10-K 1 v55481e10vk.htm FORM 10-K e10vk
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-K
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 2010
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
(IRS Employer
Identification No.)
 
One Dole Drive, Westlake Village, California 91362
(Address of principal executive offices)

Registrant’s telephone number including area code:
(818) 879-6600
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of Each Class   Name of Each Exchange on Which Registered
Common Stock, $0.001 Par Value   New York Stock Exchange
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.  Yes o     No þ
 
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer o
  Accelerated filer o   Non-accelerated filer þ
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
As of June 20, 2009, the approximate aggregate market value of voting and non-voting stock held by non-affiliates of the registrant was $0.
 
The number of shares of Common Stock outstanding as of March 15, 2010 was 88,233,289.
 
DOCUMENTS INCORPORATED BY REFERENCE
None
 


 

 
DOLE FOOD COMPANY, INC.
 
FORM 10-K
Fiscal Year Ended January 2, 2010
 
TABLE OF CONTENTS
 
                 
Item Number
       
In Form 10-K
      Page
 
PART I
  1.     Business     1  
  1A.     Risk Factors     10  
  1B.     Unresolved Staff Comments     19  
  2.     Properties     19  
  3.     Legal Proceedings     21  
  4.     Reserved     24  
 
PART II
  5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     24  
  6.     Selected Financial Data     26  
  7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     27  
  7A.     Quantitative and Qualitative Disclosures About Market Risk     48  
  8.     Financial Statements and Supplementary Data     51  
  9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     119  
  9A.     Controls and Procedures     119  
  9B.     Other Information     119  
 
PART III
  10.     Directors, Executive Officers and Corporate Governance     120  
  11.     Executive Compensation     120  
  12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     120  
  13.     Certain Relationships and Related Transactions, Director Independence     120  
  14.     Principal Accountant Fees and Services     120  
 
PART IV
  15.     Exhibits and Financial Statement Schedules     121  
Signatures     130  
 EX-10.12
 EX-10.16
 EX-10.17
 EX-10.21
 EX-12
 EX-21
 EX-23
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


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PART I
 
Item 1.   Business
 
Dole Food Company, Inc. was founded in Hawaii in 1851 and was incorporated under the laws of Hawaii in 1894. Dole reincorporated as a Delaware corporation in July 2001. Unless the context otherwise requires, Dole Food Company, Inc. and its consolidated subsidiaries are referred to in this report as the “Company,” “Dole” and “we.”
 
Dole’s principal executive offices are located at One Dole Drive, Westlake Village, California 91362, telephone (818) 879-6600. At January 2, 2010, we had approximately 39,100 full-time permanent employees and 36,500 full-time seasonal or temporary employees, worldwide. Dole is the world’s largest producer and marketer of high-quality fresh fruit and fresh vegetables. Dole markets a growing line of packaged and frozen fruits and is a produce industry leader in nutrition education and research. Our website address is www.dole.com.
 
On October 28, 2009, Dole completed a $446 million initial public offering of its common stock and received net proceeds of $415 million (see Note 3 of the Consolidated Financial Statements for further information).
 
Dole’s operations are described below. For detailed financial information with respect to Dole’s business and its operations, see Dole’s Consolidated Financial Statements and the related Notes to Consolidated Financial Statements, which are included in this report.
 
Overview
 
Dole is the world’s leading producer, marketer and distributor of fresh fruit and fresh vegetables, including an expanding line of value-added products. We are one of the world’s largest producers of bananas and pineapples, and an industry leader in packaged fruit products, packaged salads and fresh vegetables. Our most significant products hold the number 1 or number 2 positions in their respective markets. For the fiscal year ended January 2, 2010, Dole generated revenues of approximately $6.8 billion and operating income of approximately $352 million. At January 2, 2010 we had total assets of $4.1 billion.
 
We provide wholesale, retail and institutional customers around the world with high quality food products that bear the DOLE® trademarks. The DOLE brand was introduced in 1933 and is one of the most recognized brands for fresh and packaged produce in the United States, as evidenced by Dole’s 68% unaided consumer brand awareness — more than twice that of Dole’s nearest competitor, according to a major global research company (Millward Brown). We utilize product quality, brand recognition, competitive pricing, food safety, nutrition education, customer service and consumer marketing programs to enhance our position within the food industry. Consumer and institutional recognition of the DOLE trademarks and related brands and the association of these brands with high quality food products contribute significantly to our leading positions in the markets that we serve.
 
Dole has built a fully-integrated operating platform as a result of which our nearly 200 products are sourced, grown, processed, marketed and distributed in more than 90 countries. Our products are produced both directly on Dole-owned or leased land and in Dole owned factories and through associated producer and independent grower arrangements under which we provide varying degrees of farming, harvesting, packing, storing, shipping and marketing services. We use our global refrigerated supply chain that features the largest dedicated refrigerated containerized fleet in the world, as well as an extensive network of packaging, ripening and distribution centers, to deliver fresh Dole products to market.
 
Industry
 
The worldwide fresh produce industry enjoys consistent underlying demand and favorable growth dynamics. In recent years, the market for fresh produce has increased faster than the rate of population growth, supported by ongoing trends including greater consumer demand for healthy, fresh and convenient foods, increased retailer square footage devoted to fresh produce, and greater emphasis on fresh produce as a differentiating factor in attracting customers.
 
Health-conscious consumers are driving much of the growth in demand for fresh produce. Over the past several decades, the benefits of natural, preservative-free foods have become an increasingly significant element of the


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public dialogue on health and nutrition. As a result, consumption of fresh fruit and vegetables has markedly increased. According to the U.S. Department of Agriculture, Americans consumed an additional 37 pounds of fresh fruit and vegetables per capita in 2008 than they did in 1988.
 
The North American packaged foods industry is experiencing stable growth, driven by consumer demand for convenient, healthy snacking options. FRUIT BOWLS® in plastic cups, introduced by Dole in 1998, and other innovative packaging items, such as fruit in plastic jars and pouches, have steadily displaced the canned alternative. These new products have spurred overall growth in the packaged foods category, while the consumption of traditional canned fruit has declined as consumers opt for fresh products and more innovative packaging.
 
As food retailers compete in a consolidating industry, they have sought to increase profits by focusing on product categories that are growing and on value-added products, which generally have higher margins. Thus, the higher growth and margins of the fresh produce category compared to the average grocery category are attractive to retailers. As a result, some retailers are reducing dry goods sections of the store, in favor of expanding fresh and chilled items. This trend provides Dole with new product and merchandising opportunities for fresh produce and packaged foods, especially for our value-added lines, such as packaged salads, FRUIT BOWLS and fruit in plastic jars. Fully integrated produce companies, such as Dole, are well positioned to meet the needs of large retailers through the delivery of consistent, high-quality produce, reliable service, competitive pricing and innovative products. In addition, these companies, including Dole, have sought to strengthen relationships with leading retailers through value-added services such as banana ripening and distribution, category management, branding initiatives and establishment of long-term supply agreements.
 
Competitive Strengths
 
Our competitive strengths have contributed to our strong historical operating performance and should enable us to capitalize on future growth opportunities:
 
  •  Market Share Leader.  Our most significant products hold the number 1 or number 2 positions in their respective markets. We maintain number 1 market share positions in North American bananas, North American iceberg lettuce, celery, cauliflower, and packaged fruit products, including our line of plastic fruit cups called FRUIT BOWLS, FRUIT BOWLS in Gel, Fruit Parfaits and fruit in plastic jars.
 
  •  Strong Global Brand.  Consumer and institutional recognition of the DOLE trademark and related brands and the association of these brands with high quality food products contribute significantly to our leading positions in the markets that we serve. By implementing a global marketing program, we have made the distinctive red “DOLE” letters and sunburst a familiar symbol of freshness and quality recognized around the world. We actively continue to leverage the DOLE brand through product extensions and new product introductions.
 
  •  Valuable Asset Base.  We are an asset rich company, which provides significant competitive advantages to our operations and value to our investors. In addition to the DOLE trademark, we have an impressive base of tangible assets. We own 122,000 acres of farms and other land holdings, including 26,000 acres of farmland in Oahu, Hawaii and approximately 2,600 acres of peach orchards in California. We have the largest dedicated refrigerated containerized fleet in the world, which includes 14,800 refrigerated containers, 11 owned and 14 chartered vessels. We own over 60 ripening and distribution centers in Europe and Asia. We own and operate over one million square feet of vegetable processing facilities globally. Additionally, our packaged food business processes its product lines in over 1.9 million square feet of owned manufacturing facilities.
 
  •  State-of-the-Art Infrastructure.  Our production, processing, transportation and distribution infrastructure is state-of-the-art, enabling us to efficiently deliver the highest quality and freshest product to our customers. The investments in our infrastructure, including farms, packing houses, manufacturing facilities and shipping assets, allow for continued growth in the near term. In addition, our market-leading logistics and distribution capabilities allow us to act as a preferred fresh and packaged food provider to leading global supermarkets and mass merchandisers.
 
  •  Refrigerated Supply Chain Management.  One of our strongest core competencies is our ability to produce, transport and deliver high-quality perishable products around the world. Dole quality starts right on the farm, and that quality is preserved and protected in our farm-to-customer refrigerated supply chain. Our


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  worldwide network of cold storage — at the farm, on trucks, in containers, on ships and in our distribution centers in the world’s market places — provides a closed-loop cold storage supply chain that enables the worldwide transport of perishable products and is the key to Dole quality and shelf life.
 
  •  Low-Cost Production Capabilities.  Dole’s valuable asset base enables us to be a low cost producer in many of our major product lines, including bananas, North American fresh vegetables and packaged fruit products. Over the last several years we have undertaken various initiatives to achieve and maintain this low-cost position, including leveraging our global logistics infrastructure more efficiently. We intend to maintain these low-cost positions through a continued focus on operating efficiency.
 
  •  Diversity of Sourcing Locations.  We currently source our fresh fruits and vegetables from over 20 countries and distribute products in more than 90 countries. We are not dependent on any one country for the sourcing of our products. The diversity of our production sources reduces our risk from exposure to natural disasters and political disruptions in any one particular country.
 
  •  Strong Management Team.  Our management team has a demonstrated history of delivering strong operating results through disciplined execution. Under our management team’s guidance, Dole’s operating income has increased from $149 million in 2007 to $352 million in 2009. Our senior management team has a total of 110 years of experience at Dole with an average of over 15 years each.
 
Business Strategy
 
Key elements of our strategy include:
 
  •  Continue to Leverage our Strong Brand and Market Leadership Position.  Our most significant products hold number 1 or number 2 market positions in their respective markets. We intend to maintain those positions and continue to expand our leadership in new product areas as well as with new customers. We have a history of leveraging our strong brand to successfully enter, and in many cases become the largest player in value-added food categories. We intend to continue to evaluate and strategically introduce other branded products in the value-added sectors of our business.
 
  •  Focus on Value-Added Products.  We will continue to shift our product mix toward value-added food categories while maintaining and building on our key market leadership positions in commodity fruits and vegetables. For example, we have successfully increased our percentage of revenue from value-added products in our fresh vegetables and packaged foods businesses, where our packaged salad lines and FRUIT BOWL and other non-canned products now account for approximately 52% and 56% of those businesses’ respective revenues. Value-added food categories are growing at a faster rate than traditional commodity businesses and typically generate stronger margins. We plan to continue to address the growing demand for convenient and innovative products by investing in our higher margin, value-added food businesses.
 
  •  Focus on Improving Operating Efficiency and Cash Flow.  We intend to continue to focus on profit improvement initiatives and maximizing cash flow by:
 
  •  Analyzing our current customer base and focusing on profitable relationships with strategically important customers;
 
  •  Leveraging our purchasing power to reduce our costs of raw materials;
 
  •  Focusing capital investments to improve productivity; and
 
  •  Selling non-core assets.
 
  •  Pursue Disciplined Growth.  We see significant opportunities for growth in all of our product lines and throughout the world. Annual increases in purchasing power, especially in the developing economies, will provide a natural demand for our products. In the United States, we expect category growth in both our packaged salads and frozen fruit businesses in line with the trends toward healthy eating. Our packaged foods division has a large pipeline of new products that will be introduced both nationally and internationally, and which are expected to gain solid distribution gains in the years ahead. Finally, we continue to


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  look at acquisition possibilities worldwide as we grow our global footprint and further strengthen our leadership position.
 
  •  Promote Education through Dole Nutrition Institute.  We seek to play a leading role in nutrition education by promoting the health benefits of a plant-based diet. Given the importance of fruit and vegetable consumption in maintaining a healthy weight, nutrition education is key to addressing the global obesity epidemic. Every day new scientific research reveals ways in which fruits and vegetables help prevent and even reverse disease. Dole is committed to leading the way in expanding the knowledge, growing the foods, and marketing the products that will enable people to lead healthier, more vital lives.
 
  •  Encourage Corporate Social Responsibility.  Our approach to corporate social responsibility includes sustainable agricultural practices, community service, employee wellness, provision of social services and worker safety. Our practices demonstrate how the world’s leading provider of fruits and vegetables is an industry leader in respect for the environment, worker education and social contributions, among other aspects of corporate responsibility.
 
Business Segments
 
We have three business segments: fresh fruit, fresh vegetables and packaged foods. The fresh fruit segment contains several operating divisions that produce and market fresh fruit to wholesale, retail and institutional customers worldwide. The fresh vegetables segment produces and markets fresh-packed and value-added vegetables and salads to wholesale, retail and institutional customers, primarily in North America, Europe and Asia. The packaged foods segment contains several operating divisions that produce and market packaged foods including fruit, juices, frozen fruit and healthy snack foods.
 
Fresh Fruit
 
Our fresh fruit business segment has four primary operating divisions: bananas, European ripening and distribution, fresh pineapples and Dole Chile. We believe that we are the industry leader in growing, sourcing, shipping and distributing consistently high-quality fresh fruit. The fresh fruit business segment represented approximately 69% of 2009 consolidated revenues.
 
Bananas
 
We are one of the world’s largest producers of bananas, growing and selling approximately 154 million boxes of bananas in 2009. We sell most of our bananas under the DOLE brand. We primarily sell bananas to customers in North America, Europe and Asia. We are the number 1 brand of bananas in both the U.S. (an approximate 35% market share) and Japan (an approximate 31% market share) and the number 2 provider in Europe (an approximate 9% market share). In Latin America, we source our bananas primarily in Honduras, Costa Rica, Ecuador, Colombia, Guatemala and Peru, growing on approximately 35,600 acres of company-owned farms and approximately 80,000 acres of independent producers’ farms. We ship our Latin American bananas to North America and Europe in our refrigerated and containerized shipping fleet. In Asia, we source our bananas primarily in the Philippines. Bananas accounted for approximately 42% of our fresh fruit business segment revenues in 2009.
 
Consistent with our strategy to focus on value-added products, we have continued to expand our focus on higher margin, niche bananas. While the traditional “green” bananas still comprise the majority of our banana sales, we have successfully introduced niche bananas (e.g., organic). We have also improved the profitability of our banana business by focusing on profitable customer relationships and markets.
 
While bananas are sold year round, there is a seasonal aspect to the banana business. Banana prices and volumes are typically higher in the first and second calendar quarters before the increased competition from summer fruits.
 
Approximately 90% of our total retail volume in North America is sold under contract. The contracts are typically one year in duration and help to insulate us from fluctuations in the banana spot market. Our principal competitors in the international banana business are Chiquita Brands International, Inc. and Fresh Del Monte Produce, Inc.


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European Ripening and Distribution
 
Our European ripening and distribution business distributes DOLE and non-DOLE branded fresh produce in Europe. This business operates 24 ripening and distribution centers in nine countries, predominantly in Western Europe. This is a value-added service Dole provides to customers since European retailers generally do not self- distribute or self-ripen. This business assists us in firmly establishing our European customer relationships. In 2009, European Ripening and Distribution accounted for approximately 40% of our fresh fruit business segment’s revenues. Our principal competitors in this business are Total Produce Plc and Univeg.
 
Fresh Pineapples
 
We are the number 2 global marketer of fresh pineapples, growing and selling more than 34 million boxes in 2009. We source our pineapples primarily from Dole-operated farms and independent growers in Latin America, Hawaii, the Philippines and Thailand. We produce and sell several different varieties, including the sweet yellow pineapple. We introduced the sweet yellow pineapple in 1999, and now market a substantial portion of this fruit under the DOLE TROPICAL GOLD® label. Varieties of pineapple other than the sweet pineapples are also used in our packaged products. Our primary competitor in fresh pineapples is Fresh Del Monte Produce Inc. Pineapples accounted for approximately 8% of our fresh fruit business segment’s revenues in 2009.
 
Dole Chile
 
We began our Chilean operations in 1982 and we are the largest exporter of Chilean fruit. We export grapes, apples, pears, stone fruit (e.g., peaches and plums) and kiwifruit from approximately 600 primarily leased acres and 12,300 contracted acres. The weather and geographic features of Chile are similar to those of the Western United States, with opposite seasons. Accordingly, Chile’s harvest is counter-seasonal to that in the northern hemisphere, offsetting the seasonality in our other non-tropical fresh fruit. We primarily export Chilean fruit to North America, Latin America and Europe. Our Dole Chile business division accounted for approximately 5% of our fresh fruit business segment’s revenues in 2009.
 
Fresh Vegetables
 
Our fresh vegetables business segment produces and markets fresh-packed and value-added vegetables. We source fresh vegetables from Dole-owned, leased and contracted farms. Our value-added products are produced in state-of-the-art processing facilities in Yuma, Arizona, Soledad, California, Springfield, Ohio and Bessemer City, North Carolina. Under arrangements with independent growers, we purchase fresh produce at the time of harvest and are generally responsible for harvesting, packing and shipping the product to our central cooling and distribution facilities. We pursue a balanced growth strategy between our fresh-packed and value-added vegetable products. In 2009, value-added products accounted for 52% of our revenues for this segment. The fresh vegetables business segment accounted for approximately 15% of 2009 consolidated revenues.
 
Fresh-packed Vegetables
 
We source, harvest, cool, distribute and market more than 20 different types of fresh and fresh-cut vegetables, including iceberg lettuce, red and green leaf lettuce, romaine lettuce, butter lettuce, celery, cauliflower, broccoli, carrots, brussels sprouts, green onions, asparagus, snow peas and artichokes, as well as fresh strawberries. Products are grown by independent farmers under multi-year contracts, with harvesting primarily provided by us. Many of our fresh-packed vegetables are packaged in the field reducing handling and increasing product quality. We sell our fresh-packed vegetables products primarily in North America, Asia and, to a lesser extent, Western Europe. In North America, we are the largest supplier of iceberg lettuce, celery and cauliflower, and the third largest producer of strawberries. Our primary competitors in this category include: Tanimura & Antle, Duda Farm Fresh Foods, Ocean Mist Farms, the Nunes Company, Inc. and Driscoll Strawberry Associates, Inc.
 
Value-Added
 
Our value-added vegetable products include packaged salads and packaged fresh-cut vegetables. Our U.S. unit market share of the packaged salads category reported by IRI was approximately 29% for the 2009 fiscal year. New


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product development continues to drive growth in this area. Packaged salads go through a three-step process: (i) vegetables are grown for us by farmers under multi-year contracts, (ii) vegetables and other ingredients are delivered to our plants where they are washed three times in chilled, purified water that includes anti-bacterial chlorine exposure before thorough rinsing, and packaged under strict cold-chain and HACCP (Hazard Analysis and Critical Control Points) standards, and (iii) salads are shipped to retailers’ warehouses for delivery to stores. Our primary competitors in packaged salads include Chiquita Brands International, Inc. (which markets Fresh Express), Ready Pac Produce, Inc. and Taylor Fresh Foods, Inc.
 
Packaged Foods
 
Our packaged foods segment produces canned pineapple, canned pineapple juice, fruit juice concentrate, fruit in plastic cups, jars and pouches, fruit parfaits, snack foods and frozen fruit. Most of our significant packaged food products hold the number 1 branded market position in North America. We remain the market leader in the plastic fruit cup category with six of the top ten items in category. Fruit for our packaged food products is sourced primarily in the Philippines, Thailand, the United States and China and packed primarily in four Asian canneries, two in Thailand and two in the Philippines. We have continued to focus on expanding our product range beyond our traditional canned fruit and juice products. FRUIT BOWL and other non-canned products accounted for approximately 56% of the segment’s 2009 revenues.
 
The trend towards convenience and healthy snacking has allowed the plastic fruit cup category to significantly exceed the applesauce cup and shelf-stable gelatin cup categories. In fact, Dole now produces more plastic cups than traditional cans. Our FRUIT BOWLS products, introduced in 1998, have achieved significant market share, as evidenced by our 48% dollar market share in the United States during 2008, as reported by IRI. In 2003, Dole introduced fruit in a 24.5 oz. plastic jar, which has attained a 38% dollar market share in the refrigerated and shelf-stable jar category, and a 66% share in the shelf-stable jar category, as reported by IRI. To keep up with demand, we have made substantial investments in our Asian canneries, significantly increasing our FRUIT BOWLS capacity in the past four years. These investments should ensure our position as an industry innovator and low-cost producer.
 
In the frozen fruit category, Dole is now the number 1 brand in North America and is positioned for continued growth as the innovation leader. New product introductions include our new WILDLY NUTRITIOUStm and Ready Cut fruit blends, which offer targeted health benefits, as well as our Sliced Strawberries, which meet the need for consumer convenience.
 
Our packaged foods segment accounted for approximately 15% of 2009 consolidated revenues.
 
Discontinued Operations
 
During the fourth quarter of 2007, we approved and committed to a formal plan to divest our citrus and pistachio operations (“Citrus”) located in central California. During March 2008, we entered into an agreement to sell land and other related assets of Citrus. The sale was completed during the third quarter of 2008, and we received net proceeds of $28.1 million. In addition, during the second quarter of 2008, we approved and committed to a formal plan to divest our fresh-cut flowers operations, and during the third quarter of 2008 we signed a binding letter of intent to sell these operations. The first phase of the transaction closed early in the first quarter of 2009.
 
Global Logistics
 
We have significant product sourcing and related operations in Chile, China, Costa Rica, Ecuador, Honduras, the Philippines, South Africa, Spain, Thailand and the United States. Significant volumes of Dole’s fresh fruit and packaged products are marketed in Canada, Western Europe, Japan and the United States, with lesser volumes marketed in Australia, China, Hong Kong, New Zealand, South Korea, and other countries in Asia, Europe, and Central and South America.
 
The produce that we distribute internationally is transported primarily by 25 owned or leased ocean-going vessels. We ship our tropical fruit in owned or chartered refrigerated vessels. All of our tropical fruit shipments into the North American and core European markets are delivered using pallets or containers. This increases efficiency and minimizes damage to the product from handling. Most of the vessels are equipped with controlled atmosphere


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technology, to ensure product quality. “Backhauling” services, transporting our own and third-party cargo primarily from North America and Europe to Latin America, reduce net transportation costs. We use vessels that are both owned or operated under long-term leases, as well as vessels chartered under contracts that typically last one year.
 
Customers
 
Our top 10 customers in 2009 accounted for approximately 34% of total revenues. No one customer accounted for more than 8% of total 2009 revenues. Our customer base is highly diversified, both geographically and in terms of product mix. Each of our segments’ largest customers accounted for no more than approximately 21% of that segment’s revenues. Our largest customers are leading global and regional mass merchandisers and supermarkets in North America, Europe and Asia.
 
Sales and Marketing
 
We sell and distribute our fruit and vegetable products through a network of fresh produce operations in North America, Europe, Asia and Latin America. Some of these operations involve the sourcing, distribution and marketing of fresh fruits and vegetables while others involve only distribution and marketing. We have regional sales organizations dedicated to servicing major retail and wholesale customers. We also use the services of brokers in certain regions, including for some sales of packaged fruit products and packaged salads. Retail customers include large chain stores with which Dole enters into product and service contracts, typically for a one- or two-year term. Wholesale customers include large distributors in North America, Europe and Asia. We use consumer advertising, marketing and trade spending, to promote new items, bolster our exceptional brand awareness and promote nutrition knowledge.
 
Competition
 
The global fresh and packaged produce markets are intensely competitive, and generally have a small number of global producers, filled out with independent growers, packers and middlemen. Our large, international competitors are Chiquita, Fresh Del Monte Produce and Del Monte Foods. In some product lines, we compete with smaller national producers. In fresh vegetables, a limited number of grower shippers in the United States and Mexico supply a significant portion of the United States market, with numerous smaller independent distributors also competing. We also face competition from grower cooperatives and foreign government sponsored producers. Competition in the various markets in which we operate is affected by reliability of supply, product quality, brand recognition and perception, price and the ability to satisfy changing customer preferences through innovative product offerings.
 
Employees
 
At January 2, 2010, we had approximately 39,100 full-time permanent employees and 36,500 full-time seasonal or temporary employees, worldwide. Approximately 36% of our employees work under collective bargaining agreements, some of which are in the process of being renegotiated. Certain other bargaining agreements are scheduled to expire in 2010, subject to automatic renewals unless a notice of non-extension is given by the union or us. We have not received any notice yet that a union intends not to extend a collective bargaining agreement. We believe our relations with our employees are generally good.
 
Trademark Licenses
 
In connection with the sale of the majority of our juice business to Tropicana Products, Inc. in May of 1995, we received cash payments up front and granted to Tropicana a license, requiring no additional future royalty payments, to use certain DOLE trademarks on certain beverage products. We continue to produce and market DOLE canned pineapple juice and pineapple juice blend beverages, which were not part of the 1995 sale. We have a number of additional license arrangements worldwide, none of which is material to Dole and its subsidiaries, taken as a whole.


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Research and Development
 
Our research and development programs concentrate on sustaining the productivity of our agricultural lands, food safety, nutrition science, product quality, value-added product development, and packaging design. Agricultural research is directed toward sustaining and improving product yields and product quality by examining and improving agricultural practices in all phases of production (such as development of specifically adapted plant varieties, land preparation, fertilization, cultural practices, pest and disease control, post-harvesting, handling, packing and shipping procedures), and includes on-site technical services and the implementation and monitoring of recommended agricultural practices. Research efforts are also directed towards integrated pest management and biological pest control. We develop specialized machinery for various phases of agricultural production and packaging that reduce labor costs, increase efficiency and improve product quality. We conduct agricultural research at field facilities primarily in California, Hawaii, Latin America and Asia. Our research at the Dole Nutrition Research Lab in Kannapolis, North Carolina, will investigate both basic science as well as the next frontier in phytochemical research. We also sponsor research related to environmental improvements and the protection of worker and community health. The aggregate amounts we spent on research and development in each of the last three years have not been material in any of such years.
 
Food Safety
 
Dole is undertaking strong measures to improve food safety. We spearheaded the industry-wide Leafy Greens Marketing Agreements in California and in Arizona. We developed and adopted enhanced Good Agricultural Practices, which include raw material testing in the fields, expanded buffer zones and increased water testing. We also use radio-frequency identification (RFID) tags to track leafy greens as they move from fields to trucks and through processing.
 
Dole salad plants are sanitized and inspected daily. We wash our leafy greens three times in chilled, purified water that includes anti-bacterial chlorine exposure before thorough rinsing.
 
Environmental and Regulatory Matters
 
Our agricultural operations are subject to a broad range of evolving environmental laws and regulations in each country in which we operate. In the United States, these laws and regulations include the Food Quality Protection Act of 1996, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive Environmental Response, Compensation and Liability Act.
 
Compliance with these foreign and domestic laws and related regulations is an ongoing process that is not expected to have a material effect on our capital expenditures, earnings or competitive position. Environmental concerns are, however, inherent in most major agricultural operations, including those conducted by us, and there can be no assurance that the cost of compliance with environmental laws and regulations will not be material. Moreover, it is possible that future developments, such as increasingly strict environmental laws and enforcement policies thereunder, including those driven by concerns about climate change, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs.
 
Our food operations are also subject to regulations enforced by, among others, the U.S. Food and Drug Administration and state, local and foreign counterparts and to inspection by the U.S. Department of Agriculture and other federal, state, local and foreign environmental, health and safety authorities. The U.S. Food and Drug Administration enforces statutory standards regarding the labeling and safety of food products, establishes ingredients and manufacturing procedures for certain foods, establishes standards of identity for foods and determines the safety of food substances in the United States. Similar functions are performed by state, local and foreign governmental entities with respect to food products produced or distributed in their respective jurisdictions.
 
