DOLE FOOD COMPANY, INC. ANNOUNCES IMPROVED SECOND QUARTER AND YEAR-TO-DATE NET INCOME FROM CONTINUING OPERATIONS AND WRITE-DOWN OF GOODWILL ON ITS FRESH-CUT FLOWER OPERATIONS
WESTLAKE VILLAGE, California - July 18, 2002
Dole Food Company, Inc. (NYSE: DOL) announced Thursday a 100% increase in its second quarter 2002 net income from continuing operations to $66.8 million, or $1.18 per share, contrasted with $33.3 million, or 59 cents per share, for the second quarter of 2001. Year-to-date net income from continuing operations increased 94% to $123.1 million, or $2.17 per share, up from $62.7 million, or $1.12 per share, for the same period of 2001. Second quarter and year-to-date numbers for 2001 included an $8.9 million pre-tax gain from the sale of investments and a $28 million pre-tax expense primarily related to asset write-downs resulting from business reconfiguration programs initiated during the second quarter of 2001. Excluding these items, net income from continuing operations was $46.7 million for the second quarter of 2001 and $76.2 million for year-to-date 2001.
Improvements in gross margin, quarter over quarter and year over year, as well as a reduction in the company's full year effective tax rate to 28% from 32%, due to a change in the mix of earnings, drove the increased net income from continuing operations. Offsetting these increases were costs from a one-time debt extinguishment premium of approximately $2.5 million pre-tax and higher interest expense of approximately $3.7 million pre-tax as a result of the company's recently completed $400 million senior note issuance. Both of these actions place the company in a better position in managing its debt maturity structure.
In the second quarter of 2002, reported net income of $66.8 million was up from $37.0 million for the second quarter of 2001. For year-to-date 2002, net income fell to $3.2 million from $71.7 million in the corresponding period of 2001, owing to a non-cash, after-tax charge of $119.9 million from the write-off of goodwill associated with the company's fresh-cut flower business, which was occasioned by the change in U.S. accounting principles related to goodwill.
For the second quarter of 2002, earnings before interest and taxes ("EBIT") from continuing operations improved significantly to $107.7 million from $87.4 million for the second quarter of 2001. EBIT from operations in the company's fresh fruit segment increased due to higher earnings in banana operations, which benefited from the company's global cost cutting actions. These benefits were partially offset by lower volumes sold in Europe and Asia and a weaker yen to U.S. dollar exchange rate. In the company's fresh vegetables segment, EBIT decreased significantly, as commodity vegetables pricing fell to more normal levels from the exceptionally high levels that prevailed in the second quarter of 2001. In the company's packaged foods segment, the continued success of Dole's FRUIT BOWLSÂ® and FRUIT-N-GEL BOWLSÂ® products led to an increase in operating results. EBIT in the company's fresh-cut flowers segment decreased significantly as a result of lower pricing and decreased sales volumes.
Revenues for the second quarter of 2002 totaled $1.1 billion, which was flat with the second quarter of 2001. Interest expense increased from $17.9 million for the second quarter of 2001 to $19.5 million for the second quarter of 2002, mainly due to the $400 million senior note issuance consummated in the second quarter of 2002.
Lawrence A. Kern, president and chief operating officer, said: "We are pleased with our second quarter and year-to-date net income from continuing operations. Our core businesses, with the exception of fresh-cut flowers, continue to perform at or above target levels, benefiting from improved margins and our cost cutting and profit improvement programs. But we are very disappointed with the results of our fresh-cut flower business, which represents 4% of total revenue and had a negative EBIT of approximately $2 million for the quarter."
The flower industry is less attractive than the company had expected in 1998 when it made its four acquisitions in the industry. Additionally, the company's progress on integrating the acquired businesses has been slower than expected. As a result, the company has done an extensive review of fresh-cut flowers in order to reconfigure it for improved performance. Additionally, in accordance with the newly promulgated Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," the company completed its transitional goodwill impairment test for all of its reporting units during the second quarter of 2002. The company has determined that it is appropriate to take a $119.9 million, non-cash charge reflected as a cumulative effect of a change in accounting principle, net of tax, in the year-to-date consolidated statements of income. This charge represents a total write-off of the goodwill in the company's fresh-cut flowers business. None of the company's other reporting units required such a write-down under SFAS No. 142.
