 million of insurance proceeds and incurred $19 million of rehabilitation
expenses related to Mitch, which devastated portions of Latin America in the
fourth quarter of 1998. In the third quarter of 1999, the company received no
insurance proceeds and incurred $8 million of rehabilitation expenses. In the
third quarter of 2000, the company received additional proceeds of $53 million
in final settlement of substantially all of the insurance claims related to
losses sustained from Mitch. These proceeds were offset by claims-preparation
and other Mitch-related costs. The net proceeds of $43 million received in the
third quarter of 2000, as well as the related amounts in 1999, have been
reported on a separate line in the Consolidated Statements of Income for the
third quarter and the first three quarters of each year.
In the fourth quarter of 1999, the company took a $48 million special charge
related to the planned downsizing of certain of its operations, primarily in its
fresh fruit segment. In connection with this plan, the company has ceased
operations in Nicaragua and Venezuela, terminated certain ship charters and
grower contracts, and closed a majority of the production sites and sales
offices included in the plan. Included in this charge were $31 million of
accrued costs primarily related to the termination of certain grower contracts
and ship charters as well as the severance of employees. During the first three
quarters of 2000, the company paid $9 million, $4 million and $4 million for
contract terminations, severance and other costs, respectively. These costs were
accounted for as a utilization of the related accrual recorded as of January 1,
2000. Also included in the $31 million of accrued costs at the end of 1999 was
$11 million related to the early retirement of employees. In the second quarter
of 2000, these employee retirements became effective, and the related early
retirement benefits were transferred from accrued liabilities to
11
<PAGE>
non-current accrued pension cost. As of October 7, 2000, accrued charge-related
costs totaling $3 million remained to be utilized by the end of the current
fiscal year.
In the third quarter of 2000, the company initiated a plan to further
downsize its fresh fruit operations, including the complete shutdown of certain
activities. As such, the company has recorded a charge of $46 million in the
third quarter of 2000 reported on a separate line in the Consolidated Statements
of Income. The charge includes costs to reduce the company's existing productive
capacity in its banana operations in Latin America and Asia. The company is also
shutting down its melon and citrus activities in Honduras and downsizing its
distribution network in Europe. In its Latin American banana operations, the
company is closing select production sites, severing certain employee
arrangements, terminating certain contracts with independent growers, and
divesting of its controlling interest in a production joint venture in South
America. In its Asian banana operations, the company is exiting production on
select agricultural lands and terminating certain employees and contracts with
independent growers. In its European operations, the company is reducing its
sales force and administrative staff, primarily in Northern Europe. A total of
1,853 employees in the company's operations are being severed under these plans.
As of November 21, 2000, 1,706 of those employees have been severed, with the
majority of the remainder to occur through the fourth quarter of 2001. A minor
portion of the severance and contract terminations in the Asian banana
operations will occur during the first half of 2002. The company anticipates the
charge will result in approximately $18 million of total cash outflow,
approximately half of which will occur during the fourth quarter of 2000 with
the majority of the remainder occurring through the fourth quarter of 2001.
On September 27, 2000, the company sold the assets of its citrus operations
located in California and Arizona for approximately $55 million. Production
assets were transferred to the buyer in the third quarter for cash proceeds of
$45 million, resulting in a net gain of $8 million. This net gain has been
reported on a separate line in the Consolidated Statements of Income for the
third quarter and the first three quarters of 2000. Title to the remaining
assets, which represent secured grower contracts, are expected to be transferred
to the buyer during the fourth quarter of 2000 and the first quarter of 2001 for
cash proceeds of approximately $10 million. Any additional net gain will be
recognized as these contracts are transferred.
In the latter part of 1999, the company initiated a review of its non-core
assets and under-performing businesses with the intention to sell or liquidate
those that fall outside of the company's strategic direction or that do not meet
internal economic return criteria. This initiative was expected to generate
approximately $100 million to $200 million of cash proceeds over a period of
18 months. To date, the company has sold its citrus businesses and assets in
Florida, California and Arizona as well as its almond processing plant and
certain idle properties in California. In total, these sales will generate gross
proceeds of approximately $65 million. The company is also pursuing the sale of
portions of its deciduous businesses located in North America. Proceeds from
these activities have been and primarily will be used to pay down debt.