In the United States, portions of our fresh fruit and vegetable farm properties are irrigated by surface water supplied by local government agencies using facilities financed by federal or state agencies, as well as from underground sources. Water received through federal facilities is subject to acreage limitations under the 1982 Reclamation Reform Act. Worldwide, the quantity and quality of water supplies varies depending on weather


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conditions and government regulations. We believe that under normal conditions these water supplies are adequate for current production needs.
 
Legal Proceedings
 
See Item 3, Legal Proceedings, in this Form 10-K.
 
Trade Issues
 
Our foreign operations are subject to risks of expropriation, civil disturbances, political unrest, increases in taxes and other restrictive governmental policies, such as import quotas. Loss of one or more of our foreign operations could have a material adverse effect on our operating results. We strive to maintain good working relationships in each country in which we operate. Because our operations are a significant factor in the economies of some countries, our activities are subject to intense public and governmental scrutiny and may be affected by changes in the status of the host economies, the makeup of the government or public opinion in a particular country.
 
The European Union (“EU”) maintains banana regulations that impose tariffs on bananas. On January 1, 2006, the EU implemented a “tariff only” import regime for bananas. The 2001 EC/U.S. Understanding on Bananas required the EU to implement a tariff only banana import system on or before January 1, 2006, and the EU’s banana regime change was therefore expected by that date. Under this regime, the EU mandated a tariff of 176 euro per metric ton on all banana imports to the EU market from Latin America. The EU also mandated that 775,000 metric tons of bananas from African, Caribbean, and Pacific (“ACP”) countries could be imported to the EU duty-free.
 
The preferential treatment of a zero tariff on up to 775,000 metric tons of ACP banana imports, as well as the 176 euro per metric ton tariff applied to Latin banana imports, was challenged by Panama, Honduras, Nicaragua, and Colombia in consultation proceedings at the World Trade Organization, or WTO. In addition, both Ecuador and the United States formally requested the WTO Dispute Settlement Body, or DSB, to appoint panels to review the matter.
 
The DSB issued final and definitive written rulings in favor of Ecuador and the United States on November 27, 2008, concluding that the 176 euro per metric ton tariff is inconsistent with WTO trade rules. The DSB also considered that the prior duty-free tariff reserved for ACP countries was inconsistent with WTO trade rules but also recognized that, with the current entry into force of Economic Partnership Agreements between the EU and ACP countries, ACP bananas now may have duty-free, quota-free access to the EU market.
 
In light of these WTO rulings, the EU proposed a settlement in resolution of the dispute, which has been accepted by the Latin American banana producing countries and the United States. This settlement, reached on December 15, 2009, provides for a specific tariff reduction schedule, with an initial reduction of the tariff to 148 euro per metric ton and a final tariff of 114 euro per metric ton to be reached on January 1, 2017 or January 1, 2019 (the extended schedule of reduction applies if no further trade agreements are reached in the ongoing “DDA” or Doha Development Agenda global trade discussions).
 
The settlement, which was signed by the Latin American banana producing countries and the European Commission, still must be formally ratified through a “Decision” by the European Council. The tariff schedule also must be formally enacted in European legislation through the act of the European Parliament. This may take several additional months.
 
Currently, the 176 euro per metric ton tariff must continue to be paid by importers, although the December 15, 2009 settlement provides that the tariff of 148 euro per metric ton shall be applied as of December 15, 2009 and any duties paid in excess shall be reimbursed by the competent customs authorities. It is not yet clear what the EU mechanisms and timing will be for reimbursement to importers from December 15, 2009. The new tariff schedule will apply once the European Parliament adopts the legislation.
 
Although Dole views this settlement as a favorable development, it is too early to determine to what extent Dole’s operations will capture any of these tariff savings.


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Seasonality
 
Our sales volumes remain relatively stable throughout the year. We experience seasonal earnings characteristics, predominantly in the fresh fruit segment, because fresh fruit prices traditionally are lower in the second half of the year, when summer fruits are in the markets. Our packaged foods segment experiences peak demand during some well-known holidays and observances; the impact is less than in the fresh-fruit segment.
 
Item 1A.   Risk Factors
 
RISK FACTORS
 
In addition to the various risks described elsewhere in this Form 10-K, the following risk factors should be considered. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known or that we have assessed in our risk assessment process or that we currently believe to be less significant may also adversely affect us.
 
Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.
 
Fresh produce, including produce used in canning and other packaged food operations, is vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature extremes, which are quite common but difficult to predict and may be influenced by global climate change. Unfavorable growing conditions can reduce both crop size and crop quality. This risk is particularly true with respect to regions or countries from which we source a significant percentage of our products. In extreme cases, entire harvests may be lost in some geographic areas. These factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.
 
Fresh produce is also vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. For example, black sigatoka is a fungal disease that affects banana cultivation in most areas where they are grown commercially. The costs to control this disease and other infestations vary depending on the severity of the damage and the extent of the plantings affected. Moreover, there can be no assurance that available technologies to control such infestations will continue to be effective. These infestations can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.
 
Our business is highly competitive and we cannot assure you that we will maintain our current market share.
 
Many companies compete in our different businesses. However, only a few well-established companies operate on both a national and a regional basis with one or several branded product lines. We face strong competition from these and other companies in all our product lines.
 
Important factors with respect to our competitors include the following:
 
  •  Some of our competitors may have greater operating flexibility and, in certain cases, this may permit them to respond better or more quickly to changes in the industry or to introduce new products and packaging more quickly and with greater marketing support.
 
  •  Several of our packaged food product lines are sensitive to competition from national or regional brands, and many of our product lines compete with imports, private label products and fresh alternatives.
 
  •  We cannot predict the pricing or promotional actions of our competitors or whether those actions will have a negative effect on us.
 
There can be no assurance that we will continue to compete effectively with our present and future competitors. See Item 1 — “Business.”


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Our earnings are sensitive to fluctuations in market prices and demand for our products.
 
Excess supplies often cause severe price competition in our industry. Growing conditions in various parts of the world, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product.
 
Fresh produce is highly perishable and generally must be brought to market and sold soon after harvest. Some items, such as lettuce, must be sold more quickly, while other items can be held in cold storage for longer periods of time. The selling price received for each type of produce depends on all of these factors, including the availability and quality of the produce item in the market, and the availability and quality of competing types of produce.
 
In addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. To the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products. However, even if market prices are unfavorable, produce items which are ready to be, or have been, harvested must be brought to market promptly. A decrease in the selling price received for our products due to the factors described above could have a material adverse effect on our business, results of operations and financial condition.
 
Our earnings are subject to seasonal variability.
 
Our earnings may be affected by seasonal factors, including:
 
  •  the seasonality of our supplies and consumer demand;
 
  •  the ability to process products during critical harvest periods; and
 
  •  the timing and effects of ripening and perishability.
 
Although banana production tends to be relatively stable throughout the year, banana pricing is seasonal because bananas compete against other fresh fruit that generally comes to market beginning in the summer. As a result, banana prices are typically higher during the first half of the year. Our fresh vegetables segment experiences some seasonality as reflected by higher earnings in the first half of the year. Our packaged foods segment experiences peak demand during some well-known holidays and observances.
 
Currency exchange fluctuations may impact the results of our operations.
 
Our nearly 200 products are sourced, grown, processed, marketed and distributed in more than 90 countries throughout the world. Our international sales are usually transacted in U.S. dollars, and European and Asian currencies. Our results of operations are affected by fluctuations in currency exchange rates in both sourcing and selling locations. Although we enter into foreign currency exchange forward contracts from time to time to reduce our risk related to currency exchange fluctuation, our results of operations may still be impacted by foreign currency exchange rates, primarily the yen-to-U.S. dollar and euro-to-U.S. dollar exchange rates. For instance, we currently estimate that a 10% strengthening of the U.S. dollar relative to the Japanese yen, euro and Swedish krona would have reduced 2009 operating income by approximately $71 million, excluding the impact of foreign currency exchange hedges. Because we do not hedge against all of our foreign currency exposure, our business will continue to be susceptible to foreign currency fluctuations.
 
Increases in commodity or raw product costs, such as fuel, paper, plastics and resins, could adversely affect our operating results.
 
Many factors may affect the cost and supply of fresh produce, including external conditions, commodity market fluctuations, currency fluctuations, changes in governmental laws and regulations, agricultural programs, severe and prolonged weather conditions and natural disasters. Increased costs for purchased fruit and vegetables have in the past negatively impacted our operating results, and there can be no assurance that they will not adversely affect our operating results in the future.


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The price of various commodities can significantly affect our costs. For example, the price of bunker fuel used in shipping operations, including fuel used in ships that we own or charter, is an important variable component of transportation costs. Our fuel costs have increased substantially in recent years, and there can be no assurance that there will not be further increases in the future. In addition, fuel and transportation cost is a significant component of the price of much of the produce that we purchase from growers or distributors, and there can be no assurance that we will be able to pass on to our customers the increased costs we incur in these respects.
 
The cost of paper and tinplate are also significant to us because some of our products are packed in cardboard boxes or cans for shipment. If the price of paper or tinplate increases and we are not able to effectively pass these price increases along to our customers, then our operating income will decrease. Increased costs for paper and tinplate have in the past negatively impacted our operating income, and there can be no assurance that these increased costs will not adversely affect our operating results in the future.
 
We face risks related to our former use of the pesticide DBCP.
 
We formerly used dibromochloropropane, or DBCP, a nematocide that was used by growers on a variety of crops throughout the world. The registration for DBCP with the U.S. government was cancelled in 1979 based in part on an apparent link to male sterility among chemical factory workers who produced DBCP. There are a number of pending lawsuits in the United States and other countries against the manufacturers of DBCP and the growers, including us, who used it in the past. The cost to defend or settle these lawsuits, and the costs to pay any judgments or settlements resulting from these lawsuits, or other lawsuits which might be brought, could have a material adverse effect on our business, financial condition or results of operations. See Note 18 to our Consolidated Financial Statements.
 
The use of herbicides and other potentially hazardous substances in our operations may lead to environmental damage and result in increased costs to us.
 
We use herbicides and other potentially hazardous substances in the operation of our business. We may have to pay for the costs or damages associated with the improper application, accidental release or the use or misuse of such substances. Our insurance may not be adequate to cover such costs or damages or may not continue to be available at a price or under terms that are satisfactory to us. In such cases, payment of such costs or damages could have a material adverse effect on our business, results of operations and financial condition.
 
The financing arrangements for the going-private merger transactions in 2003 may increase our exposure to tax liability.
 
A portion of our senior secured credit facilities have been incurred by our foreign subsidiaries and were used to fund the going-private merger transactions in 2003 through which Mr. Murdock became our sole, indirect stockholder. On August 27, 2009, the Internal Revenue Service, or IRS, completed its examination of our U.S. federal income tax returns for the years 2002 to 2005 and issued a Revenue Agent’s Report, or RAR, that includes various proposed adjustments, including with respect to the going-private merger transactions. The IRS is proposing that certain funding used in the going-private merger transactions is currently taxable and that certain related investment banking fees are not deductible. The net tax deficiency asserted in the RAR is $122 million plus interest (subsequent to the issuance of the RAR, “The Worker, Homeownership, and Business Assistance Act of 2009” was signed into law; Dole estimates that this new law effectively reduces the amount of the IRS claim from $122 million to $91 million). On October 27, 2009, Dole filed a protest letter vigorously challenging the proposed adjustments contained in the RAR and is pursuing resolution of these issues with the Appeals Division of the IRS. However, we may not be successful with respect to some or all of our appeal, which could result in a material tax liability and could adversely affect our results of operations and financial condition. We believe, based in part upon the advice of our tax advisors, that our tax treatment of such transactions was appropriate.
 
We face other risks in connection with our international operations.
 
Our operations are heavily dependent upon products grown, purchased and sold internationally. In addition, our operations are a significant factor in the economies of many of the countries in which we operate, increasing our


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visibility and susceptibility to legal or regulatory changes. These activities are subject to risks that are inherent in operating in foreign countries, including the following (see “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Other Matters”):
 
  •  foreign countries could change laws and regulations or impose currency restrictions and other restraints;
 
  •  in some countries, there is a risk that the government may expropriate assets;
 
  •  some countries impose burdensome tariffs and quotas;
 
  •  political changes and economic crises may lead to changes in the business environment in which we operate;
 
  •  international conflict, including terrorist acts, could significantly impact our business, financial condition and results of operations;
 
  •  in some countries, our operations are dependent on leases and other agreements; and
 
  •  economic downturns, political instability and war or civil disturbances may disrupt production and distribution logistics or limit sales in individual markets.
 
Banana imports from Latin America are subject to a tariff of 176 euros per metric ton for entry into the European Union, or EU, market. Under the EU’s previous banana regime, banana imports from Latin America were subject to a tariff of 75 euros per metric ton and were also subject to both import license requirements and volume quotas. These license requirements and volume quotas had the effect of limiting access to the EU banana market. A change in the applicable tariff and the volume restrictions applicable to Latin American bananas may increase volatility in the market, which could materially adversely affect our business, results of operations or financial condition. The EU and Latin American banana producing countries have announced an agreement, pending ratification in Europe, that would reduce the tariff over time. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Other Matters.”
 
In 2005, we received a tax assessment from Honduras of approximately $137 million (including the claimed tax, penalty, and interest through the date of assessment) relating to the disposition of all of our interest in Cervecería Hondureña, S.A. in 2001. We have been contesting the tax assessment. See Note 18 to our Consolidated Financial Statements.
 
We may be required to pay significant penalties under European antitrust laws.
 
The European Commission, or EC, issued a decision imposing a €45.6 million fine against Dole and its German subsidiary, or the Decision, on October 15, 2008. On December 24, 2008, we appealed the Decision by filing an Application for Annulment, or Application, with the European Court of First Instance, or CFI.
 
On December 3, 2008, the EC agreed in writing that if Dole made an initial payment of $10 million (€7.6 million) to the EC on or before January 22, 2009, then the EC would stay the deadline for a provisional payment, or coverage by a prime bank guaranty, of the remaining balance (plus interest as from January 22, 2009), until April 30, 2009. Dole made this initial $10 million payment on January 21, 2009, and Dole provided the required bank guaranty for the remaining balance of the fine to the EC by the deadline of April 30, 2009.
 
We believe that we have not violated the European competition laws and that our Application has substantial legal merit, both for an annulment of the Decision and fine in their entirety, or for a substantial reduction of the fine, but no assurances can be given that we will be successful on appeal. Furthermore, the ultimate resolution of these items could materially impact our liquidity. We cannot predict the timing or outcome of our appeal of the EC’s Decision. See Note 18 to our Consolidated Financial Statements.
 
The current global economic downturn could result in a decrease in our sales and revenue, which could adversely affect the results of our operations, and we cannot predict the extent or duration of these trends.
 
As a result of the current global economic downturn, consumers may continue to reduce their purchases and seek value pricing, which may continue to affect sales and pricing of some of our products. Such trends could


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adversely affect the results of our operations and there can be no assurance whether or when consumer confidence will return or that these trends will not increase.
 
Global capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt the operations of our suppliers and customers.
 
The global capital and credit markets have experienced increased volatility and disruption over the past year, making it more difficult for companies to access those markets. We depend in part on stable, liquid and well-functioning capital and credit markets to fund our operations. Although we believe that our operating cash flows, access to capital and credit markets and existing revolving credit agreement will permit us to meet our financing needs for the foreseeable future, there can be no assurance that continued or increased volatility and disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. Our business could also be negatively impacted if our suppliers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.
 
The current global economic downturn may have other impacts on participants in our industry, which cannot be fully predicted.
 
The full impact of the current global economic downturn on customers, vendors and other business partners cannot be anticipated. For example, major customers or vendors may have financial challenges unrelated to us that could result in a decrease in their business with us or, in extreme cases, cause them to file for bankruptcy protection. Similarly, parties to contracts may be forced to breach their obligations under those contracts. Although we exercise prudent oversight of the credit ratings and financial strength of our major business partners and seek to diversify our risk to any single business partner, there can be no assurance that there will not be a bank, insurance company, supplier, customer or other financial partner that is unable to meet its contractual commitments to us. Similarly, stresses and pressures in the industry may result in impacts on our business partners and competitors which could have wide ranging impacts on the future of the industry.
 
Terrorism and the uncertainty of war may have a material adverse effect on our operating results.
 
Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, the subsequent response by the United States in Afghanistan, Iraq and other locations, and other acts of violence or war in the United States or abroad may affect the markets in which we operate and our operations and profitability. From time to time in the past, our operations or personnel have been the targets of terrorist or criminal attacks, and the risk of such attacks impacts our operations and results in increased security costs. Further terrorist attacks against the United States or operators of United States-owned businesses outside the United States may occur, or hostilities could develop based on the current international situation. The potential near-term and long-term effect these attacks may have on our business operations, our customers, the markets for our products, the United States economy and the economies of other places we source or sell our products is uncertain. The consequences of any terrorist attacks, or any armed conflicts, are unpredictable, and we may not be able to foresee events that could have an adverse effect on our markets or our business.
 
Our worldwide operations and products are highly regulated in the areas of food safety and protection of human health and the environment.
 
Our worldwide operations are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including laws and regulations governing the use and disposal of pesticides and other chemicals. These regulations directly affect day-to-day operations, and violations of these laws and regulations can result in substantial fines or penalties. There can be no assurance that these fines or penalties would not have a material adverse effect on our business, results of operations and financial condition. To maintain compliance with all of the laws and regulations that apply to our operations, we have been and may be required in the future to modify our operations, purchase new equipment or make capital improvements. Further, we may recall a product (voluntarily or otherwise) if we or the regulators believe it presents a potential risk. In addition, we have been and in the future may become subject to lawsuits alleging that our operations and products caused personal injury or property damage.


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We are subject to the risk of product contamination and product liability claims.
 
The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation phases. We have from time to time been involved in product liability lawsuits, none of which were material to our business. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. For example, in the fall of 2006, a third party from whom we and others had purchased spinach recalled certain packaged fresh spinach due to contamination by E. coli O157:H7. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability insurance, however, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage.
 
We are subject to transportation risks.
 
An extended interruption in our ability to ship our products could have a material adverse effect on our business, financial condition and results of operations. Similarly, any extended disruption in the distribution of our products could have a material adverse effect on our business, financial condition and results of operations. While we believe we are adequately insured and would attempt to transport our products by alternative means if we were to experience an interruption due to strike, natural disasters or otherwise, we cannot be sure that we would be able to do so or be successful in doing so in a timely and cost-effective manner.
 
Events or rumors relating to the DOLE brand could significantly impact our business.
 
Consumer and institutional recognition of the DOLE trademarks and related brands and the association of these brands with high quality and safe food products are an integral part of our business. The occurrence of any events or rumors that cause consumers and/or institutions to no longer associate these brands with high quality and safe food products may materially adversely affect the value of the DOLE brand name and demand for our products. We have licensed the DOLE brand name to several affiliated and unaffiliated companies for use in the United States and abroad. Acts or omissions by these companies over which we have no control may also have such adverse effects.
 
A portion of our workforce is unionized and labor disruptions could decrease our profitability.
 
As of January 2, 2010, approximately 36% of our employees worldwide worked under various collective bargaining agreements. We cannot give assurance that we will be able to negotiate these or other collective bargaining agreements on the same or more favorable terms as the current agreements, or at all, and without production interruptions, including labor stoppages. A prolonged labor dispute, which could include a work stoppage, could have a material adverse effect on the portion of our business affected by the dispute, which could impact our business, results of operations and financial condition.
 
Risks Relating to Our Indebtedness
 
Our substantial indebtedness could adversely affect our operations, including our ability to perform our obligations under our debt obligations.
 
We have a substantial amount of indebtedness. As of January 2, 2010, we had approximately $1.3 billion in senior secured indebtedness, $225 million in senior unsecured indebtedness, including outstanding senior notes and debentures, approximately $65 million in capital leases and approximately $47 million in unsecured notes payable and other indebtedness.


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Our substantial indebtedness could have important consequences. For example, our substantial indebtedness may:
 
  •  make it more difficult for us to satisfy our obligations;
 
  •  limit our ability to borrow additional amounts in the future for working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy or other purposes or make such financing more costly;
 
  •  result in a triggering of customary cross-default and cross-acceleration provisions with respect to certain of our debt obligations if an event of default or acceleration occurs under one of our other debt obligations;
 
  •  require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of our cash flow to fund future working capital, capital expenditures, acquisitions and other general corporate purposes.
 
  •  expose us to the risk of increased interest rates, as certain of our borrowings are at variable rates of interest;
 
  •  require us to sell assets (beyond those assets currently classified as “assets held-for-sale”) to reduce indebtedness or influence our decisions about whether to do so;
 
  •  increase our vulnerability to competitive pressures and to general adverse economic and industry conditions, including fluctuations in market interest rates or a downturn in our business;
 
  •  limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
 
  •  restrict us from making strategic acquisitions or pursuing business opportunities;
 
  •  place us at a disadvantage compared to our competitors that have relatively less indebtedness; and
 
  •  limit, along with the restrictive covenants in our credit facilities and senior note indentures, among other things, our ability to borrow additional funds. Failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations.
 
We may be unable to generate sufficient cash flow to service our debt obligations.
 
To service our debt, we require a significant amount of cash. Our ability to generate cash, make scheduled payments or refinance our obligations depends on our successful financial and operating performance. Our financial and operating performance, cash flow and capital resources depend upon prevailing economic conditions and various financial, business and other factors, many of which are beyond our control. These factors include among others:
 
  •  economic and competitive conditions;
 
  •  changes in laws and regulations;
 
  •  operating difficulties, increased operating costs or pricing pressures we may experience; and
 
  •  delays in implementing any strategic projects.
 
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. If we are required to take any actions referred to above, it could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot give assurance that we would be able to take any of these actions on terms acceptable to us, or at all, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt agreements, in any of which events the default and cross-default risks set forth in the risk factor below titled “Restrictive covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely restrict our financial and operating flexibility and subject us to other risks” would become relevant.


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Despite our current indebtedness levels and the restrictive covenants set forth in agreements governing our indebtedness, we and our subsidiaries may still incur significant additional indebtedness, including secured indebtedness. Incurring more indebtedness could increase the risks associated with our substantial indebtedness.
 
Subject to the restrictions in our senior secured credit facilities and the indentures governing our 8.75% debentures due 2013, or 2013 Debentures, our 13.875% senior secured notes due 2014, or 2014 Notes and our 8% senior secured notes due 2016, or 2016 Notes, we and certain of our subsidiaries may incur significant additional indebtedness, including additional secured indebtedness. Although the terms of our senior secured credit facilities and the indentures governing our 2013 Debentures, our 2014 Notes and our 2016 Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be significant. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we now face could increase.
 
Restrictive covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely restrict our financial and operating flexibility and subject us to other risks.
 
The indentures governing our 2013 Debentures, our 2014 Notes, our 2016 Notes and our senior secured credit facilities, contain various restrictive covenants that limit our and our subsidiaries’ ability to take certain actions. In particular, these agreements limit our and our subsidiaries’ ability to, among other things:
 
  •  incur additional indebtedness;
 
  •  make restricted payments (including paying dividends on, redeeming or repurchasing our capital stock);
 
  •  issue preferred stock of subsidiaries;
 
  •  make certain investments or acquisitions;
 
  •  create liens on our assets to secure debt;
 
  •  engage in certain types of transactions with affiliates;
 
  •  place restrictions on the ability of restricted subsidiaries to make payments to us;
 
  •  merge, consolidate or transfer substantially all of our assets; and
 
  •  transfer and sell assets.
 
Any or all of these covenants could have a material adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities and to fund our operations. Any future debt could also contain financial and other covenants more restrictive than those imposed under our senior secured credit facilities and the indentures governing our debt securities.
 
A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to customary cross-default and cross-acceleration provisions, could result in a default under our other debt instruments. Upon the occurrence of an event of default under the senior secured credit facilities or some of our other debt instruments, lenders representing more than 50% of our senior secured term credit facility or more than 50% of our senior secured revolving credit facility, or any indenture trustee or holders of at least 25% of any series of our debt securities could elect to declare all amounts outstanding to be immediately due and payable and, with respect to the revolving credit and letter of credit components of our senior secured credit facilities, terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them, if any, to secure the indebtedness. If the lenders under our current or future indebtedness were to so accelerate the payment of the indebtedness, we cannot give assurance that our assets would be sufficiently liquid to repay in full our outstanding indebtedness on an accelerated basis.


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Some of our debt, including the borrowings under our senior secured credit facilities, is based on variable rates of interest, which could result in higher interest expenses in the event of an increase in interest rates.
 
As of January 2, 2010, approximately $800 million, or 50% of our total indebtedness, was subject to variable interest rates. If we borrow additional amounts under the revolving portion of our senior secured credit facilities, the interest rates on those borrowings may vary depending on the base rate or Eurodollar Rate (LIBOR). A 1% increase in the weighted average interest rates on our variable rate debt outstanding as of January 2, 2010, would result in higher interest expense of approximately $8 million per year.
 
Risks Relating to Our Common Stock
 
We are a “controlled company,” controlled by David H. Murdock, whose interests in our business may be different from yours.
 
David H. Murdock and his affiliates own 51,710,000 shares, or approximately 58.6%, of our outstanding common stock. Mr. Murdock and his affiliates will, for the foreseeable future, have significant influence over our management and affairs. He and his controlled companies are able, subject to applicable law, to elect all of the members of our Board of Directors and control actions to be taken by us and our Board of Directors, including amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. The directors so elected will have the authority, subject to the terms of our indebtedness and the rules and regulations of the NYSE, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. It is possible that the interests of Mr. Murdock may in some circumstances conflict with our interests and the interests of our other stockholders.
 
The value of our common stock could be volatile.
 
The overall market and the price of our common stock may fluctuate greatly. The trading price of our common stock may be significantly affected by various factors, including:
 
  •  quarterly fluctuations in our operating results;
 
  •  changes in investors’ and analysts’ perception of the business risks and conditions of our business;
 
  •  our ability to meet the earnings estimates and other performance expectations of financial analysts or investors;
 
  •  unfavorable commentary or downgrades of our stock by equity research analysts;
 
  •  termination of lock-up agreements or other restrictions on the ability of Mr. Murdock to sell his shares;
 
  •  fluctuations in the stock prices of our peer companies or in stock markets in general; and
 
  •  general economic or political conditions.
 
Our charter documents contain provisions that may delay, defer or prevent a change of control.
 
Provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to stockholders. These provisions include the following:
 
  •  division of our Board of Directors into three classes, with each class serving a staggered three-year term;
 
  •  removal of directors by stockholders by a supermajority of two-thirds of the outstanding shares;
 
  •  ability of the Board of Directors to authorize the issuance of preferred stock in series without stockholder approval;
 
  •  advance notice requirements for stockholder proposals and nominations for election to the Board of Directors; and
 
  •  prohibitions on our stockholders from acting by written consent and limitations on calling special meetings.


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Future sales of our common stock may lower our stock price.
 
If Mr. Murdock were to sell a large number of shares of our common stock, the market price of our common stock could decline significantly. In addition, the perception in the public market that Mr. Murdock might sell shares of common stock could depress the market price of our common stock, regardless of his actual plans. In connection with a trust transaction that occurred at the time of our initial public offering, an affiliate of Mr. Murdock agreed to sell to the trust 24,000,000 shares of our common stock deliverable upon exchange of the trust’s securities. Although the affiliate has the option to settle its obligation to the trust in cash, all such shares could be delivered upon exchange of the trust’s securities beginning on November 1, 2012. Any such shares delivered upon exchange will be freely tradable under the Securities Act. All 51,710,000 shares of common stock beneficially owned by Mr. Murdock are subject to a lock-up agreement restricting the sale of those shares, which expires on April 19, 2010, subject to a potential automatic short extension, although Goldman, Sachs & Co. may waive this restriction and allow him to sell shares at any time.
 
Following our October 2009 initial public offering, we registered 6,000,000 shares of common stock that were reserved for issuance under our 2009 Stock Incentive Plan. These shares can be sold in the public market upon issuance, subject to restrictions under the securities laws applicable to resales by affiliates.
 
