Dole Food Company, Inc.

Transcription

1 Dole Food Company, Inc. Unaudited Condensed Consolidated Financial Statements as of October 7, 2017 and December 31, 2016 and for the Quarters and October 7, 2017 and October 8, 2016 Management s Discussion and Analysis of Financial Condition and Results of Operations

2 DOLE FOOD COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Quarter Ended October 7, 2017 October 8, 2016 October 7, 2017 October 8, 2016 (In thousands except per share data) Revenues, net... $ 1,284,578 $ 1,316,217 $ 3,444,623 $ 3,496,552 Cost of products sold... (1,222,523) (1,244,637) (3,180,432) (3,265,629) Gross profit... 62,055 71, , ,923 Selling, marketing and general and administrative expenses (62,975) (60,742) (160,154) (147,860) Merger transaction, litigation settlement and other related costs... (565) 6,077 Gain on asset sales ,322 2,052 15,130 Operating (loss) income... (1,360) 19, ,166 98,193 Other (expense) income, net... (4,731) 2,616 (23,559) (923) Interest income... 1,296 1,149 3,275 3,787 Interest expense... (22,302) (21,808) (57,145) (52,814) Income (loss) from continuing operations before income taxes and equity earnings (loss)... (27,097) 1,117 34,737 48,243 Income tax benefit (expense)... 32,321 4,950 7,739 (6,352) Earnings (loss) from equity method investments (16) Income from continuing operations, net of income taxes... 5,522 6,051 43,297 41,953 Income (loss) from discontinued operations, net of income taxes (7,043) 46 (5,960) Net income (loss)... 5,535 (992) 43,343 35,993 Less: Net loss (income) attributable to noncontrolling interests (337) (589) (625) Net income (loss) attributable to Dole Food Company, Inc.... $ 5,612 $ (1,329) $ 42,754 $ 35,368 Earnings per share Basic and Diluted: Income (loss) from continuing operations excluding net income attributable to noncontrolling interests... $ 5,599 $ 5,714 $ 42,708 $ 41,328 Net income (loss) attributable to Dole Food Company, Inc.. 5,612 (1,329) 42,754 35,368 See Notes to Unaudited Condensed Consolidated Financial Statements 1

3 DOLE FOOD COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Quarter Ended October 7, 2017 October 8, 2016 October 7, 2017 October 8, 2016 Net income (loss)... $ 5,535 $ (992) $ 43,343 $ 35,993 Foreign currency translation adjustment, net of income tax of $0 for all periods presented... 11,435 (1,072) 23,931 6,921 Comprehensive income (loss)... 16,970 (2,064) 67,274 42,914 Less: Comprehensive (income) loss attributable to noncontrolling interests (337) (589) (625) Comprehensive income (loss) attributable to Dole Food Company, Inc.... $ 17,047 $ (2,401) $ 66,685 $ 42,289 See Notes to Unaudited Condensed Consolidated Financial Statements 2

4 DOLE FOOD COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) October 7, 2017 December 31, 2016 (In thousands, except share data) ASSETS Cash and cash equivalents... $ 166,080 $ 36,628 Restricted cash and investments... 5,937 7,261 Receivables, net of allowances of $29,240 and $19,369, respectively , ,960 Inventories , ,845 Prepaid expenses and other assets... 60,608 42,517 Assets held-for-sale... 11,957 6,686 Total current assets , ,897 Investments... 24,990 24,253 Actively marketed property , ,716 Property, plant and equipment, net of accumulated depreciation of $373,694 and $289,457, respectively... 1,114,615 1,171,982 Goodwill , ,503 Intangible assets, net , ,678 Other assets, net... 94,192 96,667 Total assets... $ 2,878,325 $ 2,906,696 LIABILITIES AND EQUITY Accounts payable... $ 303,685 $ 298,827 Accrued liabilities , ,058 Notes payable and current portion of long-term debt, net... 37,156 74,005 Total current liabilities , ,890 Long-term debt, net... 1,326,568 1,219,533 Deferred income tax liabilities , ,613 Other long-term liabilities , ,462 Commitments and contingencies (Note 14) Shareholder s equity Common stock $0.001 par value; 1,000 shares authorized, issued and outstanding as of October 7, 2017 and December 31, Additional paid-in capital , ,184 Notes receivable from affiliates... (14,510) (14,000) Accumulated deficit... (182,218) (224,972) Accumulated other comprehensive loss... (64,445) (88,376) Equity attributable to Dole Food Company, Inc , ,836 Equity attributable to noncontrolling interests... 8,283 8,362 Total equity , ,198 Total liabilities and equity... $ 2,878,325 $ 2,906,696 See Notes to Unaudited Condensed Consolidated Financial Statements 3

