DOLE FOOD COMPANY INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 19, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 1-4455

Dole Food Company, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		99-0035300 (I.R.S. Employer Identification No.)
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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Shares Outstanding at July 29, 2004
Common Stock, $0.001 Par Value		1,000

DOLE FOOD COMPANY, INC.

INDEX


			Page
			Number

PART I Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Statements of Operations — Quarters Ended June 19, 2004 (Successor) and June 14, 2003 (Successor)		3
		Condensed Consolidated Statements of Operations — Half Year Ended June 19, 2004 (Successor) and Quarters Ended June 14, 2003 (Successor) and March 22, 2003 (Predecessor)		4
		Condensed Consolidated Balance Sheets — June 19, 2004 (Successor) and January 3, 2004 (Successor)		5
		Condensed Consolidated Statements of Cash Flows — Half Year Ended June 19, 2004 (Successor), Quarters Ended June 14, 2003 (Successor) and March 22, 2003 (Predecessor)		6
		Notes to Condensed Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
	Item 4.	Controls and Procedures		37
PART II Other Information
	Item 1.	Legal Proceedings		37
	Item 6.	Exhibits and Reports on Form 8-K		39
		Signatures		40
		Exhibit Index		41
		Certification by the Chairman and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		Certification by the Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		Certification by the Chairman and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		Certification by the Senior Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 10.10
EXHIBIT 10.11
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

On March 28, 2003, Dole Food Company, Inc. and its consolidated subsidiaries (the “Company”) completed the going-private merger transaction with DHM Holding Company, Inc. (“HoldCo”) described in Note 1 to the Condensed Consolidated Financial Statements. As a result of this transaction, the Company’s results of operations, financial position and cash flows prior to the date of the going-private merger transaction are presented as the “Predecessor.” The going-private merger transaction and the Company’s results of operations, financial position and cash flows thereafter are presented as the “Successor.”

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands)



		Quarter Ended

		June 19,			June 14,
		2004			2003

		Successor			Successor

Revenues, net		$	1,315,959		$	1,216,822
Cost of products sold			1,098,875			1,048,760

	Gross margin		217,084			168,062
Selling, marketing and general and administrative expenses			99,376			99,483

	Operating income		117,708			68,579
Other income (expense), net			(1,071	)		(10,187	)
Interest income			874			1,112
Interest expense			34,653			37,779

	Income before income taxes		82,858			21,725
Income taxes			14,915			3,824

	Net income	$	67,943		$	17,901

See Accompanying Notes to Condensed Consolidated Financial Statements

DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands)



		Half Year Ended			Quarter Ended

		June 19,			June 14,			March 22,
		2004			2003			2003

		Successor			Successor			Predecessor

Revenues, net		$	2,570,543		$	1,216,822		$	1,073,170
Cost of products sold			2,150,553			1,048,760			895,039

	Gross margin		419,990			168,062			178,131
Selling, marketing and general and administrative expenses			194,794			99,483			89,341

	Operating income		225,196			68,579			88,790
Other income (expense), net			(733	)		(10,187	)		2,045
Interest income			1,796			1,112			2,700
Interest expense			69,394			37,779			19,647

	Income before income taxes		156,865			21,725			73,888
Income taxes			28,088			3,824			13,100

	Net income	$	128,777		$	17,901		$	60,788

See Accompanying Notes to Condensed Consolidated Financial Statements

DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)


			June 19,		January 3,
			2004		2004

			Successor		Successor

ASSETS
Current Assets:
	Cash and cash equivalents		$	67,965	$	33,482
	Receivables, net of allowances of $68,039 and $70,596			658,841		560,249
	Inventories			459,097		409,805
	Prepaid expenses			53,910		54,562
	Deferred income tax assets			47,785		48,075

		Total current assets		1,287,598		1,106,173
Investments				83,688		83,059
Property, plant and equipment, net of accumulated depreciation of $490,237 and $393,965				1,506,299		1,469,879
Goodwill and intangible assets, net				1,251,485		1,188,610
Other assets, net				149,585		140,163

		Total assets	$	4,278,655	$	3,987,884

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable and accrued liabilities		$	791,165	$	779,242
	Current portion of long-term debt			38,266		45,627
	Notes payable			1,786		1,948

		Total current liabilities		831,217		826,817
Long-term debt				1,930,679		1,803,525
Deferred income tax liabilities				441,095		451,431
Other long-term liabilities				467,170		422,924
Minority interests				29,591		26,759
Contingencies (Note 11)
Shareholders’ equity:
	Common stock — $0.001 par value; 1,000 shares authorized, issued and outstanding			—		—
	Additional paid-in capital			340,032		340,032
	Retained earnings			236,810		118,033
	Accumulated other comprehensive income (loss)			2,061		(1,637	)