We do not anticipate paying any dividends for the foreseeable future.
 
We do not anticipate paying any dividends to our stockholders for the foreseeable future. The agreements governing our indebtedness also restrict our ability to pay dividends. Accordingly, stockholders may have to sell some or all of their common stock in order to generate cash flow from their investment. Stockholders may not receive a gain on their investment when they sell our common stock and may lose some or all of the amount of their investment. Any determination to pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.
 
Item 1B.   Unresolved Staff Comments
 
None.
 
Item 2.   Properties
 
The following is a description of our significant properties.
 
North America
 
We own our executive office facility in Westlake Village, California, and lease a divisional office in Monterey, California.
 
Our Hawaii operations are located on the island of Oahu and total approximately 26,000 acres, which we own. Of the total acres owned, we farm pineapples on 2,700 acres and coffee and cacao on an additional 195 acres. The remaining acres are leased or are in pastures and forest reserves. As of January 2, 2010, approximately 8,600 acres were classified as assets held-for-sale. Other Hawaii land parcels are currently under evaluation for potential sale.
 
We own approximately 200 acres of farmland in California, and lease approximately 11,400 acres of farmland in California and 3,500 acres in Arizona in connection with our vegetable and berry operations. The majority of this acreage is farmed under joint growing arrangements with independent growers, while we farm the remainder. We own cooling, packing and shipping facilities in Marina, Gonzales and Huron, California. Additionally, we have partnership interests in facilities in Yuma, Arizona and Salinas, California, and leases in facilities in the following California cities: Oxnard, Monterey and Watsonville. We own and operate state-of-the-art, packaged salad and vegetable plants in Yuma, Arizona, Soledad, California, Springfield, Ohio and Bessemer City, North Carolina.
 
We own approximately 2,600 acres of peach orchards in California of which we farm 1,200 acres. At January 2, 2010, approximately 400 acres were classified as assets held-for-sale. We also own and operate a plant in


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Atwater, California that produces individually quick frozen fruit, and lease a production facility located in Decatur, Michigan.
 
Latin America
 
We own offices in San Jose, Costa Rica, and La Ceiba, Honduras. We also lease offices in Chile, Costa Rica, Ecuador and Guatemala.
 
We produce bananas directly from owned plantations in Costa Rica, Ecuador and Honduras as well as through associated producers or independent growing arrangements in those countries and others, including Guatemala and Colombia. We own approximately 31,500 acres in Costa Rica, 3,900 acres in Ecuador and 26,000 acres in Honduras, all related to banana production, although some of the acreage is not presently under production.
 
We own approximately 8,500 acres of land in Honduras, 7,300 acres of land in Costa Rica and 3,000 acres of land in Ecuador, all related to pineapple production, although some of the acreage is not presently under production. We also own a juice concentrate plant in Honduras for pineapple. Pineapple is grown primarily for the fresh produce market.
 
We grow grapes, stone fruit, kiwi and pears on approximately 600 acres leased by us in Chile. We own or operate 10 packing and cold storage facilities in Chile, and one in Argentina. In addition, we operate a fresh-cut salad plant and a small local fruit distribution company in Chile.
 
We indirectly own 35% of Bananapuerto, an Ecuadorian port, and operate the port pursuant to a port services agreement signed in 2002, the term of which is up to 30 years.
 
Dole Latin America operates a fleet of seven refrigerated container ships, of which four are owned, two are under long-term capital leases and one is long-term chartered. In addition, Dole Latin America operates a fleet of 18 breakbulk refrigerated ships, of which seven are owned and eleven are long-term chartered. We also cover part of our requirements under contracts with existing liner services and occasionally charter vessels for short periods on a time or voyage basis as and when required. We own or lease approximately 14,800 refrigerated containers, 1,700 dry containers, 6,000 chassis and 4,500 generator sets worldwide.
 
Asia
 
We operate a pineapple plantation of approximately 37,400 leased acres in the Philippines. Approximately 19,300 acres of the plantation are leased to us by a cooperative of our employees that acquired the land pursuant to agrarian reform law. The remaining 18,100 acres are leased from individual land owners. Two multi-fruit canneries, a blast freezer, cold storage, a juice concentrate plant, a box forming plant, a can and drum manufacturing plant, warehouses, wharf and a fresh fruit packing plant, each owned by us, are located at or near the pineapple plantation.
 
We own and operate a tropical fruit cannery and a multi-fruit processing factory in central Thailand and a second tropical fruit cannery in southern Thailand. Dole also grows pineapple in Thailand on approximately 3,800 acres of owned land, not all of which are currently under cultivation.
 
We produce bananas and papaya from 29,600 acres of leased land in the Philippines and also source these products through associated producers or independent growing arrangements in the Philippines. A plastic extruding plant and a box forming plant, both owned by us, are located near the banana plantations. We also operate banana ripening and distribution centers in Hong Kong, South Korea, Taiwan, China, the Philippines and New Zealand.
 
Bananas are also grown on 1,000 acres of leased land in Australia.
 
Additionally, we source products from over 1,100 Japanese farmers through independent growing arrangements.
 
Europe
 
We maintain our European headquarters in Paris, France and have major regional offices in Antwerp, Belgium, Prague, Czech Republic, Hamburg, Germany, Lübeck, Germany, Milan, Italy, Madrid, Spain, Athens, Greece, Helsingborg, Sweden and Cape Town, South Africa, which are leased from third parties.


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We operate and own one banana ripening, produce distribution center in Sweden, two banana ripening and produce distribution facilities in Spain, two in Germany, one in Turkey and one in Italy. We also operate and lease two banana ripening, produce and flower distribution centers in Sweden, four banana ripening and produce distribution facilities in Spain, one in Portugal, three in Italy, one in Belgium, two in Austria, two in Germany, and two in Romania. We have a minority interest in a French company, Compagnie Fruitière, that owns a majority interest in banana and pineapple plantations in Cameroon, Ghana and the Ivory Coast. During the fourth quarter of 2008, Compagnie Fruitière acquired our JP Fresh and Dole France subsidiaries which companies operate banana ripening and distribution facilities in the United Kingdom and France, respectively.
 
In addition, we own Saba Fresh Cuts AB, which owns and operates a state-of-the-art, packaged salad and vegetable plant in Helsingborg, Sweden.
 
Item 3.   Legal Proceedings
 
Dole is involved from time to time in claims and legal actions incidental to its operations, both as plaintiff and defendant. Dole has established what management currently believes to be adequate reserves for pending legal matters. These reserves are established as part of an ongoing worldwide assessment of claims and legal actions that takes into consideration such items as changes in the pending case load (including resolved and new matters), opinions of legal counsel, individual developments in court proceedings, changes in the law, changes in business focus, changes in the litigation environment, changes in opponent strategy and tactics, new developments as a result of ongoing discovery, and past experience in defending and settling similar claims. In the opinion of management, after consultation with outside counsel, the claims or actions to which Dole is a party are not expected to have a material adverse effect, individually or in the aggregate, on Dole’s financial condition or results of operations.
 
DBCP Cases:  A significant portion of Dole’s legal exposure relates to lawsuits pending in the United States and in several foreign countries, alleging injury as a result of exposure to the agricultural chemical DBCP (1,2-dibromo-3-chloropropane). DBCP was manufactured by several chemical companies including entities of the Dow Chemical Company and Royal Dutch Shell plc and registered by the U.S. government for use on food crops. Dole and other growers applied DBCP on banana farms in Latin America and the Philippines and on pineapple farms in Hawaii. Specific periods of use varied among the different locations. Dole halted all purchases of DBCP, including for use in foreign countries, when the U.S. EPA cancelled the registration of DBCP for use in the United States in 1979. That cancellation was based in part on a 1977 study by a manufacturer which indicated an apparent link between male sterility and exposure to DBCP among factory workers producing the product, as well as early product testing done by the manufacturers showing testicular effects on animals exposed to DBCP. To date, there is no reliable evidence demonstrating that field application of DBCP led to sterility among farm workers, although that claim is made in the pending lawsuits. Nor is there any reliable scientific evidence that DBCP causes any other injuries in humans, although plaintiffs in the various actions assert claims based on cancer, birth defects and other general illnesses.
 
Currently there are 226 lawsuits, in various stages of proceedings, alleging injury as a result of exposure to DBCP or seeking enforcement of Nicaragua judgments. In addition, there are 72 labor cases pending in Costa Rica under that country’s national insurance program.
 
Thirteen of the 226 lawsuits are currently pending in various jurisdictions in the United States, including two cases pending in Los Angeles now consolidated from 14 cases previously. One case pending in Los Angeles Superior Court with 12 Nicaraguan plaintiffs initially resulted in verdicts which totaled approximately $5 million in damages against Dole in favor of six of the plaintiffs. As a result of the court’s March 7, 2008 favorable rulings on Dole’s post-verdict motions, including, importantly, the court’s decision striking down punitive damages in the case on U.S. Constitutional grounds, the damages against Dole have now been reduced to $1.58 million in total compensatory awards to four of the plaintiffs; and the court granted Dole’s motion for a new trial as to the claims of one of the plaintiffs. On July 7, 2009, the California Second District Court of Appeals issued an order to show cause why this $1.58 million judgment should not be vacated and judgment be entered in defendants’ favor on the grounds that the judgment was procured through fraud. Plaintiffs were to provide their response to the order to show cause to the trial court within 30 days of the issuance of the order. In that order, the Court of Appeals stated that the trial court need not hold an evidentiary hearing to decide whether the judgment was procured by fraud, but instead can rely on


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the record that was presented in support of Dole’s request to have the case sent back to the trial court. Since the Court of Appeal’s order, the four plaintiffs who prevailed against Dole, and the one as to whom a new trial was granted, responded to the Court’s order to show cause. They moved to dismiss Dole’s petition to set aside the judgment based on fraud, which motion was denied. On March 19, 2010, the Court has set a hearing for May 10, 2010 on Dole’s petition to set aside the judgment based on fraud.
 
The remaining lawsuits are pending in Latin America and the Philippines. Claimed damages in DBCP cases worldwide total approximately $44.4 billion, with lawsuits in Nicaragua representing approximately 88% of this amount. Typically in these cases Dole is a joint defendant with the major DBCP manufacturers. Except as described below, none of these lawsuits has resulted in a verdict or judgment against Dole.
 
In Nicaragua, 197 cases are currently filed (of which 20 are active) in various courts throughout the country, all but one of which were brought pursuant to Law 364, an October 2000 Nicaraguan statute that contains substantive and procedural provisions that Nicaragua’s Attorney General formally opined are unconstitutional. In October 2003, the Supreme Court of Nicaragua issued an advisory opinion, not connected with any litigation, that Law 364 is constitutional. Thirty-two cases have resulted in judgments in Nicaragua: $489.4 million (nine cases consolidated with 468 claimants) on December 11, 2002; $82.9 million (one case with 58 claimants) on February 25, 2004; $15.7 million (one case with 20 claimants) on May 25, 2004; $4 million (one case with four claimants) on May 25, 2004; $56.5 million (one case with 72 claimants) on June 14, 2004; $64.8 million (one case with 86 claimants) on June 15, 2004; $27.7 million (one case with 39 claimants) on March 17, 2005; $98.5 million (one case with 150 claimants) on August 8, 2005; $46.4 million (one case with 62 claimants) on August 20, 2005; $809 million (six cases consolidated with 1,248 claimants) on December 1, 2006; $38.4 million (one case with 192 claimants) on November 14, 2007; and $357.7 million (eight cases with 417 claimants) on January 12, 2009, which Dole learned of unofficially. Except for the latest one, Dole has appealed all judgments, with Dole’s appeal of the August 8, 2005 $98.5 million judgment and of the December 1, 2006 $809 million judgment currently pending before the Nicaragua Court of Appeal. Dole will appeal the $357.7 million judgment once it has been served.
 
Of the 20 active cases currently pending in civil courts in Nicaragua, all have been brought under Law 364 except for one. In all of the active cases where the proceeding has reached the appropriate stage (7 of 20 cases), Dole has sought to have the cases returned to the United States. In three of the cases where Dole has sought return to the United States, the courts have denied Dole’s request and Dole has appealed that decision. Dole’s requests remain pending in the other four cases.
 
The claimants’ attempted enforcement of the December 11, 2002 judgment for $489.4 million in the United States resulted in a dismissal with prejudice of that action by the United States District Court for the Central District of California on October 20, 2003. The claimants have voluntarily dismissed their appeal of that decision, which was pending before the United States Court of Appeals for the Ninth Circuit. Defendants’ motion for sanctions against plaintiffs’ counsel is still pending before the Court of Appeals in that case. A Special Master appointed by the Court of Appeals has recommended that plaintiffs’ counsel be ordered to pay defendants’ fees and costs up to $130,000 each to Dole and the other two defendants; and following such recommendation, the Court of Appeals has appointed a special prosecutor. The Court held oral argument on the recommendation of the special prosecutor and a follow up hearing on such recommendation was held on October 15, 2009.
 
Claimants have also sought to enforce the Nicaraguan judgments in Colombia, Ecuador and Venezuela. In Venezuela, the claimants have attempted to enforce five of the Nicaraguan judgments in that country’s Supreme Court: $489.4 million (December 11, 2002); $82.9 million (February 25, 2004); $15.7 million (May 25, 2004); $56.5 million (June 14, 2004); and $64.8 million (June 15, 2004). The Venezuela Supreme Court has dismissed three of these enforcement actions, the one for $15.7 million, one for $56.5 million and one for $82.9 million, because plaintiffs failed to properly serve the defendants. An action filed to enforce the $27.7 million Nicaraguan judgment (March 17, 2005) in the Colombian Supreme Court was dismissed. In Ecuador, the claimants attempted to enforce the five Nicaraguan judgments issued between February 25, 2004 through June 15, 2004 in the Ecuador Supreme Court. The First, Second and Third Chambers of the Ecuador Supreme Court issued rulings refusing to consider those enforcement actions on the ground that the Supreme Court was not a court of competent jurisdiction for enforcement of a foreign judgment. The plaintiffs subsequently refiled those five enforcement actions in the civil court in Guayaquil, Ecuador. Two of these subsequently filed enforcement actions have been dismissed by the


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3rd Civil Court — $15.7 million (May 25, 2004) — and the 12th Civil Court — $56.5 million (June 14, 2004) — in Guayaquil; plaintiffs have sought reconsideration of those dismissals. The remaining three enforcement actions are still pending.
 
Dole believes that none of the Nicaraguan judgments will be enforceable against any Dole entity in the U.S. or in any other country, because Nicaragua’s Law 364 is unconstitutional and violates international principles of due process. Among other things, Law 364 is an improper “special law” directed at particular parties; it requires defendants to pay large, non-refundable deposits in order to even participate in the litigation; it provides a severely truncated procedural process; it establishes an irrebuttable presumption of causation that is contrary to the evidence and scientific data; and it sets unreasonable minimum damages that must be awarded in every case. As previously disclosed, on October 20, 2009, the United States District Court for the Southern District of Florida issued an order denying recognition and enforcement of the $98.5 million Nicaragua judgment against Dole and another U.S. company. That order cited separate and independent grounds for non-recognition: the Nicaragua trial court did not have jurisdiction over the defendant companies; the judgment did not arise out of proceedings that comported with the international concept of due process; the judgment was rendered under a system which does not provide impartial tribunal or procedures compatible with the requirements of due process of law; and the cause of action or claim for relief on which the judgment is based is repugnant to the public policy of Florida. Final judgment in favor of Dole (and the other defendant companies) was entered November 10, 2009, and the Court ordered the case closed.
 
On October 23, 2006, Dole announced that Standard Fruit de Honduras, S.A. reached an agreement with the Government of Honduras and representatives of Honduran banana workers. This agreement establishes a Worker Program that is intended by the parties to resolve in a fair and equitable manner the claims of male banana workers alleging sterility as a result of exposure to DBCP. The Honduran Worker Program will not have a material effect on Dole’s financial condition or results of operations. The official start of the Honduran Worker Program was announced on January 8, 2007. On August 15, 2007, Shell Oil Company was included in the Worker Program.
 
As to all the DBCP matters, Dole has denied liability and asserted substantial defenses. While Dole believes there is no reliable scientific basis for alleged injuries from the agricultural field application of DBCP, Dole continues to seek reasonable resolution of pending litigation and claims in the U.S. and Latin America. For example, as in Honduras, Dole is committed to finding a prompt resolution to the DBCP claims in Nicaragua, and is prepared to pursue a structured worker program in Nicaragua with science- based criteria. Los Angeles Superior Court Judge Chaney had previously appointed a mediator to explore possible settlement of all DBCP cases currently pending before the court.
 
Although no assurance can be given concerning the outcome of the DBCP cases, in the opinion of management, after consultation with legal counsel and based on past experience defending and settling DBCP claims, the pending lawsuits are not expected to have a material adverse effect on Dole’s financial condition or results of operations.
 
European Union Antitrust Inquiries — Northern and Southern Europe:
 
Northern Europe
 
On October 15, 2008, the European Commission (“EC”) adopted a Decision against Dole Food Company, Inc. and Dole Fresh Fruit Europe OHG (collectively “Dole”) and against other unrelated banana companies, finding violations of the European competition (antitrust) laws. The Decision imposes €45.6 million in fines on Dole.
 
The Decision follows a Statement of Objections, issued by the EC on July 25, 2007, and searches carried out by the EC in June 2005 at certain banana importers and distributors, including two of Dole’s offices.
 
Dole received the Decision on October 21, 2008 and appealed the Decision to the European Court of First Instance in Luxembourg on December 24, 2008.
 
Dole made an initial $10 million (€7.6 million) provisional payment towards the €45.6 million fine on January 22, 2009. As agreed with the European Commission (DG Budget), Dole provided the required bank guaranty for the remaining balance of the fine to the EC by the deadline of April 30, 2009. The bank guaranty renews annually during the appeals process (which may take several years) and carries interest of 6.15% (accrued


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from January 23, 2009). If the European Court of First Instance fully agrees with Dole’s arguments presented in its appeal, Dole will be entitled to the return of all monies paid, plus interest.
 
Although no assurances can be given, and although there could be a material adverse effect on Dole, Dole believes that it has not violated the European competition laws. No accrual for the Decision has been made in the accompanying consolidated financial statements, since Dole cannot determine at this time the amount of probable loss, if any, incurred as a result of the Decision.
 
Southern Europe
 
On November 28 and 29, 2007, the EC conducted searches of Dole offices in Italy and Spain, as well as of other companies’ offices located in these countries. Throughout the EC’s investigation, Dole cooperated with the EC in its inquiries, while maintaining that Dole had not violated European competition law. In December 2009, the EC issued a Statement of Objections to a number of companies active in the import and marketing of bananas in Southern Europe. No Dole entities were addressees of this Statement of Objections.
 
Honduran Tax Case:  In 2005, Dole received a tax assessment from Honduras of approximately $137 million (including the claimed tax, penalty, and interest through the date of assessment) relating to the disposition of all of our interest in Cervecería Hondureña, S.A in 2001. Dole believes the assessment is without merit and filed an appeal with the Honduran tax authorities, which was denied. As a result of the denial in the administrative process, in order to negate the tax assessment, on August 5, 2005, Dole proceeded to the next stage of the appellate process by filing a lawsuit against the Honduran government in the Honduran Administrative Tax Trial Court. The Honduran government sought dismissal of the lawsuit and attachment of assets, which Dole challenged. The Honduran Supreme Court affirmed the decision of the Honduran intermediate appellate court that a statutory prerequisite to challenging the tax assessment on the merits is the payment of the tax assessment or the filing of a payment plan with the Honduran courts; Dole has challenged the constitutionality of the statute requiring such payment or payment plan. Although no assurance can be given concerning the outcome of this case, in the opinion of management, after consultation with legal counsel, the pending lawsuits and tax-related matters are not expected to have a material adverse effect on Dole’s financial condition or results of operations.
 
Item 4.   Reserved
 
PART II
 
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Dole’s common stock is listed and traded on the New York Stock Exchange under the ticker symbol “DOLE.” As of March 15, 2010, there were 73 registered stockholders of Dole’s common stock. Dole completed an initial public offering of 35.7 million common shares on October 28, 2009. Dole’s common stock began trading on the New York Stock Exchange on October 23, 2009. The following table shows the high and low reported closing price per share of Dole’s common stock on the New York Stock Exchange from October 23, 2009 through the end of fiscal year 2009.
 
                 
2009
  High   Low
 
October 23, 2009 through January 2, 2010
  $ 12.50     $ 11.37  
 
Additional information required by Item 5 is contained in Note 13 — Shareholders’ Equity, to Dole’s Consolidated Financial Statements in this Form 10-K.


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Performance Graph
 
The graph below matches the cumulative total return of holders of Dole Food Company, Inc.’s common stock with the cumulative total returns of the S&P 500 index and the S&P 500 Food Products index. The graph assumes that the value of the investment in Dole’s common stock and in each of the indexes (including reinvestment of dividends) was $100 on October 31, 2009 (the end of the month in which Dole’s initial public offering occurred) and tracks it through January 2, 2010 (the end of Dole’s fiscal year).
 
(PERFORMANCE GRAPH)
 
                               
      10/31/09       11/30/09       1/02/10  
Dole Food Company, Inc. 
      100.00         97.87         105.71  
S&P 500
      100.00         105.74         107.62  
S&P 500 Food Products
      100.00         101.51         103.76  
                               
 
The stock price performance included in this graph is not necessarily indicative of future stock price performance.


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Item 6.   Selected Financial Data
 
                                         
    Year
    Year
    Year
    Year
    Year
 
    Ended
    Ended
    Ended
    Ended
    Ended
 
    January 2,
    January 3,
    December 29,
    December 30,
    December 31,
 
    2010     2009     2007     2006     2005  
          (In millions except per share data)        
 
Summary of Operations
                                       
Revenues, net
  $ 6,779 (1)   $ 7,620 (1)   $ 6,821     $ 5,991     $ 5,638  
Operating income
    352       275       149       136       229  
Income (loss) from continuing operations, net of income taxes
    85       147       (38 )     (40 )     48  
Income (loss) from discontinued operations, net of income taxes
    2       (27 )     (16 )     (50 )     (1 )
Gain on disposal of discontinued operations, net of income taxes
    1       3             3        
Net income (loss)
    88       123       (54 )     (87 )     47  
Less: Net income attributable to noncontrolling interests
    (4 )     (2 )     (3 )     (3 )     (3 )
Net income (loss) attributable to Dole Food Company, Inc. 
    84       121       (57 )     (90 )     44  
Average common shares outstanding — Basic
    59       52       52       52       52  
Average common shares outstanding — Diluted
    59       52       52       52       52  
Per Share Data
                                       
Income (loss) from continuing operations — Basic
  $ 1.45     $ 2.84     $ (0.75 )   $ (0.75 )   $ 0.93  
Income (loss) from continuing operations — Diluted
  $ 1.45     $ 2.84     $ (0.75 )   $ (0.75 )   $ 0.93  
Balance Sheet and Other Information
                                       
Working capital (current assets less current liabilities)
  $ 777     $ 531     $ 694     $ 688     $ 538  
Total assets
    4,107       4,365       4,643       4,612       4,413  
Long-term debt
    1,553       1,799       2,316       2,316       2,001  
Total debt
    1,598       2,204       2,411       2,364       2,027  
Total shareholders’ equity
    866       433       355       366       644  
Cash dividends declared and paid to parent
    15                   164       77  
Proceeds from sales of assets and businesses, net
    185 (2)     226       42       31       19  
Capital additions from continuing operations
    51       74       104       115       141  
Depreciation and amortization from continuing operations
    120       138       151       144       144  
 
 
Note: Discontinued operations for the periods presented relate to the reclassification of the fresh-cut flowers and North American citrus and pistachio operations to discontinued operations during 2008 and 2007, respectively, the sale of the Pacific Coast Truck operations during 2006 and the resolution during 2005 of a contingency related to the 2001 disposition of Dole’s interest in Cerveceria Hondureña, S.A.
 
Dole completed a $446 million initial public offering of 35.7 million common shares on October 28, 2009. Dole received net proceeds of $415 million, reflecting $31 million of underwriting discount and offering expenses, and used the net proceeds to pay down indebtedness. Immediately prior to the closing of the initial public offering, Dole completed certain restructuring transactions. Refer to Note 3 of the Consolidated Financial Statements for additional details.
 
(1) During the fourth quarter of 2008, Dole completed the sale of its JP Fresh and Dole France ripening and distribution subsidiaries. These businesses generated revenues of $382 million during fiscal 2008.
 
(2) Included in the 2009 proceeds from sales of assets and businesses, net was $26 million of long-term debt which was assumed by the buyer of Dole’s fresh-cut flowers business.


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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This Management’s Discussion and Analysis contains forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements, which are based on management’s assumptions and describe Dole’s future plans, strategies and expectations, are generally identifiable by the use of terms such as “anticipate,” “will,” “expect,” “believe,” “should” or similar expressions. The potential risks and uncertainties that could cause Dole’s actual results to differ materially from those expressed or implied herein are set forth in Item 1A and Item 7A of this Annual Report on Form 10-K for the year ended January 2, 2010 and include: weather-related phenomena; market responses to industry volume pressures; product and raw material supplies and pricing; changes in interest and currency exchange rates; economic crises; quotas, tariffs and other governmental actions and international conflict.
 
Overview
 
Significant highlights for Dole Food Company, Inc. and its consolidated subsidiaries (“Dole” or the “Company”) for the year ended January 2, 2010 were as follows:
 
  •  Dole successfully completed a $446 million initial public offering (“IPO”) of 35.7 million common shares on October 28, 2009. Dole’s common stock began trading on the New York Stock Exchange under the ticker symbol “DOLE” on October 23, 2009. Dole received net proceeds of $415 million, reflecting $31 million of underwriting discount and offering expenses, and used the net proceeds to pay down indebtedness.
 
  •  Operating income in 2009 was $352 million compared to $275 million in 2008, an increase of 28%. 2009 operating income included a net $74 million benefit due to asset sales and unrealized hedging gains, compared with a net $29 million benefit due to asset sales and unrealized hedging gains in 2008.
 
  •  Cash flows provided by operating activities in 2009 increased $238 million to $283 million compared to $45 million in 2008. The improvement was primarily due to higher operating income and better working capital management.
 
  •  Dole reduced its total net debt outstanding by $635 million during 2009. Total net debt is defined as total debt less cash and cash equivalents. Over the last seven quarters, Dole reduced its total net debt outstanding by $905 million, or 38%, as a result of cost cutting initiatives, improved earnings and asset sales. Net debt at the end of 2009 was $1.48 billion and there were no borrowings outstanding under the asset based revolving credit facility (“ABL revolver”).
 
  •  During the first quarter of 2010, Dole completed amendments to its senior secured credit facilities. The amendments will reduce interest expense on these facilities, and with the related redemption of the remaining $70 million outstanding on the 8.875% notes due 2011 also will extend Dole’s nearest maturities to 2013.
 
  •  There were also favorable developments in legal proceedings:
 
  •  DBCP cases:  On June 9, 2009, the First Circuit Court of Hawaii dismissed the claims of ten plaintiffs from Honduras, Costa Rica, Ecuador and Guatemala, finding that their DBCP claims were time barred by the statute of limitations. On June 17, 2009, the Los Angeles Superior Court dismissed with prejudice two remaining lawsuits brought on behalf of Nicaraguan plaintiffs who had falsely claimed they were sterile as a result of exposure to DBCP on Dole-contracted Nicaragua banana farms. On July 7, 2009, the California Second District Court of Appeals issued an order to show cause why the $1.58 million judgment in favor of four Nicaraguan plaintiffs issued against Dole in 2008 should not be vacated and judgment entered in defendants’ favor on the grounds that the judgment was procured through fraud. On October 20, 2009, the United States District Court for the Southern District of Florida issued an order denying recognition and enforcement of the $98.5 million Nicaragua judgment against Dole and another U.S. company, on several grounds including that the judgment was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law. On October 30, 2009, the Los Angeles Superior Court dismissed the remaining seven DBCP lawsuits brought on behalf of plaintiffs from the Ivory Coast, where Dole did not operate when DBCP was in use; the eighth lawsuit was dismissed by the United States District Court for the Central District of California in 2008.