Furthermore, the company is actively marketing its Honduran beverage
operations. The company recently engaged Banc of America Securities LLC to
organize the marketing process. Proceeds from the sale, should one occur,
primarily would be used to pay down debt.
Other income-net consists of minority interest expense and certain
non-operating items.
Interest expense for the first three quarters of 2000 increased to
$77 million from $71 million for the first three quarters of 1999. For the third
quarter of 2000, interest expense increased to $30 million from $28 million for
the third quarter of 1999. Interest expense rose primarily due to higher average
debt levels during the first three quarters of 2000 as compared to the first
three quarters of 1999. However, as of the end of the third quarter of 2000, the
company's debt level decreased to below the comparable level in 1999. As such,
the company anticipates its fourth quarter 2000 interest expense to be at or
near the comparable amount for the fourth quarter of 1999.
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During the third quarter of 2000, the company's effective tax rate increased
to 32% from 22% during the same period of 1999. The increase was primarily due
to changes in the company's earnings mix combined with the tax impacts of its
Mitch insurance proceeds, downsizing charge and gain on the sale of citrus
assets.
The European Union ("EU") banana regulations, which impose quotas and
tariffs on bananas, remained in effect during the first three quarters of 2000.
In 1999, the EU changed the licensing system for the EU's Tariff Rate Quota
banana regime in response to adverse rulings by the World Trade Organization
("WTO"). However, this new license system was also found to be discriminatory,
and the United States and Ecuador were authorized to impose retaliatory
sanctions until the EU complies with its WTO obligations. In October 2000, the
EU proposed a tariff rate quota system that would transition to a tariff-only
system in 2006. Under the proposal, quotas for banana imports into the EU would
be allocated on a "first-come, first-served" basis. The company has stated its
support for this new EU proposal and believes that it provides the basis for
final resolution of this long-standing trade dispute. Discussions are ongoing
between the EU, the United States and Ecuador. The net impact of these proposed
changes on the company's future results of operations is not determinable until
the details of any new system are finalized.
The company distributes its products in more than 90 countries throughout
the world. Its international sales are usually transacted in U.S. dollars and
major European and Asian currencies. Certain costs are incurred in currencies
different from those that are received from the sale of products. While results
of operations may be affected by fluctuations in currency exchange rates in both
the sourcing and selling locations, the company has, with minor exceptions,
historically not hedged these exposures.
Since its introduction at the beginning of 1999, the euro and other European
currencies with fixed euro exchange rates have declined significantly against
the U.S. dollar. This decline has had a significant impact on U.S.
dollar-equivalent revenues generated in the European market. The impact of
future changes to this and other currency exchange rates on the company's fiscal
year 2000 results of operations and financial position is not determinable at
this time.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 ("FAS 137"), "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133," which delayed the effective date of FAS 133 by one
year. In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138 ("FAS 138"), "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," which amended portions of FAS 133. The company currently
anticipates adopting FAS 133, as amended by FAS 137 and FAS 138, in the first
quarter of 2001. Such adoption is currently not expected to have a material
impact on the company's financial condition or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101, as amended by the SEC in March 2000 and June 2000,
provides interpretive guidance for rules regarding the recognition and
presentation of revenue. Further, the Emerging Issues Task Force ("EITF") of the
FASB issued Topic No. D-85 ("D-85"), "Application of Certain Provisions in SEC
Staff Accounting Bulletin No. 101" in January 2000, which retroactively applies
SAB 101 to prior periods presented. The company is adopting the provisions of
SAB 101, as amended by the SEC and by D-85, during the fourth quarter of 2000.