5 DOLE FOOD COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) October 7, 2017 October 8, 2016 Operating Activities Net income... $ 43,343 $ 35,993 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization... 79,099 81,841 Net unrealized loss on financial instruments... 34,402 12,616 Asset write-offs and net gain on sale of assets... (785) (15,003) Earnings from equity method investments... (821) (62) Amortization of debt discounts and debt issuance costs... 3,704 5,029 Refinancing charges... 17,467 Provision for deferred income taxes... (8,396) (8,692) Pension and other postretirement benefit plan expense... 5,144 4,607 Other Changes in operating assets and liabilities: Receivables, net of allowances... 48,473 28,797 Inventories... 12,787 5,839 Prepaid expenses and other assets... (14,132) (20,475) Income taxes... (27,641) (919) Accounts payable... (291) (1,905) Accrued and other long-term liabilities... (113,162) (52,170) Cash flow provided by operating activities... 79,633 75,600 Investing Activities Cash received from sales of assets... 27,398 30,189 Capital expenditures... (28,361) (139,880) Sales of restricted investments... 2,386 3,977 Purchases of restricted investments... (538) (80) Investments in non-consolidated affiliates... (357) (739) Restricted cash and deposits... 1,180 3,248 Related party notes... 20,000 Other (1,737) Cash flow provided by (used in) investing activities... 1,862 (85,022) Financing Activities Short-term debt borrowings... 16,751 2,570 Short-term debt repayments... (29,362) (49,452) Long-term debt borrowings... 1,441, ,904 Long-term debt repayments... (1,356,135) (526,794) Payment of debt issuance costs... (25,421) (3,973) Payment of initial public offering transaction costs... (1,555) Dividends paid to noncontrolling interests... (668) (618) Dividends paid to DFC Holdings, LLC... (53,936) Cash flow provided by financing activities... 44, Effect of foreign currency exchange rate changes on cash... 3,077 (310) Increase (decrease) in cash and cash equivalents ,452 (9,031) Cash and cash equivalents at beginning of period... 36,628 83,210 Cash and cash equivalents at end of period... $ 166,080 $ 74,179 Supplemental cash flow information: Accrued property, plant and equipment... $ 1,890 $ 834 Income tax payments, net of refunds... 28,298 15,961 Interest payments on borrowings... 47,082 41,369 See Notes to Unaudited Condensed Consolidated Financial Statements 4

6 DOLE FOOD COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER S EQUITY (Unaudited) Equity Attributable to Dole Food Company, Inc. Accumulated Other Comprehensive Income (Loss) Common Shares Common Outstanding Stock Additional Paid-In Capital Notes Receivable from Affiliates Accumulated Deficit Pension & Other Postretirement Benefits Cumulative Translation Adjustment Equity Attributable to Noncontrolling Interests Total Equity Balance at January 2, $ $ 796,184 $ $ (140,993) $ (17,276) $ (55,912) $ 8,254 $ 590,257 Net income (loss)... 35, ,993 Notes receivable from affiliates... (14,203) (14,203) Dividends paid... (53,936) (618) (54,554) Foreign currency translation adjustment, net of income tax of $0.. 6,921 6,921 Balance at October 8, $ $ 796,184 $ (14,203) $ (159,561) $ (17,276) $ (48,991) $ 8,261 $ 564,414 Balance at December 31, $ $ 796,184 $ (14,000) $ (224,972) $ (24,052) $ (64,324) $ 8,362 $ 477,198 Net income (loss)... 42, ,343 Interest receivable from affiliates (510) Dividends paid... (668) (668) Foreign currency translation adjustment, net of income tax of $0.. 23,931 23,931 Balance at October 7, $ $ 796,694 $ (14,510) $ (182,218) $ (24,052) $ (40,393) $ 8,283 $ 543,804 See Notes to Unaudited Condensed Consolidated Financial Statements 5