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  •  European Union Antitrust Inquiries:  In December 2009, the European Commission issued a Statement of Objections to several banana importers and marketing companies in southern Europe, which did not include Dole as an addressee.
 
Non-GAAP Financial Measures
 
The following is a reconciliation of EBIT and Adjusted EBITDA to the most directly comparable Generally Accepted Accounting Principle (GAAP) financial measure:
 
                         
    Year Ended
    Year Ended
    Year Ended
 
    January 2,
    January 3,
    December 29,
 
    2010     2009     2007  
          (In thousands)        
 
Net income (loss)
  $ 88,033     $ 122,849     $ (54,271 )
(Income) loss from discontinued operations, net of income taxes
    (1,639 )     27,391       15,719  
Gain on disposal of discontinued operations, net of income taxes
    (1,308 )     (3,315 )      
Interest expense
    205,715       174,485       194,851  
Income taxes
    22,684       (48,015 )     4,054  
                         
EBIT
    313,485       273,395       160,353  
Depreciation and amortization from continuing operations
    119,572       137,660       151,381  
Net unrealized loss on derivative instruments
    8,417       48,734       22,057  
Foreign currency exchange (gain) loss on vessel obligations
    6,326       (21,300 )     1,414  
Net unrealized (gain) loss on foreign denominated instruments
    306       (1,882 )     6,608  
Debt retirement costs in connection with initial public offering
    30,551              
Gain on asset sales
    (61,257 )     (26,976 )      
                         
Adjusted EBITDA
  $ 417,400     $ 409,631     $ 341,813  
                         
 
EBIT and Adjusted EBITDA are measures commonly used by financial analysts in evaluating the performance of companies. EBIT is calculated by adding the loss from discontinued operations, net of income taxes or subtracting income from discontinued operations, net of incomes taxes, to and from net income (loss), respectively, by subtracting the gain on disposal of discontinued operations, net of income taxes, by adding interest expense and by adding income tax expense or subtracting income tax benefit to and from net income (loss). Adjusted EBITDA is calculated by adding depreciation and amortization from continuing operations to EBIT, by adding the net unrealized loss or subtracting the net unrealized gain on certain derivative instruments (foreign currency and bunker fuel hedges and the cross currency swap), to and from EBIT, respectively, by adding the foreign currency loss or subtracting the foreign currency gain on the vessel obligations to and from EBIT, respectively, by adding the net unrealized loss or subtracting the net unrealized gain on foreign denominated instruments to and from EBIT, respectively, and by subtracting the gain on asset sales from EBIT. These items have been adjusted because management excludes these amounts when evaluating the performance of Dole. For 2009, debt retirement costs in connection with Dole’s initial public offering are also added to EBIT in calculating Adjusted EBITDA. Net debt is calculated as total debt less cash and cash equivalents.
 
EBIT and Adjusted EBITDA are not calculated or presented in accordance with U.S. GAAP, and EBIT and Adjusted EBITDA are not a substitute for net income attributable to Dole Food Company, Inc., net income, income from continuing operations, cash flows from operating activities or any other measure prescribed by U.S. GAAP. Further, EBIT and Adjusted EBITDA as used herein are not necessarily comparable to similarly titled measures of other companies. However, Dole has included EBIT and Adjusted EBITDA herein because management believes that EBIT and Adjusted EBITDA are useful performance measures for Dole. In addition, EBIT and Adjusted EBITDA are presented because Dole’s management believes that these measures are frequently used by securities analysts, investors and others in the evaluation of our Company.
 
EBIT and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, operating income, cash flow or other combined income or cash flow data prepared in


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accordance with U.S. GAAP. Because of its limitations, EBIT and Adjusted EBITDA and the related ratios presented throughout this document should not be considered as measures of discretionary cash available to invest in business growth or reduce indebtedness. Dole compensates for these limitations by relying primarily on its U.S. GAAP results and using EBIT and Adjusted EBITDA only supplementally.
 
Results of Operations
 
Selected results of operations for the years ended January 2, 2010, January 3, 2009 and December 29, 2007 were as follows:
 
                         
    Year Ended
    Year Ended
    Year Ended
 
    January 2,
    January 3,
    December 29,
 
    2010     2009     2007  
          (In thousands)        
 
Revenues, net
  $ 6,778,521     $ 7,619,952     $ 6,820,812  
Operating income
    351,746       274,618       149,284  
Other income (expense), net
    (24,727 )     (14,066 )     1,848  
Interest expense
    (205,715 )     (174,485 )     (194,851 )
Income taxes
    (22,684 )     48,015       (4,054 )
Earnings from equity method investments
    10,100       6,388       1,696  
Net income (loss)
    88,033       122,849       (54,271 )
Less: Net income attributable to noncontrolling interests
    (3,948 )     (1,844 )     (3,235 )
Net income (loss) attributable to Dole Food Company, Inc. 
    84,085       121,005       (57,506 )
 
Revenues
 
For the year ended January 2, 2010, revenues decreased 11% to $6.8 billion from $7.6 billion in the prior year. The decrease was primarily due to the fourth quarter 2008 sale of the JP Fresh and Dole France ripening and distribution subsidiaries (“divested businesses”) and the benefit of a 53-week year in 2008 compared to a 52-week year in 2009. Dole’s divested businesses generated revenues of $382 million in 2008 and revenues benefited by approximately $113 million from the additional week during 2008. Excluding these items, total 2009 sales decreased 5%. Fresh fruit sales, excluding these items, decreased $233 million mainly due to lower sales in the remaining European ripening and distribution businesses, lower sales of bananas in Europe, and lower sales of Chilean deciduous fruit. Fresh vegetables sales decreased $62 million mainly due to lower volumes of fresh-packed vegetables and packaged salads. Packaged foods sales decreased $89 million as a result of lower volumes sold worldwide. Unfavorable foreign currency exchange movements in Dole’s selling locations resulted in lower revenues of approximately $109 million. These decreases were partially offset by higher sales of bananas in North America, improved pricing in Asia bananas and higher sales of fresh pineapples in North America and Europe.
 
For the year ended January 3, 2009, revenues increased 12% to $7.6 billion from $6.8 billion in the prior year. Higher sales were reported in all three of Dole’s operating segments. Fresh fruit revenues increased as a result of higher worldwide sales of bananas, which contributed $392 million, or 49% of the overall revenue increase. Banana sales benefited from stronger pricing in all markets as well as improved volumes in Asia. European ripening and distribution sales contributed $227 million, or 28% of the overall revenue increase. The increase was attributable to higher local pricing, improved volumes and the impact of favorable euro and Swedish krona foreign currency exchange rates. Fresh vegetables sales increased $27 million as a result of higher pricing and improved volumes of packaged salads and strawberries sold in North America. Higher worldwide sales of packaged foods products, primarily for FRUIT BOWLS®, canned pineapple and frozen fruit accounted for approximately $108 million or 13% of the overall revenues increase. Revenues also benefited by $113 million from an additional week as a result of a 53-week year in 2008 compared to 52 weeks in 2007. Favorable foreign currency exchange movements in Dole’s selling locations positively impacted revenues by approximately $175 million. These increases were partially offset by lower volumes of lettuce sold in North America and broccoli sold in Asia.


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Operating Income
 
For the year ended January 2, 2010, operating income was $351.7 million compared with $274.6 million in 2008. Operating income in 2009 included a net benefit of $73.9 million from gains on asset sales and unrealized hedging gains, compared with a net benefit of $28.7 million in 2008 from gains on asset sales and net unrealized hedging gains. In addition, operating income in 2009 benefited from lower incentive compensation expense. In 2009, Dole’s operating performance did not meet the minimum threshold for incentive payments under Dole’s One-Year Management Incentive Plan. Packaged foods operating results increased primarily as a result of higher pricing, lower commodity costs (mainly fuel and plastic resin), lower shipping and distribution costs, lower levels of selling, general and administrative expenses and favorable foreign currency movements in Thailand and the Philippines. If foreign currency exchange rates in Dole’s significant foreign operations during 2009 had remained unchanged from those experienced during 2008, Dole estimates that its operating income would have been lower by approximately $31 million. Operating income in 2009 also included realized foreign currency transaction gains of $7 million and realized foreign currency hedge losses of $2 million. These improvements were partially offset by a decrease in fresh fruit operating income primarily due to lower earnings in the North America and Asia banana operations and European ripening and distribution business. North America banana earnings were impacted by higher product costs as a result of adverse weather conditions in Latin America. European ripening and distribution business earnings were lower due to lower sales and unfavorable euro foreign currency exchange movements. Lower fresh fruit operating income was partially offset by improved earnings in the Chilean deciduous fruit and Asia fresh pineapple businesses. Fresh vegetables operating results were relatively unchanged as improved performance in the fresh-packed vegetables business was offset by lower earnings in the packaged salads operations resulting from higher levels of marketing expenditures.
 
For the year ended January 3, 2009, operating income was $274.6 million compared with $149.3 million in 2007. Operating income in 2008 included a net benefit of $28.7 million from gains on asset sales and unrealized hedging gains, compared with net unrealized hedging losses of $11.3 million in 2007. The fresh fruit and fresh vegetables operating segments reported higher operating income. Fresh fruit operating results increased primarily as a result of strong pricing in Dole’s banana operations worldwide and in the European ripening and distribution business. Fresh vegetables reported higher earnings due to improved pricing and volumes in the packaged salads business as well as a reduction in workers compensation related accruals. These improvements were partially offset by lower earnings in the packaged foods segment and the North America fresh-packed vegetables business. Earnings in the North America fresh-packed vegetables business decreased mainly due to lower sales and higher growing and distribution costs caused by substantially higher fuel and fertilizer costs. Packaged foods operating income was lower due to higher product costs resulting from increased purchased fruit costs, commodity and shipping costs as well as unfavorable foreign currency exchange rate movements in Thailand and the Philippines. Additionally, all three operating segments continued to experience significant cost increases in many of the commodities they used in production, including fuel, agricultural chemicals, tinplate, containerboard and plastic resins. If foreign currency exchange rates in Dole’s significant foreign operations during 2008 had remained unchanged from those experienced in 2007, Dole estimates that its operating income would have been lower by approximately $38 million, excluding the impact of hedging. The $38 million is primarily related to favorable foreign currency exchange movements in Dole’s selling locations more than offsetting unfavorable foreign currency exchange movements in Dole’s sourcing locations. Operating income in 2008 also included realized foreign currency transaction losses of $4 million and realized foreign currency hedge losses of $22 million. In addition, Dole settled early its Canadian dollar hedge which generated a gain of $4 million.
 
Other Income (Expense), Net
 
Other income (expense), net was expense of $24.7 million in 2009 compared to expense of $14.1 million in 2008. The change was due to an increase in the unrealized foreign currency exchange loss on Dole’s British pound sterling denominated vessel obligation (“vessel obligation”) of $27.6 million, a $5 million increase in debt issuance costs written off primarily associated with the March 2009 amendment of Dole’s senior secured credit facilities, and a $5 million increase in realized losses from foreign denominated borrowings. These factors were partially offset by a decrease in unrealized losses generated on Dole’s cross currency swap of $29.4 million.


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Other income (expense), net was expense of $14.1 million in 2008 compared to income of $1.8 million in 2007. The change was due to an increase in the unrealized loss generated on Dole’s cross currency swap of $39.7 million, partially offset by an increase in the unrealized foreign currency exchange gain on Dole’s vessel obligation of $22.7 million.
 
Interest Expense
 
Interest expense for the year ended January 2, 2010 was $205.7 million compared to $174.5 million in 2008. The increase was primarily due to higher borrowing rates resulting from Dole’s March 2009 refinancing transactions.
 
Interest expense for the year ended January 3, 2009 was $174.5 million compared to $194.9 million in 2007. The decrease was primarily related to lower borrowing rates on Dole’s debt facilities and a reduction in borrowings.
 
As a result of Dole’s debt reduction during 2009 and the March 2010 completion of its senior secured credit facilities amendments, Dole expects interest expense for 2010 to be lower by approximately $40 million as compared to 2009. Approximately $23 million of this decrease results from the interest rate reductions contained in the amendments.
 
Income Taxes
 
Dole recorded income tax expense of $22.7 million on $97.7 million of income from continuing operations before income taxes for the year ended January 2, 2010, reflecting a 23.2% effective tax rate for the year. Income tax expense increased $71 million in 2009 compared to 2008 due primarily to the favorable 2008 settlement of the federal income tax audit for the years 1995 to 2001. The effective tax rate in 2008 was (51.9%). Dole’s effective tax rate varies significantly from period to period due to the level, mix and seasonality of earnings generated in its various U.S. and foreign jurisdictions. For 2009, Dole’s income tax provision differs from the U.S. federal statutory rate applied to Dole’s pre-tax income primarily due to operations in foreign jurisdictions that are taxed at a rate lower than the U.S. federal statutory rate.
 
Income tax expense for fiscal year 2008 decreased by $52 million compared to fiscal 2007 due primarily to the settlement of the federal income tax audit for the years 1995 to 2001. The effective tax rate in 2007 was (11.2%). For 2008, Dole’s income tax provision differed from the U.S. federal statutory rate applied to Dole’s pretax income due to the settlement of the federal income tax audit, operations in foreign jurisdictions that were taxed at a rate lower than the U.S. federal statutory rate offset by the accrual for uncertain tax positions. For 2007, Dole’s income tax provision differed from the U.S. federal statutory rate applied to Dole’s pretax losses due to operations in foreign jurisdictions that were taxed at a rate lower than the U.S. federal statutory rate offset by the accrual for uncertain tax positions.
 
In addition to previously taxed income, Dole repatriated approximately $60 million of current year foreign earnings during 2009. As of January 2, 2010, Dole has not provided for U.S. federal income and foreign withholding taxes on approximately $2.4 billion of the excess of the amount for financial reporting over the tax basis of investments that are essentially permanent in duration. Management believes that such excess at January 2, 2010 will remain indefinitely invested at this time. Although management believes that cash generated by its U.S. operations combined with accumulated previously taxed income will be sufficient to fund U.S. cash flow requirements in 2010, if significant differences arise between Dole’s anticipated and actual earnings estimates and cash flow requirements, Dole may be required to provide U.S. federal income tax and foreign withholding taxes on a portion of its anticipated fiscal 2010 foreign earnings. As a result, Dole’s overall effective tax rate may increase in fiscal 2010 versus the effective tax rate experienced in previous years.
 
Dole had federal deferred tax assets totaling $166 million at January 2, 2010 for which valuation allowances of approximately $25 million have been established. Given current estimates of future U.S. taxable income available to utilize such deferred tax assets, further valuation allowances will be required if additional U.S. losses are experienced by Dole. The establishment of such valuation allowances would, all else being equal, result in increases to Dole’s effective tax rate in the periods recorded.
 
Refer to Note 6 of the Consolidated Financial Statements for additional information about Dole’s income taxes.


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Earnings from Equity Method Investments
 
Earnings from equity method investments for the year ended January 2, 2010 increased to $10.1 million from $6.4 million in 2008. The increase was primarily related to higher earnings generated by Compagnie Financière de Participations (“CF”), a company in which Dole holds a non-controlling 40% ownership interest. Higher earnings generated by CF were due in part to its purchase of Dole’s JP Fresh and Dole France subsidiaries during the fourth quarter of 2008.
 
Earnings from equity method investments for the year ended January 3, 2009 increased to $6.4 million from $1.7 million in 2007. The increase was primarily related to higher earnings generated by CF.
 
Segment Results of Operations
 
Dole has three reportable operating segments: fresh fruit, fresh vegetables and packaged foods. These reportable segments are managed separately due to differences in their products, production processes, distribution channels and customer bases.
 
Dole’s management evaluates and monitors segment performance primarily through earnings before interest expense and income taxes (“EBIT”). EBIT is calculated by adding interest expense and income taxes to income (loss) from continuing operations, net of income taxes. 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 Dole as a whole. EBIT is not defined under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered in isolation or as a substitute for net income measures prepared in accordance with GAAP or as a measure of Dole’s profitability. Additionally, Dole’s computation of EBIT may not be comparable to other similarly titled measures computed by other companies, because not all companies calculate EBIT in the same fashion.
 
In the tables below, revenues from external customers and EBIT reflect only the results from continuing operations.
 
                         
    2009     2008     2007  
    (In thousands)  
 
Revenues from external customers
                       
Fresh fruit
  $ 4,710,924     $ 5,401,145     $ 4,736,902  
Fresh vegetables
    1,024,526       1,086,888       1,059,401  
Packaged foods
    1,041,853       1,130,791       1,023,257  
Corporate
    1,218       1,128       1,252  
                         
    $ 6,778,521     $ 7,619,952     $ 6,820,812  
                         
EBIT
                       
Fresh fruit
  $ 305,353     $ 305,765     $ 172,175  
Fresh vegetables
    9,359       1,100       (21,668 )
Packaged foods
    105,491       70,984       80,093  
                         
Total operating segments
    420,203       377,849       230,600  
Corporate:
                       
Unrealized loss on cross currency swap
    (21,051 )     (50,411 )     (10,741 )
Unrealized loss on foreign denominated instruments
    (612 )     (1,119 )     (4,017 )
Debt retirement costs in connection with initial public offering
    (30,551 )            
Operating and other expenses
    (54,504 )     (52,924 )     (55,489 )
                         
Total Corporate
    (106,718 )     (104,454 )     (70,247 )
Interest expense
    (205,715 )     (174,485 )     (194,851 )
Income taxes
    (22,684 )     48,015       (4,054 )
                         
Income (loss) from continuing operations, net of income taxes
  $ 85,086     $ 146,925     $ (38,552 )
                         


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2009 Compared with 2008
 
Fresh Fruit:  Fresh fruit revenues in 2009 decreased 13% to $4.7 billion from $5.4 billion in 2008. Excluding 2008 sales from Dole’s divested businesses in the European ripening and distribution operations of $382 million and the additional week of revenues generated in 2008 of $75 million, fresh fruit revenues decreased 5%. European ripening and distribution revenues from businesses not divested decreased $254 million during 2009 primarily as a result of unfavorable euro and Swedish krona foreign currency exchange movements and lower volumes sold in Germany and Sweden. Banana sales were relatively unchanged as higher sales of bananas in North America and Asia, resulting from improved pricing, were offset by lower sales in Europe due to planned volume reductions. The reduction in volumes were in anticipation of lower pricing as a result of significant availability of product in the market. Fresh pineapples sales increased $11 million mainly due to higher volumes sold in North America and Europe. Chilean deciduous fruit sales decreased $44 million primarily due to lower pricing and lower carton plant sales. Net unfavorable foreign currency exchange movements in Dole’s foreign selling locations resulted in lower revenues of approximately $102 million during 2009.
 
Dole’s fresh fruit segment EBIT is significantly impacted by certain items, which are included in the table below:
 
                 
    2009     2008  
    (In thousands)  
 
Fresh fruit products
  $ 248,583     $ 255,670  
Unrealized gain (loss) on foreign currency and fuel hedges
    11,924       (251 )
Foreign currency exchange gain (loss) on vessel obligations
    (6,326 )     21,300  
Net unrealized gain on foreign denominated instruments
    8       3,583  
Gains on asset sales
    51,164       25,463  
                 
Total Fresh fruit EBIT
  $ 305,353     $ 305,765  
                 
 
Fresh fruit EBIT for 2009 was comparable to 2008. Banana EBIT decreased primarily due to lower earnings in Dole’s North America and Asia banana operations resulting from higher fruit costs. Adverse weather conditions in Latin America early in the year impacted banana production yields. The decrease was partially offset by improved earnings in the European banana business due to lower shipping and distribution costs. The Chilean deciduous fruit operations had higher earnings as a result of lower product costs. EBIT in the Asia fresh pineapple business also increased as a result of lower product and shipping costs. Lower EBIT was reported in the European ripening and distribution business primarily due to lower sales volumes and unfavorable euro foreign currency exchange movements. If foreign currency exchange rates in Dole’s significant fresh fruit foreign operations during 2009 had remained unchanged from those experienced during 2008, Dole estimates that fresh fruit EBIT would have been lower by approximately $19 million. Fresh fruit EBIT in 2009 included realized foreign currency transaction gains of $5 million and realized foreign currency hedge losses of $2 million.
 
Fresh Vegetables:  Fresh vegetables revenues for 2009 decreased 6% to $1.02 billion from $1.09 billion. Revenues in the packaged salads business decreased primarily due to lower sales volumes, lower fuel and transportation related surcharges and a shift in sales from higher to lower priced products. Lower sales in the North America fresh-packed vegetables business resulted from lower sales volumes of its major product lines.
 
Fresh vegetables EBIT for 2009 increased to $9.4 million compared to $1.1 million in 2008. EBIT in 2009 benefited from a gain of $9.2 million from the sale of vegetable property in California. EBIT in 2008 benefited from workers compensation accrual adjustments of $9 million. EBIT excluding these factors increased by $8.1 million as a result of improved pricing and lower harvesting and growing costs in the North America fresh-packed vegetables business. Packaged salads EBIT was lower primarily due to higher marketing expenditures of $14 million associated with product re-launching efforts to reinvigorate the category. These factors were partially offset by improved plant and network efficiencies.
 
Packaged Foods:  Packaged foods revenues for 2009 decreased 8% to $1.04 billion from $1.13 billion in 2008. Revenues decreased primarily due to lower volumes sold worldwide. Lower volumes were due in part to a contraction in the packaged fruit category and price increases. Net unfavorable foreign currency exchange


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movements in Dole’s foreign selling locations contributed to lower revenues of approximately $7 million during 2009.
 
Packaged foods EBIT in 2009 increased to $105.5 million from $71 million in 2008. The increase in EBIT was attributable to improved pricing, lower shipping and distribution costs and lower selling, general and administrative expenses. EBIT benefited from lower commodity costs (fuel and plastic resins) as well as favorable foreign currency movements in Thailand and the Philippines, where products are sourced. If foreign currency exchange rates in Dole’s packaged foods foreign operations during 2009 had remained unchanged from those experienced during 2008, Dole estimates that packaged foods EBIT would have been lower by approximately $12 million. Packaged foods EBIT in 2009 also included realized foreign currency transaction gains of $2 million.
 
Corporate:  Corporate EBIT includes general and administrative costs not allocated to the operating segments. Corporate EBIT in 2009 was a loss of $106.7 million compared to a loss of $104.5 million in 2008. EBIT includes $30.6 million of debt retirement costs incurred in connection with Dole’s IPO and a $5 million increase in debt issuance costs written off primarily associated with the March 2009 amendment of Dole’s senior secured credit facilities. These decreases were partially offset by a reduction in unrealized losses generated on Dole’s cross currency swap of $29.4 million and lower general and administrative expenses.
 
2008 Compared with 2007
 
Fresh Fruit:  Fresh fruit revenues in 2008 increased 14% to $5.4 billion from $4.7 billion in 2007. The increase in fresh fruit revenues was primarily driven by higher worldwide sales of bananas and higher sales in the European ripening and distribution business. In addition, sales of Chilean deciduous fruit and fresh pineapple increased. Banana sales increased approximately $392 million due to higher pricing worldwide and increased volumes sold in Asia. Higher demand for bananas, product shortages and higher fuel costs contributed to an increase in banana pricing and surcharges during 2008. European ripening and distribution sales were $227 million higher as result of increased volumes in Sweden, Germany, Italy and Eastern Europe, stronger pricing and favorable euro and Swedish krona foreign currency exchange rates. This growth in the European ripening and distribution business was partially offset by lower revenues as a result of the sale of the JP Fresh and Dole France subsidiaries in November 2008. JP Fresh and Dole France revenues totaled $382 million and $480 million during fiscal 2008 and 2007, respectively. Sales of Chilean deciduous fruit also increased due to improved pricing in the European and Latin American markets. Increased sales of fresh pineapple were primarily driven by higher volumes sold in North America. Favorable foreign currency exchange movements in Dole’s foreign selling locations, primarily the euro, Japanese yen and Swedish krona, benefited revenues by approximately $171 million.
 
Dole’s fresh fruit segment EBIT is significantly impacted by certain items, which are included in the table below:
 
                 
    2008     2007  
    (In thousands)  
 
Fresh fruit products
  $ 255,670     $ 184,792  
Unrealized loss on foreign currency and fuel hedges
    (251 )     (8,504 )
Foreign currency exchange gain (loss) on vessel obligations
    21,300       (1,414 )
Net unrealized gain (loss) on foreign denominated instruments
    3,583       (2,699 )
Gains on asset sales
    25,463        
                 
Total Fresh fruit EBIT
  $ 305,765     $ 172,175  
                 
 
Fresh fruit EBIT increased 78% to $305.8 million in 2008 from $172.2 million in 2007. EBIT increased due to significantly higher banana earnings and improved pricing in the European ripening and distribution operations. The increase in worldwide banana EBIT was driven by higher pricing, partially offset by increased product and shipping costs as a result of higher commodity costs. Dole’s Chilean deciduous fruit operations also reported an increase in EBIT as a result of higher sales and improved farm margins. These increases were partially offset by lower fresh pineapple earnings due primarily to higher product, shipping and distribution costs worldwide. If foreign currency exchanges rates, primarily in Dole’s fresh fruit foreign selling locations, during 2008 had remained unchanged from those experienced in 2007, Dole estimates that fresh fruit EBIT would have been lower by


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approximately $50 million, excluding the impacts of hedging. Fresh fruit EBIT in 2008 included realized foreign currency hedge losses of $18 million, and realized foreign currency transaction gains of $1 million.
 
Fresh Vegetables:  Fresh vegetables revenues for 2008 increased 3% to $1.09 billion from $1.06 billion. The increase in revenues was primarily due to improved pricing and higher volumes of packaged salads sold in North America. Packaged salad sales also benefited from the introduction of premium salad kits. In addition, higher volumes and pricing for strawberries and higher celery volumes were reported in the North American fresh-packed vegetables business. These increases were partially offset by lower volumes of lettuce and mixed produce sold in North America and broccoli and asparagus sold in Asia.
 
Fresh vegetables EBIT for 2008 increased to $1.1 million compared to a loss of $21.7 million in 2007. EBIT in 2008 benefited from lower workers compensation related accruals of $9 million as a result of favorable closures of historical claims and a reduction in claims activity. The increase in EBIT was primarily due to improved pricing as well as lower distribution and production costs in the packaged salads business. Improved earnings in the packaged salads business were partially offset by higher selling and marketing costs due to increased promotional activities. In addition, earnings in the Asia fresh-packed vegetables business improved due to stronger pricing. These increases were partially offset by lower earnings in the North American fresh-packed vegetables business due to higher growing and distribution costs as a result of significantly higher fuel and fertilizer costs.
 
Packaged Foods:  Packaged foods revenues for 2008 increased 11% to $1.13 billion from $1.02 billion in 2007. Revenues increased primarily due to higher pricing and volumes of FRUIT BOWLS, canned pineapple, pineapple juice and tropical fruit sold worldwide. In addition, North America revenues benefited from higher sales of frozen fruit products as a result of improved pricing. Foreign currency exchange rate movements on revenues were not material in 2008.
 
Packaged foods EBIT in 2008 decreased to $71 million from $80.1 million in 2007. EBIT decreased primarily due to higher product, shipping and distribution costs. Increases in commodity costs (such as fuel, tinplate and plastics) continued to impact operating results. In addition, higher product costs were attributable to unfavorable foreign currency exchange movements in Thailand and the Philippines, where product is sourced. If foreign currency exchange rates during 2008 had remained unchanged from those experienced in 2007, Dole estimates that packaged foods EBIT would have been higher by approximately $11 million. Packaged foods EBIT in 2008 included realized foreign currency transaction losses of $5 million. Packaged foods also settled early its Canadian dollar hedges, which generated gains of $4 million.
 
Corporate:  Corporate EBIT includes general and administrative costs not allocated to the operating segments. Corporate EBIT in 2008 was a loss of $104.5 million compared to a loss of $70.2 million in 2007. EBIT decreased primarily due to a net loss generated on Dole’s cross currency swap of $39.2 million. This decrease was partially offset by lower general and administrative expenses due primarily to a reduction in legal costs and lower unrealized losses on foreign denominated borrowings.
 