Also, in May 2000, the EITF reached a consensus on Issue No. 00-14 ("EITF
00-14"), "Accounting for Certain Sales Incentives." The company anticipates
adopting the provisions of EITF 00-14 during the second quarter of 2001. The
adoption of SAB 101 and EITF 00-14 will result in the treatment of certain
product and selling costs as a reduction of revenue; the company has treated
such costs as cost of products sold or selling expense in these and previously
filed financial statements. The company is continuing to assess the revenue
impact of these changes; however, it currently expects that this impact will be
limited to certain
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reclassifications of costs to be presented as a reduction of revenue. The
company does not anticipate any changes to the timing of revenue or cost
recognition upon adoption of these rules. Therefore, such adoption is not
expected to impact the company's operating income either prospectively or as
currently and previously reported.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities increased to $119 million for the
first three quarters of 2000 from $82 million for the same period of 1999.
During the first three quarters of 1999, operating cash flow was impacted by
rising balances of raw materials inventory balances, which were largely driven
by increases of paper in the company's Latin American fruit operations. These
inventory levels were drawn down during the first three quarters of 2000. During
the first three quarters of 2000, cash used in accounts payable and accrued
liabilities included higher levels of payments to growers and suppliers. In the
third quarter of 2000 and 1999, the company received refunds from the IRS of
$9 million and $15 million, respectively, related to the settlement of disputed
items from certain prior years' audits.
Proceeds from the sales of assets of $55 million for the first three
quarters of 2000 included the sale of productive assets in the company's North
American citrus and California almond operations. In addition, during the third
quarter of 2000, the company received additional proceeds of $53 million in
final settlement of substantially all of its insurance claims related to losses
sustained from Mitch. These combined proceeds were used to pay down debt.
Capital expenditures of $92 million for the first three quarters of 2000
were for the acquisition and improvement of productive assets, which included
$13 million for the replacement or capitalizable repair of assets destroyed or
damaged by Mitch.
In the first three quarters of 1999, investments and acquisitions of
$17 million included the company's increased ownership in its Honduran beverage
business and the acquisition of banana production operations in South America.
At the end of 1999, the company's gross debt totaled $1.33 billion. During
the first quarter of 2000, that debt level rose approximately $70 million to
$1.40 billion due to uncustomarily higher seasonal working capital requirements.
During the ensuing two quarters, the company paid down in excess of
$200 million of debt with cash generated from operations, Mitch insurance
proceeds, proceeds from the sales of assets and a tax refund. As a result of
lower debt combined with higher retained earnings, the company's net debt to net
debt and equity percentage improved to 67% by the end of the third quarter of
2000 from 71% at the end of 1999. As of October 7, 2000, the company's gross
debt totaled $1.19 billion, which included $350 million outstanding under its
$400 million, 5-year revolving credit facility (the "Long-term Facility").
Provisions under the Long-term Facility require the company to comply with
certain financial covenants which include a maximum permitted ratio of
consolidated debt to net worth and a minimum required fixed charge coverage
ratio. As of October 7, 2000 the company was in compliance with these covenants.
In July 2000, the company entered into a $250 million, 364-day revolving
credit facility (the "364-day Facility"). At the company's option, borrowings
under the 364-day Facility will bear interest at a certain percentage over the
London Interbank Offered Rate, the agent's prime rate or the Federal Funds rate.
The 364-day Facility provides the company with additional liquidity to meet its
short-term financing needs. There was no outstanding balance on this facility as
of October 7, 2000.
In July 2000, the company repaid its $225 million, 6.75% notes which matured
on July 15, 2000. As of January 1, 2000, these notes had been classified as
long-term debt due to the company's ability and intent as of that date to
refinance the maturity using a long-term instrument. The company financed
$40 million of this maturity under its 364-day Facility, which was subsequently
repaid. The remaining $185 million was financed under the company's Long-term
Facility.
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<PAGE>
During January and February 1999, the company repurchased approximately
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. No shares were repurchased during
the first three quarters of 2000. Approximately 3.3 million shares remain
authorized for repurchase under the company's stock repurchase program.