		Total shareholders’ equity		578,903		456,428

		Total liabilities and shareholders’ equity	$	4,278,655	$	3,987,884

See Accompanying Notes to Condensed Consolidated Financial Statements

DOLE FOOD COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



		Half Year Ended			Quarter Ended

		June 19,			June 14,			March 22,
		2004			2003			2003

		Successor			Successor			Predecessor

Operating activities
Net income		$	128,777		$	17,901		$	60,788
Adjustments to reconcile net income to cash flow provided by operating activities:
	Depreciation and amortization		63,674			31,338			25,051
	Purchase accounting step-up of inventory		—			38,625			—
	Net (gain) loss on disposal of assets		(2,724	)		—			1,884
	Equity earnings		(3,303	)		(1,546	)		(2,922	)
	Provision for deferred income taxes		13,650			1,216			2,201
	Write-off of debt issuance costs		1,482			11,603			—
	Amortization of debt issuance costs		4,204			2,139			244
	Other		6,550			1,867			2,616
Changes in operating assets and liabilities, net of effects from non-cash transactions:
	Receivables		(110,344	)		(23,690	)		(78,749	)
	Inventories		(4,138	)		32,174			(6,195	)
	Prepaid expenses and other assets		(7,286	)		3,998			(5,254	)
	Accounts payable and accrued liabilities		30,357			21,408			5,253
	Other long-term liabilities		2,981			3,733			(3,104	)

Cash flow provided by operating activities			123,880			140,766			1,813

Investing activities
Proceeds from sales of assets			3,988			34,351			1,743
Investments and acquisitions			(167,033	)		(1,025	)		—
Capital additions			(28,021	)		(46,364	)		(4,235	)
Repurchase of common stock and settlement of stock options in going-private merger transaction			(1,300	)		(1,462,696	)		—
Transaction costs paid in going-private merger transaction			(325	)		(60,295	)		—

Cash flow used in investing activities			(192,691	)		(1,536,029	)		(2,492	)

Financing activities
Short-term debt borrowings			12,225			168			7,936
Short-term debt repayments			(12,400	)		(4,337	)		(6,834	)
Long-term debt borrowings, net of debt issuance costs			489,530			1,797,573			5,034
Long-term debt repayments			(372,777	)		(1,070,475	)		(6,777	)
Capital contribution by DHM Holding Company, Inc.			—			125,000			—
Proceeds from issuance of common stock			—			—			2,768
Dividends paid to minority shareholders			(918	)		(1,055	)		—
Dividends paid			(10,000	)		—			(8,440	)

Cash flow provided by (used in) financing activities			105,660			846,874			(6,313	)

Effect of foreign exchange rate changes on cash and cash equivalents			(2,366	)		3,405			1,025

Increase (decrease) in cash and cash equivalents			34,483			(544,984	)		(5,967	)
Cash and cash equivalents at beginning of period			33,482			641,000			646,967

Cash and cash equivalents at end of period		$	67,965		$	96,016		$	641,000

See Accompanying Notes to Condensed Consolidated Financial Statements

DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Dole Food Company, Inc. and its consolidated subsidiaries (“Dole” or the “Company”) include all adjustments necessary, which are of a normal recurring nature, to present fairly the Company’s financial position as of June 19, 2004 and January 3, 2004; its results of operations for the quarters and half years ended June 19, 2004 and June 14, 2003; and its cash flows for the half years then ended. The Company operates under a 52/53-week year. The quarters ended June 19, 2004 and June 14, 2003 are twelve weeks in duration. For a summary of significant accounting policies used in the preparation of these financial statements, refer to the Notes to Consolidated Financial Statements in Item 8 of the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended January 3, 2004.

On March 28, 2003, the Company completed the going-private merger transaction with DHM Holding Company, Inc. (“HoldCo”) described in the Company’s Form 10-K for the year ended January 3, 2004. As a result of this transaction, the Company’s results of operations, financial position and cash flows prior to the date of the going-private merger transaction are presented as the “Predecessor.” The going-private merger transaction and the Company’s results of operations, financial position and cash flows thereafter are presented as the “Successor.”

The going-private merger transaction has been accounted for as a purchase at the HoldCo level with the related purchase accounting pushed down to the Company. For convenience, the allocation of the purchase price was done as of March 23, 2003, the first day of the Company’s 2003 second fiscal quarter.

Interim results are subject to 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 as well as economic crises and security risks in developing countries. For additional information on market risks and related matters affecting the Company’s financial position and results of operations, refer to the Company’s Form 10-K for the year ended January 3, 2004.

Certain prior year amounts have been reclassified to conform with the 2004 presentation.


2.	INCOME TAXES

As a result of the consummation of the going-private merger transaction described in Note 1, income tax expense of $13.1 million for the quarter ended March 22, 2003 was based on earnings for the period from December 29, 2002 through March 22, 2003, to reflect the final separate financial reporting period for the Company in its predecessor form. After the consummation of the going-private merger transaction, the results of operations are attributable to the new successor company.

For the periods presented, the Company’s effective income tax rate differs from the U.S. federal statutory rate primarily due to earnings from operations being taxed in foreign jurisdictions at a net effective rate lower than the U.S. rate. No U.S. taxes have been provided on these earnings because such earnings are intended to be indefinitely invested outside the U.S.

DOLE FOOD COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)


3.	COMPREHENSIVE INCOME

The components of comprehensive income were as follows in each period (in thousands):



	Quarter Ended

	June 19,			June 14,
	2004			2003

	Successor			Successor

Net income	$	67,943		$	17,901
Unrealized foreign currency translation gain (loss), net		(1,334	)		13,088
Reclassification of realized cash flow hedging losses to net income		2,821			518
Unrealized net gain (loss) on cash flow hedging instruments		4,182			(9,776	)

Comprehensive income	$	73,612		$	21,731

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