Discontinued Operations
 
During the second quarter of 2008, Dole approved and committed to a formal plan to divest its fresh-cut flowers operations (“Flowers transaction”). The first phase of the Flowers transaction was completed during the first quarter of 2009. During the fourth quarter of 2007, Dole approved and committed to a formal plan to divest its citrus and pistachio operations (“Citrus”) located in central California. Prior to the fourth quarter of 2007, the operating results of Citrus were included in the fresh fruit operating segment. The Citrus sale closed during the third quarter of 2008 and Dole received net cash proceeds of $44 million. As the assets of Citrus were held by non-wholly owned subsidiaries of Dole, Dole’s share of the proceeds was $28.1 million. The results of operations of these businesses have been classified as discontinued operations for all periods presented.


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The operating results of fresh-cut flowers and Citrus for fiscal 2009, 2008 and 2007 are reported in the following table:
 
                         
    Fresh-Cut Flowers     Citrus     Total  
 
2009
                       
Revenues
  $ 4,154     $     $ 4,154  
                         
Income before income taxes
  $ 1,160     $     $ 1,160  
Income taxes
    479             479  
                         
Income from discontinued operations, net of income taxes
  $ 1,639     $     $ 1,639  
                         
Gain on disposal of discontinued operations, net of income taxes
  $ 1,308     $     $ 1,308  
                         
2008
                       
Revenues
  $ 106,919     $ 5,567     $ 112,486  
                         
Loss before income taxes
  $ (43,235 )   $ (1,408 )   $ (44,643 )
Income taxes
    16,936       316       17,252  
                         
Loss from discontinued operations, net of income taxes
  $ (26,299 )   $ (1,092 )   $ (27,391 )
                         
Gain on disposal of discontinued operations, net of income taxes
  $     $ 3,315     $ 3,315  
                         
2007
                       
Revenues
  $ 110,153     $ 13,586     $ 123,739  
                         
Income (loss) before income taxes
  $ (19,146 )   $ 733     $ (18,413 )
Income taxes
    2,994       (300 )     2,694  
                         
Income (loss) from discontinued operations, net of income taxes
  $ (16,152 )   $ 433     $ (15,719 )
                         
 
Fresh-Cut Flowers
 
2009 Compared with 2008:  Fresh-cut flowers income before income taxes in 2009 increased to $1.2 million compared to a loss of $43.2 million in 2008. As a result of the January 16, 2009 close of the first phase of the Flowers transaction, fresh-cut flowers operating results for 2009 consisted of only two weeks of operations compared to fifty-three weeks during 2008. In connection with the sale, Dole received cash proceeds of $21 million and recorded a note receivable of $8.3 million, which is due January 2011. Dole recorded a gain of $1.3 million on the sale.
 
2008 Compared with 2007:  Fresh-cut flowers loss before income taxes in 2008 increased to $43.2 million compared to a loss of $19.1 million in 2007. The change was due primarily to a $17 million impairment charge on long-lived assets related to the Flowers transaction, of which the first phase closed during the first quarter of 2009. Product costs also increased as a result of unfavorable foreign currency exchange rates in Colombia, where the product is sourced. In addition, there were foreign currency hedge losses in 2008 of $0.3 million compared to foreign currency hedge gains of $6 million in 2007. These factors were partially offset by gains generated from the sale of the Miami headquarters building and a farm in Mexico as well as lower distribution costs due to changes in the customer base. If foreign currency exchange rates in Colombia during 2008 had remained unchanged from those experienced in 2007, Dole estimates that its fresh-cut flowers loss before taxes would have been lower by approximately $4 million, excluding the impacts of hedging.


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Liquidity and Capital Resources
 
CASH REQUIREMENTS:
 
The following table summarizes Dole’s contractual obligations and commitments at January 2, 2010:
 
                                         
    Payments Due by Period  
    Less Than
                After
       
    1 Year     1-2 Years     3-4 Years     4 Years     Total  
    (In thousands)  
 
Contractual obligations:
                                       
Fixed rate debt
  $ 901     $ 74,632     $ 386,253     $ 315,000     $ 776,786  
Variable rate debt
    7,680       15,360       716,176             739,216  
Notes payable
    37,308                         37,308  
Capital lease obligations
    3,023       7,099       6,424       48,519       65,065  
Non-cancelable operating lease commitments
    173,015       203,936       101,253       102,029       580,233  
Purchase obligations
    697,082       595,777       205,683       77,421       1,575,963  
Minimum required pension funding
    27,441       49,221       49,665       74,118       200,445  
Postretirement benefit payments
    4,118       8,001       7,588       16,958       36,665  
Interest payments on fixed and variable rate debt
    143,432       272,716       218,405       86,155       720,708  
                                         
Total contractual cash obligations
  $ 1,094,000     $ 1,226,742     $ 1,691,447     $ 720,200     $ 4,732,389  
                                         
 
Long-Term Debt:  Details of amounts included in long-term debt can be found in Note 11 of the Consolidated Financial Statements. The table assumes that long-term debt is held to maturity. The variable rate maturities include amounts payable under Dole’s senior secured credit facilities.
 
Capital Lease Obligations:  Dole’s capital lease obligations include $62.2 million related to two vessel leases. The obligations under these leases, which continue through 2024, are denominated in British pound sterling. The lease obligations are presented in U.S. dollars at the exchange rate in effect on January 2, 2010 and therefore will continue to fluctuate based on changes in the exchange rate.
 
Operating Lease Commitments:  Dole has obligations under cancelable and non-cancelable operating leases, primarily for land, machinery and equipment, vessels and containers and office and warehouse facilities. The leased assets are used in Dole’s operations where leasing offers advantages of operating flexibility and is less expensive than alternate types of funding. A significant portion of Dole’s operating lease payments are fixed. Lease payments are charged to operations, primarily through cost of products sold. Total rental expense, including rent related to cancelable and non-cancelable leases, was $199.6 million, $204.2 million and $169.2 million (net of sublease income of $14.7 million, $17.1 million and $16.6 million) for 2009, 2008 and 2007, respectively.
 
Dole’s corporate aircraft lease agreement includes a residual value guarantee of up to $4.8 million at the termination of the lease in 2018. Dole does not currently anticipate any future payments related to this residual value guarantee.
 
Purchase Obligations:  In order to secure sufficient product to meet demand and to supplement Dole’s own production, Dole enters into non-cancelable agreements with independent growers, primarily in Latin America and North America, to purchase substantially all of their production subject to market demand and product quality. Prices under these agreements are generally tied to prevailing market rates and contract terms range from one to ten years. Total purchases under these agreements were $563.1 million, $658.8 million and $564.5 million for 2009, 2008 and 2007, respectively.
 
In order to ensure a steady supply of packing supplies and to maximize volume incentive rebates, Dole enters into contracts for the purchase of packing supplies; some of these contracts run through 2011. Prices under these


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agreements are generally tied to prevailing market rates. Purchases under these contracts for 2009, 2008 and 2007 were approximately $168.9 million, $292.6 million and $272.7 million, respectively.
 
Interest payments on fixed and variable rate debt:  Commitments for interest expense on debt, including capital lease obligations, were determined based on anticipated annual average debt balances, after factoring in mandatory debt repayments. Interest expense on variable-rate debt has been based on the prevailing interest rates at January 2, 2010. For the secured term loan facilities, interest payments reflect the impact of both the interest rate swap and cross currency swap. No interest payments were calculated on the notes payable due to the short term nature of these instruments. As of January 2, 2010, the secured and unsecured notes and debentures as well as the secured term loans and revolving credit facility would mature at various times between 2011 and 2016. As a result of our March 2010 refinancing transactions, our notes, debentures and senior secured credit facilities will mature at various times between 2013 and 2017. See “— Recent Transactions Affecting Liquidity and Capital Resources.”
 
Other Obligations and Commitments:  Dole has obligations with respect to its pension and other postretirement benefit (“OPRB”) plans. During 2009, Dole contributed $5.9 million to its qualified U.S. pension plan. These contributions were made to comply with minimum funding requirements under the Internal Revenue Code as amended by the Pension Protection Act of 2006. Dole expects to contribute $14.8 million to its U.S. qualified plan during 2010, which is the estimated minimum funding requirement calculated under the Pension Protection Act of 2006. Dole also has nonqualified U.S. and international pension and OPRB plans. During 2009, Dole made payments of $24.6 million related to these pension and OPRB plans. Dole expects to make payments related to its other U.S. and foreign pension and OPRB plans of $16.8 million in 2010. The table includes pension and other postretirement payments through 2019. See Note 12 to the Consolidated Financial Statements.
 
Dole has numerous collective bargaining agreements with various unions covering approximately 36% of Dole’s hourly full-time and seasonal employees. Of the unionized employees, 23% are covered under a collective bargaining agreement that will expire within one year and the remaining 77% are covered under collective bargaining agreements expiring beyond the upcoming year. These agreements are subject to periodic negotiation and renewal. Failure to renew any of these collective bargaining agreements may result in a strike or work stoppage; however management does not expect that the outcome of these negotiations and renewals will have a material adverse impact on Dole’s financial condition or results of operations.
 
Dole had approximately $138 million of total gross unrecognized tax benefits, including interest. The timing of any payments which could result from these unrecognized tax benefits will depend on a number of factors, and accordingly the amount and timing of any future payments cannot be reasonably estimated. We do not expect a significant tax payment related to these benefits within the next year.
 
SOURCES AND USES OF CASH:
 
                         
    2009     2008     2007  
    (In thousands)  
 
Cash flow provided by (used in):
                       
Operating activities
  $ 282,952     $ 44,563     $ 46,322  
Investing activities
    84,405       141,142       (61,383 )
Financing activities
    (340,695 )     (185,520 )     16,045  
Foreign currency impact
    2,179       (6,417 )     3,663  
                         
Increase (decrease) in cash
  $ 28,841     $ (6,232 )   $ 4,647  
                         
 
Overview
 
As of January 2, 2010, Dole had a cash balance of $120 million and an ABL revolver borrowing base of $312.4 million. After taking into account approximately $95 million of outstanding letters of credit issued under the ABL revolver, Dole had approximately $217.4 million available for borrowings as of January 2, 2010. The ABL revolver is secured by and is subject to a borrowing base consisting of up to 85% of eligible accounts receivable plus a predetermined percentage of eligible inventory, as defined in the credit facility.


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At January 2, 2010, Dole had total outstanding long-term borrowings of $1.55 billion, consisting primarily of $225 million of unsecured senior notes and debentures due 2011 and 2013 and $1.33 billion of secured debt (consisting primarily of notes, net of debt discount, term loan facilities and capital lease obligations). Amounts outstanding under the term loan facilities were $739.2 million at January 2, 2010. In addition, Dole had approximately $94.5 million of letters of credit and bank guarantees outstanding under its $100 million pre-funded letter of credit facility at January 2, 2010.
 
The ABL revolver and term loan facilities are collateralized by substantially all of our tangible and intangible assets, including certain capital stock of our subsidiaries, but excluding certain intercompany debt, certain equity interests and each of our U.S. manufacturing plants and processing facilities that has a net book value exceeding 1% of our net tangible assets.
 
In addition to amounts available under the revolving credit facility, Dole’s subsidiaries have uncommitted lines of credit of approximately $113.7 million at various local banks, of which $81.1 million was available at January 2, 2010. These lines of credit are used primarily for short-term borrowings, foreign currency exchange settlement and the issuance of letters of credit or bank guarantees. Several of Dole’s uncommitted lines of credit expire in 2010 while others do not have a commitment expiration date. These arrangements may be cancelled at any time by Dole or the banks. Dole’s ability to utilize these lines of credit may be impacted by the terms of its senior secured credit facilities and bond indentures.
 
On April 30, 2009, Dole obtained letters of credit to support a bank guarantee issued to the European Commission in connection with their Decision that imposed a fine on Dole. These letters of credit were issued under the ABL revolver and the pre-funded letter of credit facility.
 
Dole’s management believes that available borrowings under our revolving credit facility and subsidiaries’ uncommitted lines of credit, together with our existing cash balances, future cash flow from operations, planned asset sales and access to capital markets, will enable Dole to meet its working capital, capital expenditure, debt maturity and other commitments and funding requirements. Dole management’s plan is dependent upon the occurrence of future events which will be impacted by a number of factors including the availability of refinancing, the general economic environment in which Dole operates, Dole’s ability to generate cash flows from its operations, and Dole’s ability to attract buyers for assets being marketed for sale. Factors impacting Dole’s cash flow from operations include such items as commodity prices, interest rates and foreign currency exchange rates, among other things, as more fully set forth in Item 1A, Risk Factors, in this Form 10-K.
 
Cash Flows from Operating Activities
 
Cash flows provided by operating activities were $283 million in 2009 compared to cash flows provided by operating activities of $44.6 million in the prior year. The improvement was primarily due to better working capital management. Improvement of working capital was due to significantly better collections of receivables and lower levels of raw materials and supplies inventory balances due in part to lower commodity costs. Cash flows provided by operations in 2008 were $44.6 million compared to cash flows provided by operating activities of $46.3 million in 2007. The change was primarily due to net income in 2008 compared with a net loss in 2007, lower levels of accounts receivable and a smaller increase in inventory balances offset by lower levels of accounts payable and accrued liabilities. The change in inventories was driven primarily by a reduction of raw material purchases in the packaged foods segment. Lower levels of accounts payable and accrued liabilities were attributable to the timing of payments to suppliers and growers and reduced inventory purchases at year-end.
 
Cash Flows from Investing Activities
 
Cash flows provided by investing activities decreased to $84.4 million in 2009 from $141.1 million in the prior year. The decrease was mainly due to lower cash proceeds received from the sale of assets and $23.3 million related to a collateral agreement associated with Dole’s cross currency and interest rate swap instruments, partially offset by $33.9 million of lower capital expenditures. Cash flows provided by investing activities in 2008 increased to $141.4 million from $61.4 million used in investing activities in 2007. The increase during 2008 was primarily due to $214 million of cash proceeds received from the sale of assets held-for-sale during 2008. Capital expenditures in 2008 were also lower by $21.7 million. Dole currently estimates that its 2010 capital additions will be approximately $100 million.


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Cash Flows from Financing Activities
 
Cash flows used in financing activities increased to $340.7 million in 2009 from $185.5 million in the prior year. The increase was mainly due to $478.9 million of higher debt repayments, net of borrowings compared to 2008. Cash proceeds received from the IPO and asset sales, together with operating cash flow improvements in 2009 allowed Dole to reduce its debt balances, including the $85 million of debt assumed in connection with the IPO restructuring transactions. Cash flows used in financing activities in 2008 increased to $185.5 million from $16 million provided by financing activities in 2007. The increase was primarily due to higher 2008 debt principal payments, net of borrowings of $172 million versus 2007 net borrowings of $26.5 million.
 
Dividends, Capital Contributions and Return of Capital:  During the third quarter of 2009, Dole declared and paid a dividend of $15 million to its former parent, DHM Holding Company, Inc (“Holdings”). Dole’s ability to declare and pay future dividends is subject to limitations contained in its senior secured credit facilities and bond indentures. At present, under such limitations, Dole could not declare or pay dividends exceeding $25 million in the aggregate.
 
There were no dividend, capital contribution or return of capital transactions during 2008 and 2007.
 
Recent Transactions Affecting Liquidity and Capital Resources
 
Initial Public Offering:  On October 28, 2009, Dole completed a $446 million initial public offering of 35,715,000 common shares at $12.50 per share. On October 23, 2009, Dole’s common stock began trading on the New York Stock Exchange under the ticker symbol “DOLE.” Upon the October 28, 2009 closing of the IPO, Dole received net proceeds of $415 million, reflecting $31 million of underwriting discount and offering expenses. The net proceeds have been used by Dole to pay down indebtedness, as discussed more fully below. Dole’s chairman, David H. Murdock, and his affiliates beneficially own 51,710,000 common shares, or approximately 58.6% of Dole’s outstanding common shares.
 
Immediately prior to the IPO closing, Dole completed certain restructuring transactions as a result of which (1) Dole’s former parent holding company, Holdings, was merged into Dole, (2) some shares of Dole held by an affiliate of Mr. Murdock were redeemed in exchange for (a) the 85% interest in Westlake Wellbeing Properties, LLC (which owns the Four Seasons Hotel Westlake Village) formerly owned by Holdings, together with the assumption by such affiliate of $30 million of a debt obligation of Holdings and (b) 1,361 acres of idle land in Honduras owned by a subsidiary of Dole, and (3) Dole paid the remaining $85 million of the Holdings debt obligation in order to eliminate a pre-existing cross-default and cross-acceleration risk under which a default by Holdings on such debt could have resulted in a cross-default and cross-acceleration under Dole’s credit facilities and bond indentures. As a result of the merger of Holdings into Dole, the federal net operating loss carryforwards of Holdings became available to Dole, subject to normal statutory expiration periods. Holdings’ estimated federal net operating loss carryforwards were approximately $167 million as of January 2, 2010.
 
In connection with the IPO, Holdings was merged into Dole in a downstream merger (the “Merger Transaction”), which was accounted for as a common control downstream merger at carryover basis and retrospectively included for all periods.
 
Immediately upon the closing of the Merger Transaction, Dole’s newly acquired interest in Westlake Wellbeing Properties, LLC (“WWP”) was transferred to Castle & Cooke Westlake Holdings, LLC (“C&C”), an entity owned and controlled by David H. Murdock. The transfer of WWP to C&C has been accounted for as a change in reporting entity, and the historical results of operations of WWP have been retrospectively excluded from our historical financial statements for all periods presented. Further, as the debt of Holdings (the “Hotel Loan”) relates to the assets of WWP, such debt and interest expense thereon has also been excluded from all historical periods in connection with the change in reporting entity.
 
Accordingly, Dole’s historical consolidated financial statements have been retrospectively revised for all prior periods presented (three years of consolidated statement of operations and two years of balance sheets) to include the historical results and balances of Holdings, excluding those balances of WWP which have been transferred to C&C. Further, our retrospectively revised historical financial statements exclude the Hotel Loan, which totaled


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$115 million at the date of the Merger Transaction, $135 million at January 3, 2009, and $180 million at December 29, 2007, and the resulting interest expense thereon.
 
IPO-related Debt Reduction:  Dole used the net proceeds from the IPO to repay the following: (1) $47 million of amounts outstanding under its revolving credit facility, (2) $85 million of debt at Holdings, the former parent that was merged into Dole, in order to eliminate a pre-existing cross-default and cross-acceleration risk, (3) $122.5 million of the 13.875% Senior Secured Notes due 2014 (“2014 Notes”), and (4) $130 million of the 8.875% Senior Notes due 2011 (“2011 Notes”).
 
Pursuant to a trust offering occurring at the same time as the IPO, indebtedness of an affiliate of Mr. Murdock that had subjected Dole to an additional cross-default and cross-acceleration risk was repaid. As a result of this transaction, and the transactions relating to the former Holdings debt, both of Dole’s cross-default and cross-acceleration risks associated with indebtedness of Mr. Murdock or his affiliates (other than Dole) were eliminated.
 
2010 Notes Refinancing Transaction:  On September 25, 2009, Dole completed the sale and issuance of $315 million aggregate principal amount of 8% Senior Secured Notes due 2016 (“2016 Notes”) at a discount of $6.2 million. The 2016 Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (“Securities Act”) and to persons outside the United States in compliance with Regulation S under the Securities Act. The sale was exempt from the registration requirements of the Securities Act. Interest on the 2016 Notes will be paid semiannually in arrears on April 1 and October 1 of each year, beginning on April 1, 2010. The 2016 Notes will mature on October 1, 2016. The 2016 Notes have the benefit of a lien on certain U.S. assets of Dole that is junior to the liens of Dole’s senior secured credit facilities and pari passu with the liens of the 2014 Notes, and are senior obligations ranking equally with Dole’s existing senior debt. On October 26, 2009, Dole used the net proceeds from the 2016 Notes offering, together with cash on hand and borrowings under the revolving credit facility, to redeem all of the outstanding 7.25% Senior Notes due 2010 (“2010 Notes”).
 
2009 Notes Refinancing Transaction:  On March 18, 2009, Dole completed the sale and issuance of $350 million aggregate principal amount of the 2014 Notes at a discount of $25 million. The 2014 Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States in compliance with Regulation S under the Securities Act. The sale was exempt from the registration requirements of the Securities Act. Interest on the 2014 Notes will be paid semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2009. The 2014 Notes have the benefit of a lien on certain U.S. assets of Dole that is junior to the liens of Dole’s senior secured credit facilities and pari passu with the liens of the 2016 Notes, and are senior obligations of Dole ranking equally with Dole’s existing senior debt. Dole used the net proceeds from this offering, together with cash on hand and borrowings under the revolving credit facility, to repay all of the outstanding 2009 Notes. As noted above, $122.5 million of IPO proceeds were used to redeem the 2014 Notes resulting in a current outstanding balance of approximately $228 million principal amount.
 
In connection with the refinancing transactions completed in the first quarter of 2009, Dole amended its senior secured credit facilities. These amendments became effective concurrently with the closing of the 2014 Notes offering.
 
As of January 2, 2010, the term loan facilities consisted of $173.9 million of Term Loan B and $565.3 million of Term Loan C. As of January 2, 2010, the term loan facilities bore interest, at Dole’s option, at a rate per annum equal to either (i) a base rate plus 3.5% to 4%; or (ii) LIBOR (subject to a minimum of 3%) plus 4.5% to 5%, in each case, based upon Dole’s senior secured leverage ratio. The weighted average variable interest rate at January 2, 2010 for Term Loan B and Term Loan C was 8%. The term loan facilities required quarterly principal payments, plus a balloon payment due in 2013. Dole has an interest rate swap to hedge future changes in interest rates and a cross currency swap to effectively lower the U.S. dollar fixed interest rate to a Japanese yen fixed interest rate on Term Loan C. Refer to Note 16 of the Consolidated Financial Statements for additional information related to these instruments.
 
March 2010 Refinancing Transactions:  On March 2, 2010, Dole amended its senior secured credit facilities. The amendments, among other things: (i) reduce the applicable Eurodollar interest rate for the term loan facilities to LIBOR plus 3.25%, with a LIBOR floor of 1.75%, or the base rate plus 2.25%, (ii) for the revolving credit facility, leave interest rates on borrowed funds unchanged at a range of LIBOR plus 3.00% to 3.50% or the base rate plus


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2.00% to 2.50%, with the rate at any time determined by the average historical borrowing availability; (iii) change the financial covenant metrics to a maximum total leverage ratio and a minimum interest coverage ratio; (iv) add greater operating and financial flexibility for Dole; and (v) provide for other technical and clarifying changes. The amendments and the related redemption of the remaining $70 million principal amount of the 2011 Notes also extend Dole’s nearest maturities to 2013. The amended credit facilities provide $850 million of term debt due 2017 and up to $350 million of revolving debt due 2014.
 
Refer to Note 11 of the Consolidated Financial Statements for additional details of Dole’s outstanding debt.
 
GUARANTEES, CONTINGENCIES AND DEBT COVENANTS:
 
Dole is a guarantor of indebtedness of some of its key fruit suppliers and other entities integral to Dole’s operations. At January 2, 2010, guarantees of $2 million consisted primarily of amounts advanced under third-party bank agreements to independent growers that supply Dole with product. Dole has not historically experienced any significant losses associated with these guarantees.
 
Dole issues letters of credit and bank guarantees through its ABL revolver and its pre-funded letter of credit facilities, and, in addition, separately through major banking institutions. Dole also provides insurance company issued bonds. These letters of credit, bank guarantees and insurance company bonds are required by certain regulatory authorities, suppliers and other operating agreements. As of January 2, 2010, total letters of credit, bank guarantees and bonds outstanding under these arrangements were $227.5 million, of which $94.5 million were issued under Dole’s pre-funded letter of credit facility.
 
Dole also provides various guarantees, mostly to foreign banks, in the course of its normal business operations to support the borrowings, leases and other obligations of its subsidiaries. Dole guaranteed $191.6 million of its subsidiaries’ obligations to their suppliers and other third parties as of January 2, 2010.
 
Dole has change of control agreements with certain key executives, under which severance payments and benefits would become payable in the event of specified terminations of employment following a change of control (as defined) of Dole. Refer to Item 11 of this Form 10-K, under the heading “Severance and Change of Control Arrangements” for additional information concerning the change of control agreements.
 
As disclosed in Note 18 to the Consolidated Financial Statements, Dole is subject to legal actions, most notably related to Dole’s prior use of the agricultural chemical dibromochloropropane, or “DBCP.” Although no assurance can be given concerning the outcome of these cases, in the opinion of management, after consultation with legal counsel and based on past experience defending and settling DBCP claims, the pending lawsuits are not expected to have a material adverse effect on Dole’s business, financial condition or results of operations.
 
Provisions under the senior secured credit facilities and the indentures governing Dole’s senior notes and debentures require Dole to comply with certain covenants. These covenants include limitations on, among other things, indebtedness, investments, loans to subsidiaries, employees and third parties, the issuance of guarantees and the payment of dividends. The ABL revolver also contains a “springing covenant,” which would not be effective unless the availability under the ABL revolver (as amended in the March 2010 refinancing transactions) were to fall below the greater of $37.5 million and 12.5% of the Total Commitment (as defined) for any three consecutive business days. To date, the springing covenant had never been effective and Dole does not currently anticipate that the springing covenant will become effective.
 
As a result of the March 2009 amendment to Dole’s senior secured credit facilities, Dole was subject to a first priority senior secured leverage ratio that was required to be at or below 3.00 to 1.00 as of the last day of the fiscal quarter ending January 2, 2010. At January 2, 2010, the first priority senior secured leverage ratio was approximately 1.95 to 1.00. As a result of the March 2010 amendments to the senior secured credit facilities, Dole will be subject to a maximum total leverage and a minimum interest coverage ratio but will no longer be subject to the first priority senior secured leverage ratio test.
 
A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to customary cross-default and cross-acceleration provisions, could result in a default under our other debt instruments. Upon the occurrence of an event of default


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under the senior secured credit facilities or some of our debt instruments, the lenders or holders of such other debt instruments could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If Dole were unable to repay those amounts, the lenders could proceed against the collateral granted to them, if any, to secure the indebtedness. If the lenders under Dole’s current indebtedness were to accelerate the payment of the indebtedness, Dole cannot give assurance that its assets would be sufficiently liquid to repay in full its outstanding indebtedness on an accelerated basis. As a result of the IPO and related transactions, all potential cross-defaults and cross-acceleration provisions that existed between Dole’s debt instruments and indebtedness of Holdings and its affiliates have been eliminated.
 
Critical Accounting Policies and Estimates
 
The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on other factors that management believes are reasonable. Estimates and assumptions include, but are not limited to, the areas of customer and grower receivables, inventories, impairment of assets, useful lives of property, plant and equipment, intangible assets, marketing programs, income taxes, self-insurance reserves, retirement benefits, financial instruments and commitments and contingencies.
 
Dole’s management believes that the following represent the areas where more critical estimates and assumptions are used in the preparation of the Consolidated Financial Statements. Refer to Note 2 of the Consolidated Financial Statements for a summary of Dole’s significant accounting policies.
 
Grower Advances:  Dole makes advances to third-party growers primarily in Latin America and Asia for various farming needs. Some of these advances are secured with property or other collateral owned by the growers. Dole monitors these receivables on a regular basis and records an allowance for these grower receivables based on estimates of the growers’ ability to repay advances and the fair value of the collateral. These estimates require significant judgment because of the inherent risks and uncertainties underlying the growers’ ability to repay these advances. These factors include weather-related phenomena, government-mandated fruit prices, market responses to industry volume pressures, grower competition, fluctuations in local interest rates, economic crises, security risks in developing countries, political instability, outbreak of plant disease, inconsistent or poor farming practices of growers, and foreign currency fluctuations. The aggregate amounts of grower advances made during fiscal years 2009, 2008 and 2007 were approximately $185.3 million, $170.7 million and $172.4 million, respectively. Net grower advances receivable were $48.6 million and $49.5 million at January 2, 2010 and January 3, 2009, respectively.
 
Long-Lived Assets:  Dole’s long-lived assets consist of 1) property, plant and equipment and amortized intangibles and 2) goodwill and indefinite-lived intangible assets.
 
