DOLE FOOD COMPANY INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 5, 2002

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 ý No o

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 November 12, 2002
Common Stock, No Par Value		56,175,750

DOLE FOOD COMPANY, INC.
Index

			Page Number
Part I.		Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Statements of Operations—Quarters and Three Quarters Ended October 5, 2002 and October 6, 2001	3
		Condensed Consolidated Balance Sheets—October 5, 2002 and December 29, 2001	5
		Condensed Consolidated Statements of Cash Flows—Three Quarters Ended October 5, 2002 and October 6, 2001	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
	Item 4.	Controls and Procedures	26
Part II.		Other Information
	Item 1.	Legal Proceedings	27
	Item 6.	Exhibits and Reports on Form 8-K	28
		Signatures	29
		Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002	30
		Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002	31

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOLE FOOD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)

		Quarter Ended
		October 5, 2002		October 6, 2001
Revenues		$	1,254,494	$	1,208,055
Cost of products sold			1,073,426		1,172,215

	Gross margin		181,068		35,840
Selling, marketing and general and administrative expenses			140,083		122,179

	Operating income (loss)		40,985		(86,339	)
Interest income			3,996		2,203
Other income—net			2,170		253

	Earnings (loss) before interest expense and income taxes		47,151		(83,883	)
Interest expense			26,802		20,197

	Income (loss) from continuing operations before income taxes		20,349		(104,080	)
Income taxes			5,699		(178	)

Income (loss) from continuing operations			14,650		(103,902	)
Income from discontinued operations, net of income taxes of $2,384			—		9,146

	Net income (loss)		14,650		(94,756	)

Earnings (loss) per common share—basic
	Continuing operations	$	0.26	$	(1.86	)
	Discontinued operations		—		0.16

	Net income (loss)		0.26		(1.70	)

Earnings (loss) per common share—diluted
	Continuing operations	$	0.26	$	(1.86	)
	Discontinued operations		—		0.16

	Net income (loss)		0.26		(1.70	)

Weighted average number of common shares outstanding—basic			56,137		55,897
Weighted average number of common shares outstanding—diluted			56,591		55,897

See Notes to Condensed Consolidated Financial Statements

DOLE FOOD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)

		Three Quarters Ended
		October 5, 2002			October 6, 2001
Revenues		$	3,432,094		$	3,367,459
Cost of products sold			2,871,813			3,039,142

	Gross margin		560,281			328,317
Selling, marketing and general and administrative expenses			314,424			292,377

	Operating income		245,857			35,940
Interest income			8,596			4,338
Other (expense) income—net			(2,296	)		6,419

	Earnings before interest expense and income taxes		252,157			46,697
Interest expense			60,799			56,550

	Income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle		191,358			(9,853	)
Income taxes			53,581			31,310

Income (loss) from continuing operations			137,777			(41,163	)
Income from discontinued operations, net of income taxes of $4,632			—			18,093

	Income (loss) before cumulative effect of a change in accounting principle		137,777			(23,070	)
Cumulative effect of a change in accounting principle			(119,917	)		—

	Net income (loss)		17,860			(23,070	)

Earnings (loss) per common share—basic
	Continuing operations	$	2.46		$	(0.74	)
	Discontinued operations		—			0.33
	Cumulative effect of a change in accounting principle		(2.14	)		—

	Net income (loss)		0.32			(0.41	)

Earnings (loss) per common share—diluted
	Continuing operations	$	2.44		$	(0.74	)
	Discontinued operations		—			0.33
	Cumulative effect of a change in accounting principle		(2.12	)		—

	Net income (loss)		0.32			(0.41	)

Weighted average number of common shares outstanding—basic			56,049			55,892
Weighted average number of common shares outstanding—diluted			56,558			55,892

See Notes to Condensed Consolidated Financial Statements

DOLE FOOD COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)

			October 5, 2002			December 29, 2001
Current assets
	Cash and cash equivalents		$	682,877		$	361,326
	Receivables, net of allowances of $88,045 and $89,331			491,534			531,923
	Inventories, net			374,978			386,099
	Prepaid expenses			40,472			46,430

		Total current assets		1,589,861			1,325,778
Investments				79,835			81,061
Property, plant and equipment, net of accumulated depreciation of $880,375 and $856,110				995,951			905,824
Goodwill, net of accumulated amortization of $33,530 and $49,764				132,729			255,946
Other assets				140,480			178,084