The company announced in May 2002 that it had retained Deloitte & Touche LLP as the company's independent auditors for 2002, replacing Arthur Andersen LLP. At that time, the company also retained PricewaterhouseCoopers LLP ("PwC") as the company's primary internal audit service provider, also replacing Arthur Andersen LLP. The company has decided to completely outsource the internal audit function to PwC, which will report administratively to Richard J. Dahl, the company's vice president and chief financial officer, and directly to the company's Audit Committee. This has not resulted in any meaningful change in the 2002 internal audit plan, and PwC is proceeding to close on the internal audit items that were identified by prior internal audit efforts, none of which items is material.
The company is taking the opportunity created by the replacement of its external and internal auditors to review the company's internal control, governance, financial, audit and tax practices in light of benchmark practices. This process has not resulted in any material issues. The company is committed to a continuing process of self-examination.
The company believes that increasing the transparency of financial statements to the investing public is and will remain crucial for American public companies. As a result, the company has made a policy decision to work toward bringing onto the company's balance sheet its three off-balance sheet operating leases, totaling approximately $190 million. This will have no material effect on the company's income statement or cash flows and will simply gross-up the assets and liabilities of the company on its balance sheet. These operating leases, which have been disclosed in the notes to the company's financial statements, relate to two ships, containers used mainly in the transport of fresh fruit, and the company's corporate headquarters facility. In order to bring these operating leases onto the balance sheet, one of the following must occur: new accounting standards currently being contemplated by the Financial Accounting Standards Board must be adopted; the lease counterparties must agree to amendments to the leases; or the term of the leases must end. If these new accounting standards are not adopted promptly, the company will work to amend the lease agreements.
The company has already put on its balance sheet in the second quarter of 2002 its existing grower loan and advance program, primarily in Chile, that traditionally has been disclosed as a contingent obligation in the footnotes to the company's financial statements. This change has had no effect on the company's income statement, reserves or cash flows, and instead has simply resulted in the addition of an asset, and corresponding liability, to the company's balance sheet. The aggregate amount of such grower loans and advances was $39 million and $25 million at June 15, 2002 and December 29, 2001, respectively.
In an additional move to promote greater financial transparency, the company has decided to expense the cost of all employee stock options it grants, beginning with the next annual grant of options in the first quarter of 2003. All employee stock option grants from that date forward will be expensed over the stock option vesting period based on the fair value at the date the options are granted, in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." Under SFAS 123, options granted in 2002 and earlier years will continue to be accounted for under the accounting principle that was applied at the time of grant.
Lawrence A. Kern, president and chief operating officer, said the company has not yet determined the extent to which this accounting change will affect its earnings in the future, as this will be based, among other things, on future grants. As reported in a footnote to the company's 2001 financial statements, if options granted after 1995 had been expensed, it would have reduced the company's reported net income by 4 cents per share in 2001.
Dole Food Company, Inc., with 2001 revenues of $4.5 billion, is the world's largest producer and marketer of high-quality fresh fruit, fresh vegetables and fresh-cut flowers, and markets a growing line of packaged foods.
The company will host an earnings conference call today at 1 p.m. (EDT), featuring remarks by Lawrence A. Kern, president and chief operating officer, and Richard J. Dahl, vice president and chief financial officer. The conference call will be webcast live and may be accessed on the company's website at www.dole.com and at CCBN's individual investor center at www.companyboardroom.com. Institutional investors can access the call via CCBN's password protected event management site at www.streetevents.com.
This release contains forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements, which are based on management's current expectations, are generally identifiable by the use of terms such as "will" and similar expressions. The potential risks and uncertainties that could cause 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, electrical power supply and pricing, changes in interest and currency exchange rates, economic crises in developing countries, international conflict, quotas, tariffs and other governmental actions. Further information on the factors that could affect Dole's financial results is included in its SEC filings, including its Annual Report on Form 10-K.