1) Property, Plant and Equipment and Amortized Intangibles:  Dole depreciates property, plant and equipment and amortizes intangibles principally by the straight-line method over the estimated useful lives of these assets. Estimates of useful lives are based on the nature of the underlying assets as well as Dole’s experience with similar assets and intended use. Estimates of useful lives can differ from actual useful lives due to the inherent uncertainty in making these estimates. This is particularly true for Dole’s significant long-lived assets such as land improvements, buildings, farming machinery and equipment, vessels and containers and customer relationships. Factors such as the conditions in which the assets are used, availability of capital to replace assets, frequency of maintenance, changes in farming techniques and changes to customer relationships can influence the useful lives of these assets. Refer to Notes 9 and 10 of the Consolidated Financial Statements for a summary of useful lives by major asset category and for further details on Dole’s intangible assets, respectively. Dole incurred depreciation expense from continuing operations of approximately $115.8 million, $133.4 million and $146.9 million in 2009, 2008 and 2007, respectively, and amortization expense of approximately $3.8 million, $4.3 million and $4.5 million in fiscal 2009, 2008 and 2007.
 
Dole’s management reviews property, plant and equipment and amortizable intangibles to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated total undiscounted future cash flows directly associated with the asset is compared to the asset’s carrying amount. If this comparison indicates that there is an impairment,


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the amount of the impairment is calculated by comparing the carrying value to the discounted future cash flows expected to result from the use of the asset and its eventual disposition or comparable market values, depending on the nature of the asset. Changes in commodity pricing, weather-related phenomena and other market conditions are events that have historically caused Dole’s management to assess the carrying amount of its long-lived assets.
 
2) Goodwill and Indefinite-Lived Intangible Assets:  Dole’s indefinite-lived intangible assets consist of the DOLE® brand trade name, with a carrying value of $689.6 million. In determining whether intangible assets have indefinite lives, Dole’s management considers the expected use of the asset, legal or contractual provisions that may limit the life of the asset, length of time the intangible has been in existence, as well as competitive, industry and economic factors. The determination as to whether an intangible asset is indefinite-lived or amortizable could have a significant impact on Dole’s consolidated statement of operations in the form of amortization expense and potential future impairment charges.
 
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the second fiscal quarter and whenever events or circumstances indicate that an impairment may have occurred. Indefinite-lived intangibles are tested for impairment by comparing the fair value of the asset to the carrying value.
 
Goodwill is tested for impairment by comparing the fair value of a reporting unit with its net book value including goodwill. Fair values of reporting units are determined based on discounted cash flows, market multiples or appraised values, as appropriate, which requires making estimates and assumptions including pricing and volumes, industry growth rates, future business plans, profitability, tax rates and discount rates. If the fair value of the reporting unit exceeds its carrying amount, then goodwill of that reporting unit is not considered to be impaired. If the carrying amount of the reporting unit exceeds its fair value, then the implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined. An impairment loss is recognized if the implied fair value of goodwill is less than its carrying amount. Changes to assumptions and estimates can significantly impact the fair values determined for reporting units and the implied value of goodwill, and consequently can impact whether or not an impairment charge is recognized, and if recognized, the size thereof. Dole’s management believes that the assumptions used in the annual impairment review are appropriate.
 
Income Taxes:  Deferred income taxes are recognized for the income tax effect of temporary differences between financial statement carrying amounts and the income tax bases of assets and liabilities. Dole’s provision for income taxes is based on domestic and international statutory income tax rates in the jurisdictions in which it operates. Dole regularly reviews its deferred income tax assets to determine whether future taxable income will be sufficient to realize the benefits of these assets. A valuation allowance is provided for deferred income tax assets for which it is deemed more likely than not that future taxable income will not be sufficient to realize the related income tax benefits from these assets. In making such determination, Dole’s management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event it is determined that Dole will not be able to realize its net deferred tax assets in the future, Dole will reduce such amounts through a charge to income in the period such determination is made. Conversely, if it is determined that Dole will be able to realize deferred tax assets in excess of the carrying amounts, Dole will decrease the recorded valuation allowance through a credit to income in the period that such determination is made.
 
At January 2, 2010, management’s estimates of future taxable income to recover its existing U.S. federal deferred tax assets totaling approximately $166 million are principally related to the realization of income on appreciated non-core assets, including income to be generated from the reversal of the related existing taxable temporary differences upon the sale of such assets. Although Dole’s management currently believes it will be able to sell such assets in amounts sufficient to realize its U.S. federal deferred tax assets, the ultimate sale prices for such assets are dependent on future market conditions and may vary from those currently expected. If Dole is unable to sell such assets at the amounts currently anticipated, additional valuation allowances would be necessary which would result in the recognition of additional income tax expense in Dole’s consolidated statements of operations.
 
Significant judgment is required in determining income tax provisions under FASB Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”), and in evaluating tax positions. Dole establishes additional provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain positions


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that do not meet the minimum probability threshold, as defined by ASC 740, which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, Dole and its subsidiaries are examined by various federal, state and foreign tax authorities. Dole’s management regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of its provision for income taxes. Dole’s management continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.
 
Refer to Note 6 of the Consolidated Financial Statements for additional information about Dole’s income taxes.
 
Pension and Other Postretirement Benefits:  Dole has qualified and nonqualified defined benefit pension plans covering some of its full-time employees. Benefits under these plans are generally based on each employee’s eligible compensation and years of service, except for certain plans covering union employees, which are based on negotiated benefits. In addition to pension plans, Dole has other postretirement benefit (“OPRB”) plans that provide health care and life insurance benefits for eligible retired employees. Covered employees may become eligible for such benefits if they fulfill established requirements upon reaching retirement age. Pension and OPRB costs and obligations are calculated based on actuarial assumptions including discount rates, health care cost trend rates, compensation increases, expected return on plan assets, mortality rates and other factors.
 
Pension obligations and expenses are most sensitive to the expected return on pension plan assets and discount rate assumptions. OPRB obligations and expenses are most sensitive to discount rate assumptions and health care cost trend rates. Dole’s management determines the expected return on pension plan assets based on an expectation of average annual returns over an extended period of years for the asset classes in which the plan’s assets are invested. In the absence of a change in Dole’s asset allocation or investment philosophy, this estimate is not expected to vary significantly from year to year. Dole’s 2009 and 2008 pension expense was determined using an expected rate of return on U.S. plan assets of 8%. At January 2, 2010, Dole’s U.S. pension plan investment portfolio was invested approximately 47% in equity securities, 52% in fixed income securities and 1% in private equity and venture capital funds. A 25 basis point change in the expected rate of return on pension plan assets would impact annual pension expense by $0.5 million.
 
Dole’s U.S. pension plan’s discount rate of 5.5% in 2009 and 6.75% in 2008 was determined based on a hypothetical portfolio of high-quality, non-callable, zero-coupon bond indices with maturities that approximate the duration of the liabilities in Dole’s pension plans. A 25 basis point decrease in the assumed discount rate would increase the projected benefit obligation by $7.4 million and increase the annual expense by $0.3 million.
 
Dole’s foreign pension plans’ weighted average discount rate was 7.7% and 8.3% for 2009 and 2008, respectively. A 25 basis point decrease in the assumed discount rate of the foreign plans would increase the projected benefit obligation by approximately $2.5 million and increase the annual expense by approximately $0.2 million.
 
While management believes that the assumptions used are appropriate, actual results may differ materially from these assumptions. These differences may impact the amount of pension and other postretirement obligations and future expense. Refer to Note 12 of the Consolidated Financial Statements for additional details of Dole’s pension and other postretirement benefit plans.
 
Litigation:  Dole is involved from time to time in claims and legal actions incidental to its operations, both as plaintiff and defendant. Dole’s management has established what it currently believes to be adequate reserves for pending legal matters. These reserves are established as part of an ongoing worldwide assessment of claims and legal actions that takes into consideration such items as changes in the pending case load (including resolved and new matters), opinions of legal counsel, individual developments in court proceedings, changes in the law, changes in business focus, changes in the litigation environment, changes in opponent strategy and tactics, new developments as a result of ongoing discovery, and past experience in defending and settling similar claims. Changes in accruals are part of the ordinary, recurring course of business, in which management, after consultation with legal counsel, is required to make estimates of various amounts for business planning purposes, as well as for accounting and SEC reporting purposes. These changes are reflected in the reported earnings of Dole each quarter. The


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litigation accruals at any time reflect updated assessments of the then existing pool of claims and legal actions. Actual litigation settlements could differ materially from these accruals.
 
Recently Adopted and Recently Issued Accounting Pronouncements
 
See Note 2 to the Consolidated Financial Statements for information regarding Dole’s adoption of new and recently issued accounting pronouncements.
 
Other Matters
 
European Union (“EU”) Banana Import Regime:  On January 1, 2006, the EU implemented a new “tariff only” import regime for bananas. Under this regime, the EU mandated a tariff of 176 euro per metric ton on all banana imports to the EU market from Latin America. The EU also mandated that 775,000 metric tons of bananas from African, Caribbean, and Pacific (“ACP”) countries could be imported to the EU duty-free.
 
The preferential treatment of a zero tariff on up to 775,000 metric tons of ACP banana imports, as well as the 176 euro per metric ton tariff applied to Latin banana imports, was challenged by Panama, Honduras, Nicaragua and Colombia in consultation proceedings at the World Trade Organization, or WTO. In addition, both Ecuador and the United States formally requested the WTO Dispute Settlement Body, or DSB, to appoint panels to review the matter.
 
The DSB issued final and definitive written rulings in favor of Ecuador and the United States on November 27, 2008, concluding that the 176 euro per metric ton tariff is inconsistent with WTO trade rules. The DSB also considered that the prior duty-free tariff reserved for ACP countries was inconsistent with WTO trade rules but also recognized that, with the current entry into force of Economic Partnership Agreements between the EU and ACP countries, ACP bananas now may have duty-free, quota-free access to the EU market.
 
In light of these WTO rulings, the EU proposed a settlement in resolution of the dispute, which has been accepted by the Latin American banana producing countries and the United States. This settlement, reached on December 15, 2009, provides for a specific tariff reduction schedule, with an initial reduction of the tariff to 148 euros per metric ton and a final tariff of 114 euro per metric ton reached on January 1, 2017 or January 1, 2019 (the extended schedule of reduction applies if no further trade agreements are reached in the ongoing “DDA” or Doha Development Agenda global trade discussions).
 
The settlement, which was signed by the Latin American banana producing countries and the European Commission, still must be formally ratified through a “Decision” by the European Council. The tariff schedule also must be formally enacted in European legislation through the act of the European Parliament. This may take several additional months. Currently, the 176 euro per metric ton tariff must continue to be paid by importers although the December 15, 2009 settlement provides that the tariff of 148 euro per metric ton shall be applied as of December 15, 2009 and any duties paid in excess shall be reimbursed by the competent customs authorities. It is not yet clear what the EU mechanisms and timing will be for reimbursement to importers from December 15, 2009. The new tariff schedule will apply once the European Parliament adopts the legislation.
 
Although Dole views this settlement as a favorable development, it is too early to determine to what extent Dole’s operations will capture any of these tariff savings.
 
Impact of Hurricane Katrina:  During the third quarter of 2005, Dole’s fresh fruit operations in the Gulf Coast area of the United States were impacted by Hurricane Katrina. As a result of the damage sustained in the Gulfport, Mississippi port facility where Dole received and stored product from its Latin American operations, Dole diverted shipments to other Dole port facilities outside of the Gulf Coast area. Dole subsequently resumed discharging shipments of fruit and other cargo in Gulfport at the beginning of the fourth quarter of 2005 and the rebuilding of Dole’s Gulfport facility was completed during 2007.
 
The financial impact included the loss of cargo and equipment, property damage and additional costs associated with re-routing product to other ports in the region. Dole maintains customary insurance for its property, including shipping containers, as well as for business interruption. For fiscal 2007, net gains on the settlement of insurance claims were $9.1 million, which included insurance proceeds of $9.6 million net of expenses of


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$0.5 million. Of the $9.1 million gain which was associated with the settlement of the property claim, $5.2 million was for the reimbursement of lost and damaged property.
 
Total cumulative Hurricane Katrina related expenses were $12.4 million. Total cumulative insurance proceeds were $23.6 million related to Dole’s settlement of its cargo claim for $9.2 million in December 2006 and settlement of its property claim for $14.4 million in December 2007. Cumulative net gains related to Hurricane Katrina totaled $11.2 million and were recorded in cost of products sold in the consolidated statement of operations in 2007 and 2006.
 
Derivative Instruments and Hedging Activities:  Dole uses derivative instruments to hedge against fluctuations in interest rates, foreign currency exchange rate movements and bunker fuel prices. Dole does not utilize derivatives for trading or other speculative purposes.
 
Through the first quarter of 2007, all of Dole’s derivative instruments, with the exception of the cross currency swap, were designated as effective hedges of cash flows as defined by FASB Accounting Standards Codification Topic 815, “Derivatives and Hedging” (“ASC 815”), which means that changes in the fair value of such instruments were not recorded in Dole’s consolidated statement of operations but instead were recorded to accumulated other comprehensive income (loss) as a component of shareholders’ equity in Dole’s consolidated balance sheet. However, during the second quarter of 2007, Dole elected to discontinue its designation of both its foreign currency and bunker fuel hedges as cash flow hedges under ASC 815. As a result, all changes in the fair value of Dole’s derivative financial instruments from the time of discontinuation of hedge accounting are reflected in Dole’s consolidated statements of operations. During the first quarter of 2010, Dole designated its foreign currency derivative instruments as cash flow hedges. As a result, if the hedges remain “effective” under ASC 815, unrealized gains (losses) will be recorded as a component of other comprehensive income (loss) in the consolidated balance sheet.
 
The interest rate swap continued to be accounted for as a cash flow hedge under ASC 815 during 2009. In connection with the March 2010 refinancing transactions, certain terms of Dole’s senior secured credit facilities were amended. Dole has evaluated the impact of these amendments on its hedge designation for its interest rate swap and has determined not to re-designate the interest rate swap as a cash flow hedge of its interest rate risk associated with Term Loan C. The impact of not re-designating the interest rate swap as a cash flow hedge will be that future changes in the fair value of the interest rate swap will be recorded into interest expense in the consolidated statement of operations rather than into accumulated other comprehensive income (loss) as a component of shareholders’ equity in the consolidated balance sheet.
 
Unrealized gains (losses) on Dole’s foreign currency and bunker fuel hedges and the cross currency swap by reporting segment, all of which was recorded in Dole’s consolidated statement of operations were as follows:
 
                                 
    Year Ended January 2, 2010  
    Foreign
    Bunker
    Cross
       
    Currency
    Fuel
    Currency
       
    Hedges     Hedges     Swap     Total  
    (In thousands)  
 
Fresh fruit
  $ 7,843     $ 4,081     $     $ 11,924  
Packaged foods
    710                   710  
Corporate
                (21,051 )     (21,051 )
                                 
    $ 8,553     $ 4,081     $ (21,051 )   $ (8,417 )
                                 
 
                                 
    Year Ended January 3, 2009  
    Foreign
    Bunker
    Cross
       
    Currency
    Fuel
    Currency
       
    Hedges     Hedges     Swap     Total  
    (In thousands)  
 
Fresh fruit
  $ 4,074     $ (4,325 )   $     $ (251 )
Packaged foods
    1,928                   1,928  
Corporate
                (50,411 )     (50,411 )
                                 
    $ 6,002     $ (4,325 )   $ (50,411 )   $ (48,734 )
                                 


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    Year Ended December 29, 2007  
    Foreign
    Bunker
    Cross
       
    Currency
    Fuel
    Currency
       
    Hedges     Hedges     Swap     Total  
    (In thousands)  
 
Fresh fruit
  $ (9,253 )   $ 749     $     $ (8,504 )
Packaged foods
  $ (2,812 )                 (2,812 )
Corporate
                (10,741 )     (10,741 )
                                 
    $ (12,065 )   $ 749     $ (10,741 )   $ (22,057 )
                                 
 
For information regarding Dole’s derivative instruments and hedging activities, refer to Note 16 to the Consolidated Financial Statements.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
As a result of its global operating and financing activities, Dole is exposed to market risks including fluctuations in interest rates, fluctuations in foreign currency exchange rates and changes in commodity pricing. Dole uses derivative instruments to hedge against fluctuations in interest rates, foreign currency exchange rate movements and bunker fuel prices. Dole does not utilize derivatives for trading or other speculative purposes.
 
Interest Rate Risk:  As a result of its normal borrowing and leasing activities, Dole’s operating results are exposed to fluctuations in interest rates. Dole has short-term and long-term debt with both fixed and variable interest rates. Short-term debt primarily comprises the current portion of long-term debt maturing within twelve months from the balance sheet date. Short-term debt also includes unsecured notes payable to banks and bank lines of credit used to finance working capital requirements. Long-term debt represents publicly held secured and unsecured notes and debentures, as well as amounts outstanding under Dole’s senior secured credit facilities.
 
As of January 2, 2010, Dole had $747.1 million of fixed-rate debt, $2.8 million of fixed-rate capital lease obligations and $9.3 million of other debt with a combined weighted-average interest rate of 9.9% and a fair value of $836.6 million. Dole currently estimates that a 100 basis point increase in prevailing market interest rates would decrease the fair value of its fixed-rate debt by approximately $25 million.
 
As of January 2, 2010, Dole had the following variable-rate arrangements: $739.2 million of variable-rate debt with a weighted-average interest rate of 8% and $62.2 million of variable-rate capital lease obligations with a weighted-average interest rate of 3.3%. Interest expense under the majority of these arrangements is based on the London Interbank Offered Rate (“LIBOR”). Dole currently estimates that a 100 basis point increase in LIBOR would lower pretax income by $8 million.
 
As part of Dole’s strategy to manage the level of exposure to fluctuations in interest rates, Dole entered into an interest rate swap agreement that effectively converted $320 million of variable-rate term loan debt to a fixed-rate basis. The interest rate swap fixed the interest rate at 7.2%. The paying and receiving rates under the interest rate swap were 5.5% and 0.3% as of January 2, 2010. The fair value of the interest rate swap at January 2, 2010 was a liability of $20.6 million.
 
Dole also executed a cross currency swap to synthetically convert $320 million of term loan debt into Japanese yen denominated debt in order to effectively lower the U.S. dollar fixed interest rate of 7.2% to a Japanese yen interest rate of 3.6%. The fair value of the cross currency swap was a liability of $61.5 million at January 2, 2010.
 
Foreign Currency Exchange Risk:  Dole products are sourced, grown, processed, marketed and distributed worldwide in more than 90 countries. Its international sales are usually transacted in U.S. dollars and major European and Asian currencies. Some of Dole’s costs are incurred in currencies different from those received from the sale of products. Results of operations may be affected by fluctuations in currency exchange rates in both sourcing and selling locations.
 
Dole has significant sales denominated in Japanese yen as well as European sales denominated primarily in euro and Swedish krona. Product and shipping costs associated with a significant portion of these sales are U.S. dollar-denominated. In 2009, Dole had approximately $725 million of annual sales denominated in Japanese


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yen, $1.2 billion of annual sales denominated in euro, and $480 million of annual sales denominated in Swedish krona. If U.S. dollar exchange rates versus the Japanese yen, euro and Swedish krona during 2009 had remained unchanged from 2008, Dole’s revenues would have been higher by approximately $71 million primarily due to the weakening of the euro and Swedish krona. Operating income would have been lower by approximately $16 million, excluding the impact of hedges, due primarily to the strengthening of the Japanese yen. In addition, Dole currently estimates that a 10% strengthening of the U.S. dollar relative to the Japanese yen, euro and Swedish krona would lower operating income by approximately $71 million, excluding the impact of foreign currency exchange hedges.
 
Dole sources the majority of its products in foreign locations and accordingly is exposed to changes in exchange rates between the U.S. dollar and currencies in these sourcing locations. Dole’s exposure to exchange rate fluctuations in these sourcing locations is partially mitigated by entering into U.S. dollar denominated contracts for third-party purchased product and most other major supply agreements, including shipping contracts. However, Dole is still exposed to those costs that are denominated in local currencies. The most significant production currencies to which Dole has exchange rate risk are the Thai baht, Philippine peso, Chilean peso and South African rand. If U.S. dollar exchange rates versus these currencies during 2009 had remained unchanged from 2008, Dole’s operating income would have been lower by approximately $38 million. In addition, Dole currently estimates that a 10% weakening of the U.S. dollar relative to these currencies would lower operating income by approximately $58 million, excluding the impact of foreign currency exchange hedges.
 
At January 2, 2010, Dole had British pound sterling denominated capital lease obligations. The British pound sterling denominated capital lease of $62.2 million is owed by foreign subsidiaries whose functional currency is the U.S. dollar. Fluctuations in the British pound sterling to U.S. dollar exchange rate resulted in losses that were recognized through results of operations. In 2009, Dole recognized $6.3 million in foreign currency exchange losses related to the British pound sterling denominated capital lease. Dole currently estimates that the weakening of the value of the U.S. dollar against the British pound sterling by 10% as it relates to the capital lease obligation would lower operating income by approximately $6 million.
 
Some of Dole’s divisions operate in functional currencies other than the U.S. dollar. The net assets of these divisions are exposed to foreign currency translation gains and losses, which are included as a component of accumulated other comprehensive loss in shareholders’ equity. Such translation resulted in unrealized gains of $11 million in 2009. Dole has historically not attempted to hedge this equity risk.
 
The ultimate impact of future changes to these and other foreign currency exchange rates on 2010 revenues, operating income, net income, equity and comprehensive income is not determinable at this time.
 
As part of its risk management strategy, Dole uses derivative instruments to hedge certain foreign currency exchange rate exposures. Dole’s objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, thereby reducing volatility of earnings. Dole uses foreign currency exchange forward contracts and participating forward contracts to reduce its risk related to anticipated dollar equivalent foreign currency cash flows, specifically forecasted revenue transactions and forecasted operating expenses. Participating forwards are the combination of a put and call option, structured such that there is no premium payment, there is a guaranteed strike price, and Dole can benefit from positive foreign currency exchange movements on a portion of the notional amount.
 
At January 2, 2010, Dole’s foreign currency hedge portfolio was as follows:
 
                                         
    Gross Notional Value              
    Participating
                Fair Market Value
    Average Strike
 
    Forwards     Forwards     Total     Assets (Liabilities)     Price  
    (In thousands)  
 
Foreign Currency Hedges(buy/sell):
                                       
U.S. dollar/Japanese yen
  $ 95,496     $ 104,019     $ 199,515     $ (111 )     JPY 94.95  
U.S. dollar/Euro
    80,157       81,950       162,107       2,738       EUR 1.44  
U.S. dollar/Canadian dollar
    24,400             24,400       (136 )     CAD 1.09  
                                         
Total
  $ 200,053     $ 185,969     $ 386,022     $ 2,491          
                                         


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For the year ended January 2, 2010, net unrealized gains on Dole’s foreign currency hedge portfolio totaled $8.6 million.
 
Dole also recorded net realized foreign currency hedging losses of $1.9 million as a component of cost of products sold in the consolidated statement of operations for the year ended January 2, 2010.
 
Commodity Sales Price Risk:  Commodity pricing exposures include the potential impacts of weather phenomena and their effect on industry volumes, prices, product quality and costs. Dole manages its exposure to commodity price risk primarily through its regular operating activities, however, significant commodity price fluctuations, particularly for bananas, pineapples and fresh-packed vegetables could have a material impact on Dole’s results of operations.
 
Commodity Purchase Price Risk:  Dole uses a number of commodities in its operations including tinplate in its canned products, plastic resins in its fruit bowls, containerboard in its packaging containers and bunker fuel for its vessels. Dole is most exposed to market fluctuations in prices of containerboard and fuel. Dole currently estimates that a 10% increase in the price of containerboard would lower operating income by approximately $10 million and a 10% increase in the price of bunker fuel would lower operating income by approximately $14 million.
 
Dole enters into bunker fuel hedges to reduce its risk related to price fluctuations on anticipated bunker fuel purchases. At January 2, 2010, bunker fuel hedges had an aggregate outstanding notional amount of 20,000 metric tons. The fair value of the bunker fuel hedges at January 2, 2010 was a receivable of $0.5 million. For the year ended January 2, 2010, Dole recorded unrealized gains of $4.1 million and realized gains of $0.3 million.
 
Counterparty Risk:  The counterparties to Dole’s derivative instruments contracts consist of a number of major international financial institutions. Dole has established counterparty guidelines and regularly monitors its positions and the financial strength of these institutions. While counterparties to hedging contracts expose Dole to credit-related losses in the event of a counterparty’s non-performance, the risk would be limited to the unrealized gains on such affected contracts. Dole does not anticipate any such losses.


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Item 8.   Financial Statements and Supplementary Data
 
I.   Index to Consolidated Financial Statements of Dole Food Company, Inc.
 
         
    Form 10-K
    Page
 
Audited Financial Statements for the Three Years Ended January 2, 2010:
       
    52  
    54  
    55  
    56  
    58  
    59  
II.  Supplementary Data
       
    118  


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of Dole Food Company, Inc.
 
We have audited the accompanying consolidated balance sheets of Dole Food Company, Inc. and subsidiaries (the “Company”) as of January 2, 2010 and January 3, 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years ended January 2, 2010, January 3, 2009, and December 29, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2010 and January 3, 2009, and the results of its operations and its cash flows for the years ended January 2, 2010, January 3, 2009, and December 29, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 2, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 25, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
/s/  Deloitte & Touche LLP
 
Los Angeles, California
March 25, 2010


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of Dole Food Company, Inc.
 
We have audited the internal control over financial reporting of Dole Food Company, Inc. and subsidiaries (the “Company”) as of January 2, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended January 2, 2010 of the Company and our report dated March 25, 2010 expressed an unqualified opinion on those financial statements and financial statement schedule.
 