		Total assets		2,938,856			2,746,693

Current liabilities
	Notes payable		$	22,608		$	17,347
	Current portion of long-term debt			231,541			9,792
	Accounts payable and accrued liabilities			680,418			787,236

		Total current liabilities		934,567			814,375
Long-term debt				883,622			816,124
Other long-term liabilities				348,040			348,146
Minority interests				27,259			32,018
Commitments and contingencies (See Note 9)
Shareholders' equity
		Preferred stock, no par value Authorized: 30 million shares, issued and outstanding: none		—			—
		Common stock, no par value Authorized: 80 million shares, 56.2 million shares issued and outstanding at October 5, 2002 and 55.9 million shares issued and outstanding at December 29, 2001		316,816			316,512
		Additional paid-in capital		65,398			57,220
		Retained earnings		439,339			446,689
		Accumulated other comprehensive loss		(76,185	)		(84,391	)

		Total shareholders' equity		745,368			736,030

		Total liabilities and shareholders' equity		2,938,856			2,746,693

See Notes to Condensed Consolidated Financial Statements

DOLE FOOD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

		Three Quarters Ended
		October 5, 2002			October 6, 2001
Operating activities
Net income (loss)		$	17,860		$	(23,070	)
Less: Income from discontinued operations, net of income taxes			—			(18,093	)
Add: Cumulative effect of a change in accounting principle			119,917			—

Income (loss) from continuing operations			137,777			(41,163	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization		81,717			93,986
	Deferred income taxes		24,155			24,852
	Asset write-downs		—			64,773
	Gain on sale of available-for-sale securities		—			(8,173	)
	Equity earnings, net of distributions		(7,921	)		(1,213	)
	Stock compensation expense		1,387			—
	Other		1,521			1,851
Change in operating assets and liabilities, net of effects from acquisitions, dispositions and non-cash transactions:
	Receivables		27,303			40,931
	Inventories		(3,936	)		60,663
	Prepaid expenses and other assets		10,288			2,247
	Accounts payable and accrued liabilities		(74,412	)		(13,688	)
	Other		1,710			12,502

Cash flow provided by operating activities of continuing operations			199,589			237,568
Cash flow provided by operating activities of discontinued operations			—			9,923

Cash flow provided by operating activities			199,589			247,491

Investing activities
Proceeds from sale of available-for-sale securities			—			34,411
Investments in available-for-sale securities			—			(26,238	)
Proceeds from sales of assets			23,174			19,362
Net proceeds from sale of businesses			24,321			—
Capital additions			(183,521	)		(70,198	)
Proceeds from sale of investments			3,665			—
Purchases of investments			(767	)		(2,093	)

Cash flow used in investing activities of continuing operations			(133,128	)		(44,756	)
Cash flow used in investing activities of discontinued operations			—			(8,519	)

Cash flow used in investing activities			(133,128	)		(53,275	)

Financing activities
Repurchase of notes			(110,133	)		—
Short-term debt borrowings			29,531			8,485
Short-term debt repayments			(35,502	)		(27,971	)
Long-term debt borrowings			400,277			2,361
Long-term debt repayments			(11,529	)		(148,821	)
Cash dividends paid			(25,210	)		(16,755	)
Issuance of common stock			4,236			175

Cash flow provided by (used in) financing activities of continuing operations			251,670			(182,526	)
Cash flow used in financing activities of discontinued operations			—			(1,404	)

Cash flow provided by (used in) financing activities			251,670			(183,930	)

Effect of foreign exchange rate changes on cash			3,420			(859	)

Increase in cash and cash equivalents			321,551			9,427
Cash and cash equivalents at beginning of period			361,326			25,151

Cash and cash equivalents at end of period			682,877			34,578

See 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 (the "Company" or "Dole") include all adjustments necessary, including adjustments that are of a normal recurring nature, to present fairly the Company's financial position as of October 5, 2002 and December 29, 2001, its results of operations for the quarters and three quarters ended October 5, 2002 and October 6, 2001 and its cash flows for the three quarters then ended. The Company operates under a 52/53 week year and the quarters ended October 5, 2002 and October 6, 2001 are sixteen weeks in duration. All other fiscal quarters 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 ("10-K") for the year ended December 29, 2001.