7 DOLE FOOD COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 BASIS OF PRESENTATION In the opinion of management, the unaudited condensed consolidated financial statements of Dole Food Company, Inc. and its consolidated subsidiaries ( Dole or the Company ) include all adjustments necessary, which are of a normal recurring nature, to present fairly Dole s financial position, results of operations and cash flows. Dole operates under a 52/53-week year. The quarters ended October 7, 2017 and October 8, 2016 were sixteen weeks in duration. For a summary of significant accounting policies and additional information relating to Dole s financial statements, refer to the notes of Dole s consolidated financial statements for the year ended December 31, Interim results are subject to seasonal variations and are not necessarily indicative of the results of operations for a full year. Dole s operations are sensitive to a number of factors including weather-related phenomena and their effects on industry volumes, prices, product quality and costs. Operations are also sensitive to fluctuations in foreign currency exchange rates in both sourcing and selling locations as well as economic crises and security risks. Dole was incorporated under the laws of Delaware in 2001 and was reincorporated under the laws of North Carolina in September On April 24, 2017, Dole filed an S-1 registration statement with the Securities and Exchange Commission to begin the initial public offering process. NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS In August 2015, the Financial Accounting Standards Board ( FASB ) issued guidance which defers the effective date by one year of a previously issued guidance to revise the revenue recognition requirements for all entities. The previously issued guidance was issued in May 2014, which revised revenue recognition requirements to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards ( IFRS ). The core principle is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting amendment is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those reporting periods, with provisions for earlier application. The amendment can be adopted either retrospectively in each prior reporting period presented or using a modified retrospective approach with the cumulative effect of initially applying the amendment recognized in retained earnings upon adoption at the date of initial application. Dole has not yet determined what transition method it will use and is currently assessing the impact that the future adoption of this guidance may have on its Consolidated Financial Statements. Dole is currently in the process of analyzing its customer contracts and other arrangements to identify policy differences in applying the new guidance. Based on Dole s preliminary analysis of its customer contracts, Dole expects that substantially all of its revenues will continue to be recognized at a point in time, generally upon shipment of products, consistent with Dole s current revenue recognition model. In certain instances, the consideration received under customer contracts includes variable consideration related to volume discounts, rebates, and other promotional items given to customers that are currently reflected as a reduction in revenues, and Dole is currently in the process of identifying any potential differences in applying the new guidance to these items. With respect to certain costs incurred to acquire new contracts with customers (i.e. selling costs), the adoption of the new requirements may result in Dole deferring additional costs on the Consolidated Balance Sheets and subsequently amortizing these costs to the Consolidated Statement of Operations over the expected customer life or contract period. Our evaluation of the revised revenue recognition requirements is ongoing and not complete. In March 2016, the FASB issued guidance which simplifies the accounting for equity method investments if an investment becomes eligible to use the equity method of accounting as a result of increase in the level of ownership or influence by removing the requirement for an entity to retroactively adopt the equity method of accounting. The amendment also requires for the cost of acquiring the additional interest in the investee to be added to the equity method investor s current basis of its previously held interest and implement the equity method of accounting as of the date the investment qualifies for equity method accounting. The accounting amendment is effective for annual periods, and interim periods within those periods, beginning after December 15, The adoption of this guidance did not have a material impact on Dole s consolidated financial statements. 6