/s/  Deloitte & Touche LLP
 
Los Angeles, California
March 25, 2010


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DOLE FOOD COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended January 2, 2010, January 3, 2009 and December 29, 2007
 
                         
    2009     2008     2007  
    (In thousands, except per share data)  
 
Revenues, net
  $ 6,778,521     $ 7,619,952     $ 6,820,812  
Cost of products sold
    (6,008,803 )     (6,862,892 )     (6,189,938 )
                         
Gross margin
    769,718       757,060       630,874  
Selling, marketing and general and administrative expenses
    (479,229 )     (509,418 )     (481,590 )
Gain on asset sales (Note 8)
    61,257       26,976        
                         
Operating income
    351,746       274,618       149,284  
Other income (expense), net
    (24,727 )     (14,066 )     1,848  
Debt retirement costs in connection with initial public offering (Note 11)
    (30,551 )            
Interest income
    6,917       6,455       7,525  
Interest expense
    (205,715 )     (174,485 )     (194,851 )
                         
Income (loss) from continuing operations before income taxes and equity earnings
    97,670       92,522       (36,194 )
Income taxes
    (22,684 )     48,015       (4,054 )
Earnings from equity method investments
    10,100       6,388       1,696  
                         
Income (loss) from continuing operations, net of income taxes
    85,086       146,925       (38,552 )
Income (loss) from discontinued operations, net of income taxes
    1,639       (27,391 )     (15,719 )
Gain on disposal of discontinued operations, net of income taxes
    1,308       3,315        
                         
Net income (loss)
    88,033       122,849       (54,271 )
Less: Net income attributable to noncontrolling interests
    (3,948 )     (1,844 )     (3,235 )
                         
Net income (loss) attributable to Dole Food Company, Inc. 
  $ 84,085     $ 121,005     $ (57,506 )
                         
Earnings per share — Basic and Diluted (Note 21):
                       
Income (loss) from continuing operations — Basic
  $ 1.45     $ 2.84     $ (0.75 )
Net income (loss) attributable to Dole Food Company, Inc. — Basic
  $ 1.43     $ 2.34     $ (1.11 )
Income (loss) from continuing operations — Diluted
  $ 1.45     $ 2.84     $ (0.75 )
Net income (loss) attributable to Dole Food Company, Inc. — Diluted
  $ 1.43     $ 2.34     $ (1.11 )
 
See Notes to Consolidated Financial Statements


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    2009     2008  
    (In thousands,
 
    except per share data)  
 
ASSETS
Cash and cash equivalents
  $ 119,670     $ 90,829  
Receivables, net of allowances of $51,380 and $41,357, respectively
    726,157       807,235  
Inventories
    718,191       796,407  
Prepaid expenses
    68,665       69,347  
Deferred income tax assets
    8,496       21,273  
Assets held-for-sale (Note 8)
    96,020       202,876  
                 
Total current assets
    1,737,199       1,987,967  
Restricted deposits (Note 16)
    23,290        
Investments
    85,004       73,085  
Property, plant and equipment, net of accumulated depreciation of $1,069,299 and $1,027,345, respectively
    962,247       1,050,331  
Goodwill
    407,247       406,540  
Intangible assets, net
    705,853       708,458  
Other assets, net
    186,183       138,238  
                 
Total assets
  $ 4,107,023     $ 4,364,619  
                 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable
  $ 474,399     $ 510,773  
Liabilities held-for-sale (Note 8)
          50,465  
Accrued liabilities
    440,840       490,145  
Current portion of long-term debt, net
    8,017       356,748  
Notes payable
    37,308       48,789  
                 
Total current liabilities
    960,564       1,456,920  
Long-term debt, net
    1,552,680       1,798,556  
Deferred income tax liabilities
    204,567       254,205  
Other long-term liabilities
    523,233       421,779  
Commitments and contingencies (Notes 15 and 18)
               
Shareholders’ equity
               
Preferred stock — $0.001 par value; 10,000 shares authorized, none issued or outstanding
           
Common stock — $0.001 par value; 300,000 shares authorized, 88,233 and 51,710 shares issued and outstanding as of January 2, 2010 and January 3, 2009
    88       51  
Additional paid-in capital
    768,973       409,630  
Retained earnings
    105,207       36,122  
Accumulated other comprehensive loss
    (35,293 )     (42,903 )
                 
Equity attributable to Dole Food Company Inc. 
    838,975       402,900  
Equity attributable to noncontrolling interests
    27,004       30,259  
                 
Total shareholders’ equity
    865,979       433,159  
                 
Total liabilities and shareholders’ equity
  $ 4,107,023     $ 4,364,619  
                 
 
See Notes to Consolidated Financial Statements


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DOLE FOOD COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 2, 2010, January 3, 2009 and December 29, 2007
 
                         
    2009     2008     2007  
    (In thousands)  
 
Operating Activities
                       
Net income (loss)
  $ 88,033     $ 122,849     $ (54,271 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                       
Depreciation and amortization
    119,572       138,828       155,605  
Net unrealized losses on financial instruments
    17,030       25,086       31,473  
Share based compensation expense
    925              
Asset write-offs and net (gain) loss on sale of assets
    (64,984 )     (50,751 )     6,826  
Impairment of discontinued operations
          17,000        
Noncontrolling interests in discontinued operations and gain on disposal of discontinued operations, net of income taxes
          12,760       400  
Earnings from equity method investments
    (10,100 )     (6,388 )     (1,696 )
Amortization of debt issuance costs and discounts
    8,626       4,085       4,106  
Debt retirement costs in connection with initial public offering
    30,551              
Write-off of debt issuance costs
    5,601              
Provision for deferred income taxes
    1,391       (43,120 )     (35,932 )
Unrecognized tax benefits on federal income tax audit settlement (Note 6)
          (60,906 )      
Pension and other postretirement benefit plan expense
    14,321       21,656       19,539  
Gain on settlement of Hurricane Katrina
                (5,200 )
Other
    (468 )     (128 )     505  
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
                       
Receivables
    41,153       (37,073 )     (68,794 )
Inventories
    42,373       (59,243 )     (96,992 )
Prepaid expenses and other assets
    (34,275 )     (10,943 )     (9,178 )
Income taxes
    (253 )     27,641       13,573  
Accounts payable
    (7,781 )     30,487       86,447  
Accrued liabilities
    39,994       (45,856 )     25,660  
Other long-term liabilities
    (8,757 )     (41,421 )     (25,749 )
                         
Cash flow provided by operating activities
    282,952       44,563       46,322  
Investing Activities
                       
Proceeds from sales of assets and businesses, net of cash disposed
    159,564       226,483       41,718  
Hurricane Katrina insurance proceeds
                5,200  
Capital expenditures
    (51,212 )     (85,096 )     (106,821 )
Restricted deposits
    (23,290 )            
Other
    (657 )     (245 )     (1,480 )
                         
Cash flow provided by (used in) investing activities
    84,405       141,142       (61,383 )
Financing Activities
                       
Short-term debt borrowings
    37,918       94,943       119,389  
Short-term debt repayments
    (33,621 )     (132,266 )     (91,176 )
Long-term debt borrowings
    1,294,712       1,348,050       1,167,530  
Long-term debt repayments
    (1,906,583 )     (1,482,800 )     (1,169,213 )
Payment of debt issuance costs
    (25,409 )            
Long-term debt repayment costs in connection with initial public offering
    (18,028 )            
Proceeds from initial public offering, net
    416,698              
Repayment of assumed Hotel and Wellness Center debt
    (85,000 )            
Dividends paid to parent
    (15,000 )            
Dividends paid to noncontrolling interests
    (6,382 )     (13,447 )     (10,485 )
                         
Cash flow (used in) provided by financing activities
    (340,695 )     (185,520 )     16,045  
                         
Effect of foreign currency exchange rate changes on cash
    2,179       (6,417 )     3,663  
                         
Increase (decrease) in cash and cash equivalents
    28,841       (6,232 )     4,647  
Cash and cash equivalents at beginning of period
    90,829       97,061       92,414  
                         
Cash and cash equivalents at end of period
  $ 119,670     $ 90,829     $ 97,061  
                         


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DOLE FOOD COMPANY, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS — Continued
For the Years Ended January 2, 2010, January 3, 2009 and December 29, 2007
 
 
Supplemental cash flow information
 
At January 2, 2010, January 3, 2009 and December 29, 2007, accounts payable included approximately $6.1 million, $6.7 million and $17.8 million, respectively, for capital expenditures. Of the $6.7 million of capital expenditures included in accounts payable at January 3, 2009, approximately $6.5 million had been paid during fiscal 2009. Of the $17.8 million of capital expenditures included in accounts payable at December 29, 2007, approximately $16.7 million had been paid during fiscal 2008. Approximately $17.4 million of the capital expenditures included in accounts payable at December 30, 2006 was paid during fiscal 2007.
 
Income tax payments, net of refunds, for the years ended January 2, 2010 January 3, 2009 and December 29, 2007 were $20.9 million, $15.5 million and $23.7 million, respectively.
 
Interest payments on borrowings totaled $184.7 million, $175.5 million and $189.5 million during the years ended January 2, 2010, January 3, 2009, December 29, 2007, respectively.
 
During the year ended January 3, 2009, Dole recorded $77.8 million of tax related adjustments that resulted from changes to unrecognized tax benefits that existed at the time of the going-private merger transaction. This tax-related adjustment resulted in a decrease to goodwill and a decrease to the liability for unrecognized tax benefits.
 
In addition to proceeds from asset sale of $159.5 million during the year ended January 2, 2010, $25.9 million of long-term debt was assumed by the buyer of the fresh-cut flowers subsidiaries, therefore providing a total benefit to Dole of $185.4 million from asset sales. During the fourth quarter of 2008, the fresh-cut flowers subsidiaries borrowed $25.9 million and Dole’s cash balance at January 3, 2009 reflected the cash proceeds from this transaction. The debt ceased to be an obligation of Dole upon the closing of the first phase of the Flowers transaction during the first quarter of 2009.
 
During May 2009, Dole acquired all of the assets of Distrifruit, a fresh fruit distributor located in Romania, in a non-cash exchange for approximately $10 million of trade receivables due from the seller. Refer to Note 10 — Goodwill and Intangible Assets for further information.
 
During the fourth quarter of 2009, $85 million of DHM Holding Company, Inc. debt was assumed by Dole and concurrent with the initial public offering transaction, paid down with initial public offering net proceeds.
 
As of Janaury 2, 2010, Dole had approximately $1.7 million of unpaid transaction costs related to its October 2009 initial public offering. Net proceeds from the initial public offering including accrued transaction costs were $415 million.
 
See Notes to Consolidated Financial Statements


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                            Accumulated Other
                   
                            Comprehensive Income (Loss)     Equity
             
    Common
          Additional
    Retained
    Pension & Other
    Cumulative
    Unrealized
    Attributable to
    Total
       
    Shares
    Common
    Paid-In
    Earnings
    Postretirement
    Translation
    Gains (Losses)
    Noncontrolling
    Shareholders
    Comprehensive
 
    Outstanding     Stock     Capital     (Deficit)     Benefits     Adjustment     on Hedges     Interests     Equity     Income (Loss)  
                                  (In thousands)                          
 
Balance at December 30, 2006
    51,710     $ 51     $ 408,981     $ (53,812 )   $ (30,780 )   $ 20,990     $ (4,347 )   $ 25,333     $ 366,416          
Net income (loss)
                      (57,506 )                       3,235       (54,271 )   $ (54,271 )
Noncontrolling interests in discontinued operations
                                              400       400        
Dividends paid
                                              (10,485 )     (10,485 )      
Unrealized foreign currency translation and hedging gains (losses)
                                  21,271       (1,362 )     57       19,966       19,966  
Reclassification of realized gains to net loss
                                        (9,816 )           (9,816 )     (9,816 )
Change in employee benefit plans, net of income taxes
                            4,028                         4,028       4,028  
Cumulative effect of adoption of new accounting guidance for uncertain tax positions
                      26,435                               26,435        
Gain on sale of land to affiliate, net of income taxes
                875                               11,338       12,213        
                                                                                 
Balance at December 29, 2007
    51,710     $ 51     $ 409,856     $ (84,883 )   $ (26,752 )   $ 42,261     $ (15,525 )   $ 29,878     $ 354,886     $ (40,093 )
                                                                                 
Net income
                      121,005                         1,844       122,849     $ 122,849  
Business dispositions
                            (1,628 )     2,378                   750       750  
Noncontrolling interests in discontinued operations
                                              481       481        
Noncontrolling interests gain on sale of discontinued operations
                                              12,279       12,279        
Dividends paid
                                              (14,108 )     (14,108 )      
Unrealized foreign currency translation and hedging losses
                                  (17,452 )     (18,877 )     (19 )     (36,348 )     (36,348 )
Reclassification of realized losses to net income
                                        5,272             5,272       5,272  
Change in employee benefits plans, net of income taxes
                            (12,580 )                       (12,580 )     (12,580 )
Loss on sale of land to affiliate, net of income taxes
                (226 )                             (96 )     (322 )      
                                                                                 
Balance at January 3, 2009
    51,710     $ 51     $ 409,630     $ 36,122     $ (40,960 )   $ 27,187     $ (29,130 )   $ 30,259     $ 433,159     $ 79,943  
                                                                                 
Net income
                      84,085                         3,948       88,033     $ 88,033  
Initial public offering
    35,715       36       415,084                                     415,120        
Deemed assumption of Hotel and Wellness Center debt
                (85,000 )                                   (85,000 )      
Transfer of land (and taxes related to the transfer) to affiliate entity
                (5,956 )                                   (5,956 )      
Contribution of net deferred tax assets from DHM Holding Company, Inc. 
                33,794                                     33,794        
Issuance of restricted stock
    808       1       (1 )                                          
Share based compensation
                925                                     925        
Change in noncontrolling interests
                                              (340 )     (340 )      
Dividends paid
                      (15,000 )                       (6,382 )     (21,382 )      
Unrealized foreign currency translation and hedging losses
                                  11,039       (3,593 )     16       7,462       7,462  
Reclassification of realized losses to net income
                                        11,597             11,597       11,597  
Change in employee benefit plans, net of income taxes
                            (11,433 )                       (11,433 )     (11,433 )
Contribution received from noncontrolling interest
                497                               (497 )            
                                                                                 
Balance at January 2, 2010
    88,233     $ 88     $ 768,973     $ 105,207     $ (52,393 )   $ 38,226     $ (21,126 )   $ 27,004     $ 865,979     $ 95,659  
                                                                                 
 
See Notes to Consolidated Financial Statements


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS
 
Note 1 — Nature of Operations
 
Dole Food Company, Inc. was incorporated under the laws of Hawaii in 1894 and was reincorporated under the laws of Delaware in July 2001.
 
Dole Food Company, Inc. and its consolidated subsidiaries (“Dole” or the “Company”) are engaged in the worldwide sourcing, processing, distributing and marketing of high quality, branded food products, including fresh fruit and vegetables, as well as packaged foods.
 
Operations are conducted throughout North America, Latin America, Europe (including eastern European countries), Asia (primarily in China, Japan, Korea, the Philippines and Thailand), the Middle East and Africa (primarily in South Africa). As a result of its global operating and financing activities, Dole is exposed to certain risks including changes in commodity pricing, fluctuations in interest rates, fluctuations in foreign currency exchange rates, as well as other environmental and business risks in both sourcing and selling locations.
 
Dole’s principal products are produced on both Company-owned and leased land and are also acquired through associated producer and independent grower arrangements. Dole’s products are primarily packed and processed by Dole and sold to wholesale, retail and institutional customers and other food product companies.
 
In March 2003, Dole completed a going-private merger transaction (“going-private merger transaction”). The privatization resulted from the acquisition by David H. Murdock, Dole’s Chairman, of the approximately 76% of Dole that he and his affiliates did not already own. As a result of the transaction, Dole became wholly-owned by Mr. Murdock through DHM Holding Company, Inc (“Holdings”).
 
In October 2009, Dole completed a $446 million initial public offering (“IPO”) of its common stock and received net proceeds of $415 million. Subsequent to the IPO, Mr. Murdock and his affiliates beneficially own approximately 58.6% of Dole’s outstanding common shares (refer to Note 3 for more information).
 
Note 2 — Basis of Presentation and Summary of Significant Accounting Policies
 
Basis of Consolidation:  Dole’s consolidated financial statements include the accounts of Dole Food Company, Inc. and its controlled subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
 
Annual Closing Date:  Dole’s fiscal year ends on the Saturday closest to December 31. The fiscal years 2009, 2008 and 2007 ended on January 2, 2010, January 3, 2009 and December 29, 2007, respectively. Dole operates under a 52/53 week year. Fiscal 2008 was a 53-week year. Fiscal 2009 and 2007 were both 52-week years. The impact of the additional week in fiscal 2008 was not material to Dole’s consolidated statement of operations or consolidated statement of cash flows.
 
Revenue Recognition:  Revenue is recognized at the point title and risk of loss is transferred to the customer, collection is reasonably assured, persuasive evidence of an arrangement exists and the price is fixed or determinable.
 
Sales Incentives:  Dole offers sales incentives and promotions to its customers (resellers) and to its consumers. These incentives include consumer coupons and promotional discounts, volume rebates and product placement fees. Dole follows the requirements of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”) Topic 605, “Revenue Recognition” (“ASC 605”). Consideration given to customers and consumers related to sales incentives is recorded as a reduction of revenues, rather than as a cost or expense. Estimated sales discounts are recorded in the period in which the related sale is recognized. Volume rebates are recognized as earned by the customer, based upon the contractual terms of the arrangement with the customer and, where applicable, Dole’s estimate of sales volume over the term of the arrangement. Adjustments to estimates are made periodically as new information becomes available and actual sales volumes become known. Adjustments to these estimates have historically not been significant to Dole.


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
Agricultural Costs:  Recurring agricultural costs include costs relating to irrigation, fertilizing, disease and insect control and other ongoing crop and land maintenance activities. Recurring agricultural costs are charged to operations as incurred or are recognized when the crops are harvested and sold, depending on the product. Non- recurring agricultural costs, primarily comprising soil and farm improvements and other long-term crop growing costs that benefit multiple harvests, are deferred and amortized over the estimated production period, currently from two to seven years.
 
Shipping and Handling Costs:  Amounts billed to third-party customers for shipping and handling are included as a component of revenues. Shipping and handling costs incurred are included as a component of cost of products sold and represent costs incurred by Dole to ship product from the sourcing locations to the end consumer markets.
 
Marketing and Advertising Costs:  Marketing and advertising costs, which include media, production and other promotional costs, are generally expensed in the period in which the marketing or advertising first takes place. In limited circumstances, Dole capitalizes payments related to the right to stock products in customer outlets or to provide funding for various merchandising programs over a specified contractual period. In such cases, Dole amortizes the costs over the life of the underlying contract. The amortization of these costs, as well as the cost of certain other marketing and advertising arrangements with customers, are classified as a reduction in revenues. Advertising and marketing costs, included in selling, marketing and general and administrative expenses, amounted to $92.1 million, $72.9 million and $77.1 million during the years ended January 2, 2010, January 3, 2009 and December 29, 2007.
 
Research and Development Costs:  Research and development costs are expensed as incurred. Research and development costs were not material for the years ended January 2, 2010, January 3, 2009 and December 29, 2007.
 
Income Taxes:  Dole accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred income tax assets for which it is deemed more likely than not that future taxable income will not be sufficient to realize the related income tax benefits from these assets. Dole establishes additional provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain positions that do not meet the minimum probability threshold, as defined by FASB ASC Topic 740, “Income Taxes” (“ASC 740”), which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority. In addition, once the recognition threshold for the tax position is met, only the portion of the tax benefit that is greater than 50 percent likely to be realized upon settlement with a taxing authority is recorded. The impact of provisions for uncertain tax positions, as well as the related net interest and penalties, are included in “income taxes” in the consolidated statements of operations. Income taxes, which would be due upon the repatriation of foreign subsidiary earnings, have not been provided where the undistributed earnings are considered indefinitely invested.
 
Cash and Cash Equivalents:  Cash and cash equivalents consist of cash on hand and highly liquid investments, primarily money market funds and time deposits, with original maturities of three months or less.
 
Grower Advances:  Dole makes advances to third-party growers primarily in Latin America and Asia for various farming needs. Some of these advances are secured with property or other collateral owned by the growers. Dole monitors these receivables on a regular basis and records an allowance for these grower receivables based on estimates of the growers’ ability to repay advances and the fair value of the collateral. Grower advances are stated at the gross advance amount less allowances for potentially uncollectible balances.
 
Inventories:  Inventories are valued at the lower of cost or market. Costs related to certain packaged foods products are determined using the average cost basis. Costs related to other inventory categories, including fresh


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
fruit and vegetables are determined on the first-in, first-out basis. Specific identification and average cost methods are also used primarily for certain packing materials and operating supplies. Crop growing costs primarily represent the costs associated with growing bananas, pineapples and vegetables on company-owned farms and for third-party farms, represent advances made to the grower for crops in process.
 
Investments:  Investments in affiliates and joint ventures with ownership of 20% to 50% are recorded on the equity method, provided Dole has the ability to exercise significant influence. All other non-consolidated investments are accounted for using the cost method. At January 2, 2010, January 3, 2009 and December 29, 2007, substantially all of Dole’s investments have been accounted for under the equity method.
 
Property, Plant and Equipment:  Property, plant and equipment is stated at cost plus the fair value of asset retirement obligations, if any, less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of these assets. Dole reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows directly associated with the asset are compared to the asset’s carrying amount. If this comparison indicates that there is an impairment, the amount of the impairment is calculated by comparing the carrying value to discounted expected future cash flows or comparable market values, depending on the nature of the asset. All long-lived assets, for which management has committed itself to a plan of disposal by sale, are reported at the lower of carrying amount or fair value less cost to sell. Long-lived assets to be disposed of other than by sale are classified as held and used until the date of disposal. Routine maintenance and repairs are charged to expense as incurred.
 
Goodwill and Intangibles:  Goodwill represents the excess cost of a business acquisition over the fair value of the identifiable net assets acquired. Goodwill and indefinite-lived intangible assets are reviewed for impairment annually, or more frequently if certain impairment indicators arise. Goodwill is allocated to various reporting units, which are either the operating segment or one reporting level below the operating segment. Fair values for goodwill and indefinite-lived intangible assets are determined based on discounted cash flows, market multiples or appraised values, as appropriate.
 
Dole’s indefinite-lived intangible asset, consisting of the DOLE brand, is considered to have an indefinite life because it is expected to generate cash flows indefinitely and as such is not amortized. Dole’s intangible assets with a definite life consist primarily of customer relationships. Amortizable intangible assets are amortized on a straight-line basis over their estimated useful life. The weighted average useful life of Dole’s customer relationships is 11 years.
 
Concentration of Credit Risk:  Financial instruments that potentially subject Dole to a concentration of credit risk principally consist of cash equivalents, derivative contracts, grower advances and trade receivables. Dole maintains its temporary cash investments with high quality financial institutions, which are invested primarily in short-term U.S. government instruments and certificates of deposit. The counterparties to Dole’s derivative contracts are major financial institutions. Grower advances are principally with farming enterprises located throughout Latin America and Asia and are secured by the underlying crop harvests. Credit risk related to trade receivables is mitigated due to the large number of customers dispersed worldwide. To reduce credit risk, Dole performs periodic credit evaluations of its customers but does not generally require advance payments or collateral. Additionally, Dole maintains allowances for credit losses. No individual customer accounted for greater than 10% of Dole’s revenues during the years ended January 2, 2010, January 3, 2009 and December 29, 2007. No individual customer accounted for greater than 10% of accounts receivable as of January 2, 2010, January 3, 2009 or December 29, 2007.
 
Fair Value of Financial Instruments:  Dole’s financial instruments primarily comprise short-term trade and grower receivables, trade payables, notes receivable and notes payable, as well as long-term grower receivables, capital lease obligations, term loans, a revolving loan, and notes and debentures. For short-term instruments, the carrying amount approximates fair value because of the short maturity of these instruments. For the long-term


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
financial instruments, excluding Dole’s secured and unsecured notes and debentures, and term loans, the carrying amount approximates fair value since they bear interest at variable rates or fixed rates which approximate market.
 
Dole also holds derivative instruments to hedge against foreign currency exchange, fuel pricing and interest rate movements. Dole’s derivative financial instruments are recorded at fair value. Dole estimates the fair values of its derivatives based on quoted market prices or pricing models using current market rates less any credit valuation adjustments (refer to Notes 16 and 17 for additional information).
 
Foreign Currency Exchange:  For subsidiaries with transactions that are denominated in a currency other than the functional currency, the net foreign currency exchange transaction gains or losses resulting from the translation of monetary assets and liabilities to the functional currency are included in determining net income. Net foreign currency exchange gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries whose functional currency is not the U.S. dollar are recorded as a part of cumulative translation adjustment in shareholders’ equity. Unrealized foreign currency exchange gains and losses on certain intercompany transactions that are of a long-term-investment nature (i.e., settlement is not planned or anticipated in the foreseeable future) are also recorded in cumulative translation adjustment in shareholders’ equity.
 
Leases:  Dole leases fixed assets for use in operations where leasing offers advantages of operating flexibility and is less expensive than alternative types of funding. Dole also leases land in countries where land ownership by foreign entities is restricted. Dole’s leases are evaluated at inception or at any subsequent modification and, depending on the lease terms, are classified as either capital leases or operating leases, as appropriate under FASB ASC Topic 840, “Leases” (“ASC 840”). For operating leases that contain rent escalations, rent holidays or rent concessions, rent expense is recognized on a straight-line basis over the life of the lease. The majority of Dole’s leases are classified as operating leases. Dole’s principal operating leases are for land and machinery and equipment. Dole’s capitalized leases primarily consist of two vessel leases. Dole’s decision to exercise renewal options is primarily dependent on the level of business conducted at the location and the profitability thereof. Dole’s leasehold improvements were not significant at January 2, 2010 or January 3, 2009.
 
Share Based Compensation:  Dole accounts for share based payments in accordance to FASB ASC Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires that share based payments be recognized in the consolidated statements of operations based on their fair value and the estimated number of shares Dole ultimately expects to vest. The estimated forfeiture rate is based on historical attrition data. Dole uses the Black-Scholes-Merten option pricing model to estimate the fair value of stock options grants. The option pricing model requires input of assumptions regarding expected term, expected volatility, dividend yield, and risk free rate. Expected term of the option grants is estimated using the simplified method permissible under SEC Staff Accounting Bulletin No. 107. Expected volatility of the option grants is estimated using annualized historical volatility of Dole’s significant competitors. Risk free rate is estimated using the implied yield available on U.S. Treasury securities with a maturity equivalent to the stock options’ expected term. Share based compensation is expensed on a straight-line basis over the service period of the awards (refer to Note 22 for further information).
 
Guarantees:  Dole makes guarantees as part of its normal business activities. These guarantees include guarantees of the indebtedness of some of its key fruit suppliers and other entities integral to Dole’s operations. Dole also issues bank guarantees as required by certain regulatory authorities, suppliers and other operating agreements as well as to support the borrowings, leases and other obligations of its subsidiaries. The majority of Dole’s guarantees relate to guarantees of subsidiary obligations and are excluded from the initial measurement and recognition provisions of FASB ASC Topic 460, “Guarantees” (“ASC 460”).
 
Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Estimates and assumptions include, but are not limited to, the areas of customer and grower receivables, inventories, impairment of assets, useful lives of property, plant and equipment, intangible assets, marketing programs, share based compensation,


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
income taxes, self-insurance reserves, retirement benefits, financial instruments and commitments and contingencies. Actual results could differ from these estimates.
 
Recently Adopted Accounting Pronouncements
 
Accounting Standards Codification — On July 1, 2009, the FASB Accounting Standards Codification became the single source of authoritative accounting principles generally accepted in the United States (“U.S. GAAP”) (other than rules and interpretive releases of the U.S. Securities and Exchange Commission). The Codification is topically based with topics organized by ASC number and updated with Accounting Standards Updates (“ASUs”). ASUs will replace accounting guidance that historically was issued as FASB Statements (“FAS”), FASB Interpretations (“FIN”), FASB Staff Positions (“FSP”), Emerging Issue Task Force (“EITF”) or other types of accounting standards. The Codification became effective for Dole during the third quarter of 2009 and disclosures within this Annual Report on Form 10-K reflect the change. Since the Codification did not alter existing U.S. GAAP, the adoption did not have any impact on Dole’s consolidated financial statements.
 
During May 2009 and February 2010, the FASB issued new accounting and disclosure guidance for recognized and non-recognized subsequent events. This guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. Dole adopted this guidance during its second fiscal quarter and it had no impact on Dole’s results of operations or financial position.
 
During December 2008, the FASB issued new disclosure guidance related to postretirement benefit plan assets. This guidance requires more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentration of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. It is effective for fiscal years ending after December 15, 2009. Dole adopted this guidance during its fourth fiscal quarter. The adoption had no impact on Dole’s results of operations or financial position.
 
During March 2008, the FASB issued new disclosure guidance related to derivative instruments and hedging activities. This guidance requires enhanced disclosures for derivative instruments, including those used in hedging activities. It is effective for fiscal years and interim periods beginning after November 15, 2008. Dole adopted this guidance at the beginning of its first fiscal quarter of 2009. The adoption had no impact on Dole’s results of operations or financial position.
 
During December 2007, the FASB issued new accounting and disclosure guidance related to noncontrolling interests in subsidiaries. This guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Dole adopted the provisions of this guidance as of the beginning of its 2009 fiscal year. This guidance is to be applied prospectively as of the beginning of 2009 except for the presentation and disclosure requirements which are to be applied retrospectively. The consolidated financial statements contained in this Annual Report conform to the presentation required under this guidance. Other than the change in presentation of noncontrolling interests, the adoption had no impact on Dole’s results of operations or financial position.
 
During December 2007, the FASB issued new accounting and disclosure guidance related to business combinations. This guidance provides revised requirements for recognizing and measuring assets acquired and liabilities assumed in a business combination. This guidance will be applied prospectively to business combinations with acquisition dates on or after January 1, 2009. As a result of the adoption, changes to valuation allowances and unrecognized tax benefits established in business combinations will be recognized in earnings.
 
Recently Issued Accounting Pronouncements
 
During June 2009, the FASB amended its guidance on accounting for variable interest entities (“VIE”), which changes the approach in determining the primary beneficiary of a VIE. Among other things, the new guidance


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE; requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE; enhances disclosures about an enterprise’s involvement with a VIE; and amends certain guidance for determining whether an entity is a VIE. This accounting guidance is effective for annual periods beginning after November 15, 2009, and will be applicable to Dole in the first quarter of fiscal 2010. Dole does not anticipate that the adoption of this guidance will have any impact on its consolidated financial statements.
 