The company believes its cash flow from operations, as well as its existing
cash balances, revolving credit facilities and access to capital markets will
enable it to meet its working capital, capital expenditure, debt service,
dividend payment and other funding requirements.
This filing contains forward-looking statements that involve a number of
risks and uncertainties. Forward looking statements, which are based on
management's assumptions and describe the company's future plans, strategies and
expectations, are generally identifiable by the use of terms such as
"anticipate," "expect," "intend," "will," "believes," or similar expressions.
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;
product and raw materials supplies and pricing; changes in interest and currency
exchange rates; economic crises in developing countries; and quotas, tariffs and
other governmental actions.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKS
DOLE FOOD COMPANY, INC.
In its 1999 Annual Report on Form 10-K, the company disclosed the nature of
its exposure to market risks and the methods it uses to manage those exposures.
The company's market risks include the impacts of weather-related phenomena on
industry volumes, prices, product quality and costs, changes in commodity and
raw materials pricing, fluctuations in foreign currency exchange rates in both
sourcing and selling locations, and fluctuations in interest rates.
During the first three quarters of 2000, the following two events occurred,
which affect the company's exposure to fluctuations in interest rates:
In July 2000, the company entered into a $250 million, 364-day revolving
credit facility (the "364-day Facility"). At the company's option,
borrowings under the 364-day Facility will bear interest at a certain
percentage over the London Interbank Offered Rate, the agent's prime rate or
the Federal Funds rate. This 364-day Facility provides the company with
additional liquidity to meet its short-term financing needs.
In July 2000, the company repaid its $225 million, 6.75% notes which matured
on July 15, 2000. As of January 1, 2000, these notes had been classified as
long-term debt due to the company's ability and intent as of that date to
refinance the maturity using a long-term instrument. The company financed
$40 million of this maturity under its 364-day Facility, which was
subsequently repaid. The remaining $185 million was financed under the
company's Long-term Facility.
Further, during the first three quarters of 2000, the company had net
repayments of long-term debt totaling $123 million, which represented 9.5% of
its outstanding balance of $1.29 billion as of January 1, 2000. Included in
these net repayments was the company's $225 million fixed-rate note maturity in
the third quarter of 2000. As such, the variable component of the company's
long-term debt increased by approximately $100 million during the first three
quarters of 2000. As of October 7, 2000, this variable rate component
represented approximately 30% of the company's total long-term debt as compared
to 21% at January 1, 2000.
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PART II.
OTHER INFORMATION
DOLE FOOD COMPANY, INC.
ITEM 1. LEGAL PROCEEDINGS
In the company's Form 10-K for the year ended January 1, 2000, the company
described certain lawsuits that had been filed in Texas, Louisiana, Mississippi
and Hawaii against the company, several of its competitors and some of the
manufacturers of a formerly widely used agricultural chemical called DBCP. 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 plaintiffs' 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 United States
Fifth Circuit Court of Appeals has affirmed the dismissals of the Texas cases,
and the remaining dismissed cases are on appeal. The company was also served
with three additional lawsuits in Louisiana, each of which was also removed to
federal court. The DBCP manufacturers and company competitors have reported that
they have settled with the majority of the Texas and Louisiana plaintiffs and
the company has effected settlements with certain individuals. 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 served with two lawsuits filed in Hawaii state court,
one by the Honolulu Board of Water Supply and the other by local residents, in
which the plaintiffs seek damages caused by alleged contamination of water
wells. The local resident lawsuit has been removed to United States District
Court. 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.
The company is involved from time to time in various claims and legal
actions incident to its operations, both as plaintiff and defendant. In the
opinion of management, after consultation with outside counsel, none of the
claims or actions to which the company is a party is 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 7,
2000.
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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 21, 2000 By: /s/ KENNETH J. KAY
-----------------------------------------
Kenneth J. Kay
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
/s/ GIL BOROK
-----------------------------------------
Gil Borok
CONTROLLER AND CHIEF ACCOUNTING OFFICER
</TABLE>
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