8 In October 2016, the FASB issued guidance which requires a single decision maker of a variable interest entity ( VIE ) to consider indirect economic interests in the entity held through related parties that are under common control on a proportionate basis when determining whether it is the primary beneficiary of that VIE. The amendment does not change the existing characteristics of a primary beneficiary. The accounting amendment is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. The adoption of this guidance did not have a material impact on Dole s consolidated financial statements. In March 2017, the FASB issued guidance which requires an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The accounting amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Earlier application of this amendment is permitted and must be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. The adoption of this guidance is not expected to have a material impact on Dole s consolidated financial statements. NOTE 3 OTHER INCOME (EXPENSE), NET Included in other income (expense), net in Dole s unaudited condensed consolidated statements of operations are the following items: Quarter Ended October 7, 2017 October 8, 2016 October 7, 2017 October 8, 2016 Unrealized gain (loss) on foreign denominated intercompany borrowings. $ (8,110) $ 1,214 $ (15,500) $ (10,235) Realized gain on foreign denominated intercompany borrowings ,479 Refinancing charges... (94) (17,467) Gain on derivative instruments... 2,754 5,644 Gain on investments ,292 2,654 2,302 Other Other income (expense), net... $ (4,731) $ 2,616 $ (23,559) $ (923) NOTE 4 CHARGES FOR RESTRUCTURING In the third quarter of 2017, Dole committed to a restructuring plan for its berry operations to ensure alignment with its growth objectives. As part of this plan, Dole will close its berry farms in the United States ( U.S. ) and reduce its workforce. Dole will continue to sell berries in the U.S. that will be sourced elsewhere. As a result of this restructuring plan, Dole incurred restructuring costs of $8.9 million. Of the total charges incurred, $8.5 million is included in cost of products sold, and $0.4 million is included in selling, marketing and general and administrative expenses in the unaudited condensed consolidated statement of operations for the quarter ended October 7, During the same period, severance and other employee-related charges for employee terminations involved 184 employees. 7

9 The following table summarizes the restructuring charges: Charges Incurred During the Quarter Ended October 7, 2017 Severance and other employee-related costs... $ 925 Asset write-downs and accelerated depreciation... 6,978 Lease abandonment costs... 1,032 Total charges incurred... $ 8,935 Of the total charges incurred, $1.4 million were included in restructuring liabilities, which are classified in accrued liabilities in the unaudited condensed consolidated balance sheet at October 7, In connection with this restructuring plan, Dole expects to incur an additional $15.9 million in restructuring costs over the next year. NOTE 5 LONG-TERM RECEIVABLES At October 7, 2017, Dole s long-term financing receivables consisted of $14.7 million of grower advances, net of $2.0 million of allowances. At December 31, 2016, Dole s long-term financing receivables consisted of $12.9 million of grower advances, net of $2.1 million of allowances. These assets have been included in other assets, net in the unaudited condensed consolidated balance sheets. Dole monitors the collectability of grower advances through periodic review of financial information received from growers. Dole s historical losses on its long-term grower advances have been immaterial and Dole expects this to continue. NOTE 6 INCOME TAXES Dole recorded an income tax benefit of $7.7 million on $34.7 million of pretax income from continuing operations for the three quarters ended October 7, The income tax benefit included interest income of $0.4 million related to Dole s unrecognized tax benefits. Income tax expense of $6.4 million on $48.2 million of pretax income from continuing operations was recorded for the three quarters ended October 8, 2016, which included interest expense of $2.5 million related to Dole s unrecognized tax benefits. 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 the three quarters ended October 7, 2017, Dole s effective tax rate differs from the U.S. federal statutory rate primarily due to a decrease in Dole s total amount of unrecognized tax benefits which included $22 million as a result of the expiration of the statute of limitations concerning certain transfer pricing issues. Including interest, net of tax benefits, the total amount recorded for this item was $24.2 million. For the three quarters ended October 8, 2016, Dole s effective tax rate differed from the U.S. federal statutory rate primarily due to foreign earnings taxed at a lower rate and a decrease in Dole s total amount of unrecognized tax benefits of $6 million as a result of the expiration of the statute of limitations concerning certain transfer pricing items. Dole is required to adjust its effective tax rate for each quarter to be consistent with the estimated annual effective tax rate. Jurisdictions with a projected loss where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate. This could result in a higher or lower effective tax rate during a particular quarter based upon the mix and timing of actual earnings versus annual projections. Dole recognizes accrued interest and penalties related to its unrecognized tax benefits as a component of income taxes in the unaudited condensed consolidated statements of operations. Accrued interest and penalties before tax benefits were $19.3 million and $20.5 million at October 7, 2017 and December 31, 2016, respectively. The net decrease in accrued interest of $1.2 million for the quarter ended October 7, 2017 includes a payment of $0.8 million relating to audit settlements in Peru. Accrued interest and penalties at the quarter ended October 7, 2017 are included as a component of other long-term liabilities in the unaudited condensed consolidated balance sheets. 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. Dole is no longer subject to U.S. federal income tax 8