Note 3 — Initial Public Offering
 
On October 28, 2009, Dole completed a $446 million IPO of 35,715,000 common shares at $12.50 per share. On October 23, 2009, Dole’s common stock began trading on the New York Stock Exchange under the ticker symbol “DOLE.” Upon the October 28, 2009 closing of the IPO, Dole received net proceeds of $415 million, reflecting $31 million of underwriting discount and offering expenses. The net proceeds were used by Dole to pay down indebtedness, as discussed more fully below. Dole’s chairman, David H. Murdock, and his affiliates beneficially own 51,710,000 common shares, or approximately 58.6% of Dole’s outstanding common shares.
 
Restructuring
 
Immediately prior to the IPO closing, Dole completed certain restructuring transactions as a result of which (1) Dole’s former parent holding company, Holdings, was merged into Dole, (2) some shares of Dole held by an affiliate of Mr. Murdock were redeemed in exchange for (a) the 85% interest in Westlake Wellbeing Properties, LLC (which owns the Four Seasons Hotel Westlake Village) formerly owned by Holdings, together with the assumption by such affiliate of $30 million of a debt obligation of Holdings and (b) 1,361 acres of idle land in Honduras owned by a subsidiary of Dole, and (3) Dole paid the remaining $85 million of the Holdings debt obligation in order to eliminate a pre-existing cross-default and cross-acceleration risk under which a default by Holdings on such debt could have resulted in a cross-default and cross-acceleration under Dole’s credit facilities and bond indentures. In the merger, each share of Holdings common stock outstanding immediately prior to the merger was converted into 51,710 shares of Dole common stock, and each share of Dole common stock outstanding immediately prior to the merger, each of which was held by Holdings, was cancelled. As a result of the merger of Holdings into Dole, the federal net operating loss carryforwards of Holdings became available to Dole, subject to normal statutory expiration periods. Holdings’ federal net operating loss carryforwards were approximately $167 million as of January 2, 2010. The tax effect, net of valuation allowances, has been recorded as an equity contribution to Dole.
 
In connection with the IPO, Holdings was merged into Dole in a downstream merger (the “Merger Transaction”), which was accounted for as a common control downstream merger at carryover basis and retrospectively included for all periods.
 
Immediately upon the closing of the Merger Transaction, Dole’s newly acquired interest in Westlake Wellbeing Properties, LLC (“WWP”) was transferred to Castle & Cooke Westlake Holdings, LLC (“C&C”), an entity owned and controlled by David H. Murdock. The transfer of WWP to C&C has been accounted for as a change in reporting entity, and the historical results of operations of WWP have been retrospectively excluded from our historical financial statements for all periods presented. Further, as the debt of Holdings (the “Hotel Loan”) relates to the assets of WWP, such debt and interest expense thereon has also been excluded from all historical periods in connection with the change in reporting entity.
 
The reason for the change in reporting entity was to modify Dole’s organizational structure in which only entities with businesses compatible to Dole’s core business would remain within the Dole entity. Specifically, WWP is an owner of a hotel and wellbeing center, which does not have any overlap at all with Dole’s product offerings and business models, and such businesses have no similarities in sources of revenues or key expenditures.
 
Accordingly, Dole’s historical financial statements have been retrospectively revised for all prior periods presented (three years of income statements and two years of balance sheets) to include the historical results and


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
balances of Holdings, excluding those balances of WWP which have been transferred to C&C. Further, Dole’s retrospectively revised historical financial statements exclude the Hotel Loan, which totaled $115 million at the date of the Merger Transaction, $135 million at January 3, 2009, and $180 million at December 29, 2007, and the resulting interest expense thereon.
 
In connection with the Merger Transaction, $85 million of the Hotel Loan was assumed by Dole and, concurrent with the IPO, paid off with IPO net proceeds. As such, the $85 million of debt has been reflected as a deemed assumption of debt at the Merger Transaction date by reducing shareholders’ equity. The subsequent payment of such debt has been reflected as a financing cash outflow in the accompanying 2009 consolidated statement of cash flows.
 
Further, in connection with the Merger Transaction, our retrospectively revised historical financial statements now include net deferred income tax assets of approximately $58 million related to net operating loss carryforwards of Holdings incurred prior to the Merger Transaction, which were principally related to losses incurred at WWP. As the underlying operations of WWP are now being excluded from our historical consolidated financial statements, the recorded net deferred tax assets of approximately $33.8 million, net of valuation allowances, of Holdings have been recorded as an equity contribution to Dole from C&C in the fourth quarter of 2009 in connection with the Merger Transaction.
 
If the change in reporting entity discussed above had not been made, Dole’s retrospectively revised historical consolidated financial statements prior to the transfer of WWP to C&C would have included the results of WWP, which would have had the effect of lowering Dole’s net income and comprehensive income by $27.5 million, $25.4 million, and $31.6 million for the years ended January 2, 2010, January 3, 2009, and December 29, 2007. The 2009 net income and comprehensive income amount of $27.5 million was through the date of the Merger Transaction. Further, if WWP were to have been included in Dole’s consolidated financial statements after the Merger Transaction, it would have been reflected as a discontinued operation and therefore would have had no impact on income from continuing operations. Accordingly, basic and diluted earnings per share including the results of WWP would have been lower by $0.47, $0.49, and $0.61, for the years ended January 2, 2010, January 3, 2009, and December 29, 2007, respectively. As noted, however, Dole’s financial statements have never, do not now, and will not include the results of WWP because Dole only owned an interest in WWP for an instant, on October 28, 2009, during the closing of the IPO and related transactions.
 
Debt Reduction
 
Dole used the net proceeds from the IPO to repay $47 million of amounts outstanding under its revolving credit facility, as well as making the $85 million debt repayment discussed above, which, as noted, resulted in the elimination of Dole’s pre-existing cross-default and cross-acceleration risk related to the Holdings debt. In addition, in November 2009, Dole used the net proceeds from the IPO to redeem $122.5 million of the 13.875% Senior Secured Notes due 2014 (“2014 Notes”) and $130 million of the 8.875% Senior Notes due 2011 (“2011 Notes”).
 
In connection with a trust offering occurring at the same time as the IPO, an affiliate of Mr. Murdock entered into a purchase agreement with a newly established trust pursuant to which Mr. Murdock has the option to deliver cash or shares of Dole’s common stock on exchange of the trust’s securities beginning on November 1, 2012. A portion of the net proceeds from such transaction was used to repay indebtedness of an affiliate of Mr. Murdock that had subjected Dole to an additional cross-default and cross-acceleration risk. As a result of this transaction, and the transactions relating to the former Holdings debt, all of Dole’s pre-existing cross-default and cross-acceleration risks arising from any indebtedness of Mr. Murdock or his affiliates have been eliminated. These transactions do not affect the customary cross-default and cross-acceleration provisions between the different categories of Dole’s own debt (see Note 11 for further information).


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
Stock Incentive Plan
 
In connection with the IPO, a stock incentive plan was approved by Dole’s Board of Directors and stockholder, in which 6 million shares of Dole common stock have been authorized for issuance. Additionally, Dole’s Board of Directors has approved the grant of: (1) 851,000 restricted shares of common stock and restricted stock units to certain employees and outside directors, effective upon closing of the IPO (of which 843,500 remained outstanding on March 15, 2010); and (2) 1,395,001 stock options to certain employees, effective upon the pricing of the IPO, at the exercise price of $12.50 which equals the fair value of the common stock on the date of grant (see Note 22 for more information).
 
Note 4 — Other Income (Expense), Net
 
Included in other income (expense), net in Dole’s consolidated statements of operations for fiscal 2009, 2008 and 2007 are the following items:
 
                         
    2009     2008     2007  
    (In thousands)  
 
Unrealized loss on the cross currency swap
  $ (21,051 )   $ (50,411 )   $ (10,741 )
Realized gain on the cross currency swap
    9,382       11,209       12,780  
Unrealized loss on foreign denominated borrowings
    (1,190 )     (1,119 )      
Realized gains (loss) on foreign denominated borrowings
    (436 )     4,708        
Foreign currency exchange gain (loss) on vessel obligation
    (6,326 )     21,300       (1,414 )
Write-off of debt issuance costs
    (5,601 )     (652 )      
Other
    495       899       1,223  
                         
Other income (expense), net
  $ (24,727 )   $ (14,066 )   $ 1,848  
                         
 
Refer to Note 16 — Derivative Financial Instruments for further discussion regarding Dole’s cross currency swap.
 
Note 5 — Discontinued Operations
 
During the second quarter of 2008, Dole approved and committed to a formal plan to divest its fresh-cut flowers operations (“Flowers transaction”). The first phase of the Flowers transaction was completed during the first quarter of 2009 (refer to Note 8 Assets Held-For-Sale). In addition, during the fourth quarter of 2007, Dole approved and committed to a formal plan to divest its citrus and pistachio operations (“Citrus”) located in central California. The operating results of Citrus were included in the fresh fruit operating segment. The sale of Citrus was completed during the third quarter of 2008. In evaluating the two businesses, Dole concluded that they met the definition of a discontinued operation, as defined in ASC Topic 205, “Presentation of Financial Statements” (“ASC 205”). Accordingly, the results of operations of these businesses have been reclassified for all periods presented.


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
The operating results of fresh-cut flowers and Citrus for fiscal 2009, 2008 and 2007 are reported in the following table:
 
                         
    Fresh-Cut Flowers     Citrus     Total  
    (In thousands)  
 
2009
                       
Revenues
  $ 4,154     $     $ 4,154  
                         
Income before income taxes
  $ 1,160     $     $ 1,160  
Income taxes
    479             479  
                         
Income from discontinued operations, net of income taxes
  $ 1,639     $     $ 1,639  
                         
Gain on disposal of discontinued operations, net of income taxes
  $ 1,308     $     $ 1,308  
                         
2008
                       
Revenues
  $ 106,919     $ 5,567     $ 112,486  
                         
Loss before income taxes
  $ (43,235 )   $ (1,408 )   $ (44,643 )
Income taxes
    16,936       316       17,252  
                         
Loss from discontinued operations, net of income taxes
  $ (26,299 )   $ (1,092 )   $ (27,391 )
                         
Gain on disposal of discontinued operations, net of income taxes of $4.3 million
  $     $ 3,315     $ 3,315  
                         
2007
                       
Revenues
  $ 110,153     $ 13,586     $ 123,739  
                         
Income (loss) before income taxes
  $ (19,146 )   $ 733     $ (18,413 )
Income taxes
    2,994       (300 )     2,694  
                         
Income (loss) from discontinued operations, net of income taxes
  $ (16,152 )   $ 433     $ (15,719 )
                         
 
Included in the fresh-cut flowers loss before income taxes for fiscal 2008 was $17 million of impairment charges on the assets sold in the first phase of the Flowers transaction. Included in the fresh-cut flowers loss for fiscal 2007 was $1.1 million of charges related to restructuring costs and impairment charges associated with the write-off of certain long-lived assets, intangible assets and inventory.
 
Net income attributable to noncontrolling interests included in Citrus income (loss) from discontinued operations was $0.5 million and $0.4 million for fiscal years 2008 and 2007, respectively. Gain on disposal of discontinued operations, net of income taxes, for Citrus for fiscal 2008 included noncontrolling interest expense of $12.3 million.


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
 
Note 6 — Income Taxes
 
Income tax expense (benefit) was as follows:
 
                         
    2009     2008     2007  
          (In thousands)        
 
Current
                       
Federal, state and local
  $ 308     $ 835     $ 735  
Foreign
    24,684       22,753       15,399  
                         
      24,992       23,588       16,134  
                         
Deferred
                       
Federal, state and local
    (2,151 )     (16,218 )     (29,122 )
Foreign
    4,037       (3,723 )     (3,573 )
                         
      1,886       (19,941 )     (32,695 )
                         
Non-current tax (benefit) expense
    (4,194 )     (51,662 )     20,615  
                         
    $ 22,684     $ (48,015 )   $ 4,054  
                         
 
Pretax earnings attributable to foreign operations including earnings from discontinued operations, equity method investments and noncontrolling interests were $208.0 million, $185.5 million and $53.9 million for the years ended January 2, 2010, January 3, 2009 and December 29, 2007, respectively. In addition to previously taxed income, Dole repatriated approximately $60 million of current year foreign earnings during fiscal 2009. Dole has not provided for U.S. federal income and foreign withholding taxes on approximately $2.4 billion of the excess of the amount for financial reporting over the tax basis of investments that are essentially permanent in duration. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is currently not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
 
Dole’s reported income tax expense (benefit) on continuing operations differed from the expense calculated using the U.S. federal statutory tax rate for the following reasons:
 
                         
    2009     2008     2007  
          (In thousands)        
 
Expense (benefit) computed at U.S. federal statutory income tax rate of 35%
  $ 34,185     $ 32,383     $ (12,668 )
Foreign income taxed at different rates
    (16,569 )     (40,236 )     8,963  
State and local income tax, net of federal income taxes
    (6,626 )     (8,467 )     (3,948 )
Valuation allowances
    12,708       9,787       11,071  
U.S. Appeals Settlement and other changes in liabilities for uncertain tax positions
    (4,036 )     (36,993 )      
Non-deductible goodwill, permanent items and other
    3,022       (4,489 )     636  
                         
Income tax expense (benefit)
  $ 22,684     $ (48,015 )   $ 4,054  
                         


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
Deferred tax assets (liabilities) comprised the following:
 
                 
    January 2,
    January 3,
 
    2010     2009  
    (In thousands)  
 
Intangibles
  $ (295,797 )   $ (295,362 )
Property, plant and equipment
    (127,054 )     (134,819 )
Investment and other asset basis differences
    14,261       34,534  
Postretirement benefits
    80,390       59,132  
Operating accruals
    51,458       71,698  
Tax credit carryforwards
    22,404       21,753  
Net operating loss and other carryforwards
    176,361       106,383  
Valuation allowances
    (172,785 )     (144,083 )
Other, net
    54,691       47,832  
                 
    $ (196,071 )   $ (232,932 )
                 
 
Dole has gross federal, state and foreign net operating loss carryforwards of $264.2 million, $970.8 million and $141.7 million, respectively, at January 2, 2010. Dole has recorded deferred tax assets of $93.8 million for federal net operating loss and other carryforwards, which, if unused, will expire between 2023 and 2029. Dole has recorded deferred tax assets of $44.5 million for state operating loss carryforwards with varying expiration rules, which, if unused, approximately $5.8 million will expire in 2010. Dole has recorded deferred tax assets of $1.5 million for state capital loss carryforwards primarily relating to the sale of its fresh-cut flowers operations, which if unused expires in 2014. Dole has recorded deferred tax assets of $36.5 million for foreign net operating loss carryforwards which are subject to varying expiration rules. Tax credit carryforwards of $22.4 million include foreign tax credit carryforwards of $18.4 million which will expire in 2011, U.S. general business credit carryforwards of $0.4 million which expire between 2023 and 2028, and state tax credit carryforwards of $3.6 million which can be carried forward indefinitely. Dole has recorded a U.S. deferred tax asset of $44.7 million for disallowed interest expense which, although subject to certain limitations, can be carried forward indefinitely.
 
A valuation allowance has been established to offset foreign tax credit carryforwards, a portion of the federal net operating loss carryforwards, state net operating loss carryforwards, state capital loss carryforwards and certain other state deferred tax assets, certain foreign net operating loss carryforwards and certain other deferred tax assets in foreign jurisdictions. Dole has deemed it more likely than not that future taxable income in the relevant taxing jurisdictions will be insufficient to realize all of the related income tax benefits for these assets.


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
Total deferred tax assets and deferred tax liabilities were as follows:
 
                 
    January 2,
    January 3,
 
    2010     2009  
    (In thousands)  
 
Deferred tax assets
  $ 581,884     $ 489,343  
Deferred tax asset valuation allowance
    (170,162 )     (144,083 )
                 
      411,722       345,260  
Deferred tax liabilities
    (607,793 )     (578,192 )
                 
Net deferred tax liabilities
  $ (196,071 )   $ (232,932 )
                 
Current deferred tax assets consist of:
               
Deferred tax assets, net of valuation allowance
  $ 46,655     $ 54,508  
Deferred tax liabilities
    (38,159 )     (33,235 )
                 
Net current deferred tax assets
    8,496       21,273  
Non-current deferred tax liabilities consist of:
               
Deferred tax assets, net of valuation allowance
    365,066       290,752  
Deferred tax liabilities
    (569,633 )     (544,957 )
                 
Net non-current deferred tax liabilities
    (204,567 )     (254,205 )
                 
Net deferred tax liabilities
  $ (196,071 )   $ (232,932 )
                 
 
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):
 
                         
    January 2,
    January 3,
    December 29,
 
    2010     2009     2007  
    (In thousands)  
 
Unrecognized tax benefits — opening balance
  $ 115,868     $ 204,421     $ 200,641  
Gross increases — tax positions in prior period
    15,444       14,361       10,837  
Gross decreases — tax positions in prior period
    (22,721 )     (346 )     (13,448 )
Gross increases — tax positions in current period
    3,866       4,654       8,284  
Settlements*
    (278 )     (105,139 )     (1,793 )
Lapse of statute of limitations
    (2,871 )     (2,083 )     (100 )
                         
Unrecognized tax benefits — ending balance
  $ 109,308     $ 115,868     $ 204,421  
                         
 
 
* 2008 activity includes $110 million reduction in gross unrecognized tax benefits due to the settlement of the federal income tax audit for the years 1995 to 2001 less a cash refund received of $6 million on this settlement plus various state and foreign audit settlements totaling approximately $1 million.
 
The total for unrecognized tax benefits, including interest and penalties, was $138 million and $143 million at January 2, 2010 and January 3, 2009, respectively. If recognized, approximately $126.5 million, net of federal and state tax benefits, would be recorded as a component of income tax expense and accordingly impact the effective tax rate.
 
Dole recognizes accrued interest and penalties related to its unrecognized tax benefits as a component of income taxes in the accompanying consolidated statements of operations. Accrued interest and penalties before tax benefits were $28.3 million and $26.9 million at January 2, 2010 and January 3, 2009, respectively, and are included as a component of other long-term liabilities in the consolidated balance sheets. Interest and penalties recorded in Dole’s consolidated statements of operations for 2009, 2008 and 2007 were $1.7 million, ($32.2) million, including the impact of the settlement, and $17.2 million, respectively.


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
Dole Food Company, Inc. or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, Dole is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2001.
 
Income Tax Audits:  Dole believes its tax positions comply with the applicable tax laws and that it has adequately provided for all tax related matters. Matters raised upon audit may involve substantial amounts and could result in material cash payments if resolved unfavorably; however, management does not believe that any material payments will be made related to these matters within the next twelve months. Management considers it unlikely that the resolution of these matters will have a material adverse effect on Dole’s results of operations.
 
Internal Revenue Service Audit:  On August 27, 2009, the IRS completed its examination of Dole’s U.S. federal income tax returns for the years 2002-2005 and issued a Revenue Agent’s report (“RAR”) that includes various proposed adjustments, including with respect to the going-private merger transactions. The IRS is proposing that certain funding used in the going-private merger is currently taxable and that certain related investment banking fees are not deductible. The net tax deficiency asserted in the RAR is $122 million, plus interest. On October 27, 2009, Dole filed a protest letter vigorously challenging the proposed adjustments contained in the RAR and is pursuing resolution of these issues with the Appeals Division of the IRS. Dole believes, based in part upon the advice of its tax advisors, that its tax treatment of such transactions was appropriate. Although the timing and ultimate resolution of any issues arising from the IRS examination are highly uncertain, at this time Dole does not anticipate that the total unrecognized tax benefits will significantly change within the next twelve months nor does Dole believe that any material tax payments will be made related to these matters within the next twelve months.
 
On November 6, 2009, “The Worker, Homeownership, and Business Assistance Act of 2009” was signed into law allowing companies to carry back net operating losses for up to five years for losses incurred in taxable years beginning or ending in either 2008 or 2009. Dole estimates that this new law effectively reduces the amount of the IRS claim from $122 million to $91 million. As noted, however, Dole is pursuing its objection to the proposed adjustments in the RAR.
 
Note 7 — Details of Certain Assets and Liabilities
 
Details of receivables and inventories were as follows:
 
                 
    January 2,
    January 3,
 
    2010     2009  
    (In thousands)  
 
Receivables
               
Trade
  $ 609,269     $ 684,053  
Notes and other
    126,559       120,976  
Grower advances
    38,260       34,861  
Unrealized hedging gain
    3,243       5,625  
Income tax refund
    206       3,077  
                 
      777,537       848,592  
Allowance for doubtful accounts
    (51,380 )     (41,357 )
                 
    $ 726,157     $ 807,235  
                 
Inventories
               
Finished products
  $ 355,387     $ 344,643  
Raw materials and work in progress
    100,843       168,670  
Crop-growing costs
    207,312       210,263  
Operating supplies and other
    54,649       72,831  
                 
    $ 718,191     $ 796,407  
                 


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
Accounts payable consists primarily of trade payables.
 
Accrued liabilities included the following:
 
                 
    January 2,
    January 3,
 
    2010     2009  
    (In thousands)  
 
Employee-related costs and benefits
  $ 101,142     $ 127,162  
Amounts due to growers
    83,561       64,746  
Marketing and advertising
    70,534       64,256  
Shipping related costs
    53,821       49,622  
Materials and supplies
    35,604       27,217  
Interest
    37,708       25,820  
Unrealized cross currency swap, interest rate swap and hedging losses
    247       80,760  
Other
    58,223       50,562  
                 
    $ 440,840     $ 490,145  
                 
 
Other long-term liabilities were as follows:
 
                 
    January 2,
    January 3,
 
    2010     2009  
    (In thousands)  
 
Accrued postretirement and other employee benefits
  $ 271,247     $ 245,357  
Liability for unrecognized tax benefits
    86,403       90,767  
Unrealized cross currency swap and interest rate swap losses
    84,149        
Other
    81,434       85,655  
                 
    $ 523,233     $ 421,779  
                 
 
Note 8 — Assets Held-for-Sale
 
Dole continuously reviews its assets in order to identify those assets that do not meet Dole’s future strategic direction or internal economic return criteria. As a result of this review, Dole has identified and is in the process of selling certain businesses and long-lived assets. In accordance with ASC 205, Dole has reclassified these assets as held-for-sale.
 
Total assets held-for-sale by segment were are follows:
 
                                         
                      Fresh-Cut
       
                      Flowers—
       
          Fresh
    Packaged
    Discontinued
    Total Assets
 
    Fresh Fruit     Vegetables     Foods     Operation     Held-For-Sale  
    (In thousands)  
 
Balance as of January 3, 2009
  $ 98,105     $ 38,600     $ 4,182     $ 61,989     $ 202,876  
Additions
    48,606       599                   49,205  
Sales
    (70,394 )     (35,349 )     (968 )     (49,350 )     (156,061 )
                                         
Balance as of January 2, 2010
  $ 76,317     $ 3,850     $ 3,214     $ 12,639     $ 96,020  
                                         
 
Assets held-for-sale included in Dole’s consolidated balance sheet at January 2, 2010 consist of property, plant and equipment, net of accumulated depreciation.


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
Total liabilities held-for-sale by segment were are follows:
 
                                         
                      Fresh-Cut
       
                      Flowers—
       
          Fresh
    Packaged
    Discontinued
    Total Liabilities
 
    Fresh Fruit     Vegetables     Foods     Operation     Held-For-Sale  
                (In thousands)        
 
Balance as of January 3, 2009
  $ 5,247     $     $     $ 45,218     $ 50,465  
Additions
    13,893                         13,893  
Sales
    (19,140 )                 (45,218 )     (64,358 )
                                         
Balance as of January 2, 2010
  $     $     $     $     $  
                                         
 
Dole received total cash proceeds of $179.7 million on assets sold during the year ended January 2, 2010, which are related to the asset sale program. The total realized gain recorded from the asset sale program was $62.6 million for the year ended January 2, 2010, which included $1.3 million related to the fresh-cut flowers discontinued operation. Realized gains on asset sales related to continuing operations of $61.3 million are shown as a separate component of operating income in the consolidated statement of operations for the year ended January 2, 2010.
 
Dole received cash proceeds of $226.5 million on assets sold during the year ended January 3, 2009, including $214 million on assets which had been reclassified as held-for-sale. The total realized gain recorded from the asset sales was $30.3 million for the year ended January 3, 2009, which included $3.3 million related to the Citrus discontinued operation. Realized gains on asset sales related to continuing operations of $27 million are shown as a separate component of operating income in the consolidated statement of operations for the year ended January 3, 2009.
 
Fresh Fruit
 
During the year ended January 2, 2010, Dole added $48.6 million to the assets held-for-sale balance in the fresh fruit reporting segment. These assets which were reclassified to held-for-sale primarily consisted of four farms located in Chile and Costa Rica, a warehouse facility in Chile, four box plants located in Chile, Ecuador, Costa Rica and Honduras, and an Italian port operation.
 
Dole sold the following assets during the year ended January 2, 2010, which had been classified as held-for-sale: a portion of its Latin American banana operations, four box plants located in Chile, Ecuador, Costa Rica and Honduras, three farms located in Costa Rica and Chile, a Colombian container port yard, and an Italian port operation. Dole received total cash proceeds from these sales of $112.2 million and recorded a gain on the sale of $56.7 million. Of the total net proceeds of $129.5 million from these sales, Dole collected $2 million in 2008 and recorded $15.3 million in receivable as of January 2, 2010, which will be collected through fiscal year 2011.
 
At January 2, 2010, the assets held-for-sale balance in the fresh fruit reporting segment consists primarily of approximately 8,600 acres of land in Hawaii and in Chile, a packing and cooling facility, a warehouse facility and a farm.
 
Fresh Vegetables
 
During the first quarter of 2009, Dole completed the sale of approximately 1,100 acres of vegetable property located in California. Dole received cash proceeds of $44.5 million and recorded a gain on the sale of $9.2 million.
 
At January 2, 2010, the assets held-for sale balance in the fresh vegetable reporting segment consists primarily of a campus facility and related property and equipment located in California.


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DOLE FOOD COMPANY, INC.
 
NOTES TO CONSOLIDATED STATEMENTS — (Continued)
 
Packaged Foods
 
During the year ended January 2, 2009, Dole sold approximately 160 acres of peach orchards located in California. Dole received cash proceeds of $1.9 million and recorded a gain on the sale of $0.9 million.
 
At January 2, 2010, the assets held-for-sale balance in the packaged foods reporting segment consists primarily of approximately 400 acres of peach orchards located in California.
 
Fresh-Cut Flowers — Discontinued Operation
 
During January 2009, the first phase of the Flowers transaction was completed. Net proceeds from the sale totaled approximately $29.3 million. Of this amount, $21 million was collected in cash and the remaining $8.3 million was recorded as a receivable, which comes due in January 2011. Dole recorded a gain on the sale of $1.3 million, which is included as a component of gain on disposal from discontinued operations, net of income taxes in the consolidated statement of operations for the fiscal year ended January 2, 2010.
 
At January 2, 2010, the assets held-for-sale balance in the fresh-cut flowers — discontinued operation consists of a portion of the real estate of the former flowers divisions to be sold in subsequent phases of the transaction. During January 2010, Dole was notified by the buyer of our flowers business that it was exercising its option to purchase a portion of the assets with closing expected during the second quarter of 2010. The remaining assets can be purchased by the buyer under separate option contracts, one of which will expire in April 2010 and the other in July 2010. Upon completion of the sale in 2010 and the exercise of the remaining options, Dole will have received sales proceeds of approximately $28 million on assets with a net book value of $10 million.
 
Note 9 — Property, Plant and Equipment
 
Major classes of property, plant and equipment were as follows:
 
                 
    January 2,
    January 3,
 
    2010     2009  
    (In thousands)  
 
Land and land improvements
  $ 521,045     $ 523,355  
Buildings and leasehold improvements
    398,650       398,371  
Machinery and equipment
    798,787       810,722  
Vessels and containers
    192,146       201,178  
Vessels and equipment under capital leases
    91,593       91,392  
Construction in progress
    29,325       52,658  
                 
      2,031,546       2,077,676  
Accumulated depreciation
    (1,069,299 )     (1,027,345 )
                 
    $ 962,247     $ 1,050,331  
                 
 
Depreciation is computed by the straight-line method over the estimated useful lives of the assets as follows:
 
     
    Years
 
Land improvements
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