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 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 Items 7 and 7A of the Company's 10-K for the year ended December 29, 2001.

Certain prior year amounts have been reclassified to conform with the 2002 presentation.

2. BUSINESS SEGMENT INFORMATION

The Company has four primary reportable operating segments: fresh fruit, fresh vegetables, packaged foods and fresh-cut flowers. These reportable segments are managed separately due to differences in their products, production processes, distribution channels and customer bases.

Management evaluates and monitors segment performance primarily through earnings before interest expense and income taxes ("EBIT"). Management believes that segment EBIT provides useful information for analyzing the underlying business results as well as allowing investors a means to evaluate the financial results of each segment in relation to the Company as a whole. EBIT is not defined under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for net income or cash flow measures prepared in accordance with GAAP or as a measure of the Company's profitability or liquidity. Additionally, the Company's computation of EBIT may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate EBIT in the same fashion.

Revenues and EBIT for the reportable operating segments and corporate and other were as follows (in thousands):

		Quarter Ended						Three Quarters Ended
		October 5, 2002			October 6, 2001			October 5, 2002			October 6, 2001
Revenues
	Fresh fruit	$	782,241		$	749,029		$	2,171,246		$	2,139,038
	Fresh vegetables		232,121			234,021			652,788			646,283
	Packaged foods		186,127			170,233			444,062			394,396
	Fresh-cut flowers		41,879			47,796			140,531			160,554
	Other		12,126			6,976			23,467			27,188

			1,254,494			1,208,055			3,432,094			3,367,459

EBIT
	Fresh fruit	$	43,677		$	(33,185	)	$	189,340		$	46,653
	Fresh vegetables		18,400			(10,640	)		75,412			41,388
	Packaged foods		19,198			2,591			44,665			8,774
	Fresh-cut flowers		(7,044	)		(19,778	)		(5,820	)		(10,799	)

	Total operating segments		74,231			(61,012	)		303,597			86,016
	Corporate and other		(27,080	)		(22,871	)		(51,440	)		(39,319	)

			47,151			(83,883	)		252,157			46,697

Corporate and other EBIT includes general and administrative costs not allocated to operating segments. In the three quarters ended October 6, 2001, the Company recognized $133 million of expenses related to business reconfiguration programs. Of the total $133 million expense, $74 million was recognized in the fresh fruit segment, $34 million was recognized in the fresh vegetables segment, $17 million was recognized in the packaged foods segment, $7 million was recognized in the fresh-cut flowers segment and $1 million was recognized in other operating segments. In the three quarters ended October 6, 2001, corporate and other EBIT also included a gain on the sale of available-for-sale securities of $8 million.

Total assets for the reportable operating segments and corporate and other were as follows (in thousands):

		October 5, 2002		December 29, 2001
Assets
	Fresh fruit	$	1,508,848	$	1,407,979
	Fresh vegetables		260,913		340,975
	Packaged foods		333,644		355,499
	Fresh-cut flowers		156,958		288,142

	Total operating segments		2,260,363		2,392,595
	Corporate and other		678,493		354,098

			2,938,856		2,746,693

3. INVENTORIES

The major classes of inventory, net of reserves of $12,116 and $10,650, respectively, were as follows (in thousands):

		October 5, 2002		December 29, 2001
Inventories
	Finished products	$	173,007	$	157,776
	Raw materials and work in progress		100,065		110,989
	Crop growing costs		43,805		55,251
	Operating supplies and other		58,101		62,083

			374,978		386,099

4. EARNINGS PER SHARE

The weighted average number of shares outstanding used to calculate diluted earnings per share include the dilutive effect of stock options. For both the quarter and three quarters ended October 5, 2002, stock options for approximately 1.1 million shares, and for both the quarter and three quarters ended October 6, 2001, stock options for approximately 1.9 million shares were excluded from the diluted earnings per share calculation, as these options were anti-dilutive.

5. COMPREHENSIVE INCOME

The Company recognized comprehensive income (loss) as follows (in thousands):

		Quarter Ended						Three Quarters Ended
		October 5, 2002			October 6, 2001			October 5, 2002			October 6, 2001
Net income (loss)		$	14,650		$	(94,756	)	$	17,860		$<