10 examinations by tax authorities for years prior to With few exceptions, Dole is no longer subject to state and local or non-u.s. income tax examinations by tax authorities for years prior to 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. Management considers it unlikely that the resolution of these matters will have a material adverse effect on Dole s results of operations. Costa Rica Tax Assessment: During the second quarter of 2011, Dole received an income tax assessment in Costa Rica in the amount of approximately $43.0 million, including interest and penalties, relating to the audit of the years 2006 and Dole has been challenging the assessment and believes it is without merit. In November 2016, Dole received notice that the review by the Costa Rican Administrative Tax Tribunal confirmed the assessment of the tax authorities. In response, on September 4, 2017 Dole filed an administrative lawsuit with the judicial branch of the Costa Rican government together with a precautionary measure designed to prevent the tax administration from enforcing the assessment while the lawsuit is pending. The Court has preliminarily granted our request for a precautionary measure, pending further argument. If the precautionary measure is not granted with finality, Dole may be required to pay a deposit for the full amount of the assessment, pay the deposit in installment payments, or post collateral. NOTE 7 INVENTORIES The major classes of inventories were as follows: October 7, 2017 December 31, 2016 Finished products... $ 94,054 $ 95,682 Raw materials and work in progress... 69,438 66,071 Crop-growing costs... 43,067 59,425 Operating supplies and other... 21,773 20,667 $ 228,332 $ 241,845 NOTE 8 ASSETS HELD-FOR-SALE AND ACTIVELY MARKETED PROPERTY 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 assets which are classified as either held-for-sale or actively marketed property. The assets that have been identified are available for sale in their present condition and an active program is underway to sell the properties. Dole is actively marketing these properties at a price that is in excess of book value, but the timing of sale is uncertain. Assets held-for-sale were as follows: Fresh Fruit Fresh Vegetables Other Total Balance as of December 31, $ 27 $ 2,747 $ 3,912 $ 6,686 Additions... 25,213 25,213 Sales... (27) (856) (17,168) (18,051) Reclassifications... (1,891) (1,891) Balance as of October 7, $ $ $ 11,957 $ 11,957 9

11 Liabilities held-for-sale were as follows: Balance as of December 31, $ 1,098 Additions... 8,776 Sales... (8,579) Balance as of October 7, $ 1,295 The major classes of assets included in assets held-for-sale in the unaudited condensed consolidated balance sheets were as follows: Other Fresh Fruit Fresh Vegetables Other Total Receivables, net of allowances... $ $ $ $ Prepaid expenses Property, plant and equipment, net... 11,829 11,829 Balance as of October 7, $ $ $ 11,957 $ 11,957 At October 7, 2017, liabilities held-for-sale of $1.3 million have been included in accrued liabilities in the unaudited condensed consolidated balance sheets. During the second quarter of 2016, Dole approved and committed to a formal plan to divest its Swedish fresh fruit procurement and distribution operation. During the fourth quarter of 2016, Dole entered into a definitive agreement to sell its Swedish fresh fruit procurement and distribution operation with a book value of $7.9 million and the transaction closed in January 2017 (see Note 17). During the fourth quarter of 2016, Dole restructured its berries operations and planned to divest certain farms and facilities. During the first quarter of 2017, Dole sold certain assets related to the berries operations with a book value of $0.9 million. In March 2017, Dole entered into an agreement to sell its Swedish flowers business. Dole sold its Swedish flowers business with a net book value of $0.7 million during the second quarter of 2017 (see Note 17). During the second quarter of 2017, Dole approved and committed to a formal plan to divest certain real estate assets in Sweden with a net book value of $10.7 million, and concluded that it met the requirements to be presented as assets and liabilities held-for-sale. Actively marketed property was as follows: Actively Marketed Property Balance as of December 31, $ 126,716 Sales... (15,524) Reclassifications... (2,750) Balance as of October 7, $ 108,442 At December 31, 2016, actively marketed property consisted of approximately 17,100 acres of Hawaii land, with a net book value of $123.7 million, land in Latin America with a net book value of $0.2 million and real estate of the former fresh-cut flowers division with a net book value of $2.8 million. During the first quarter of 2017, Dole sold approximately 2,100 acres of land in Hawaii with net book value of $3.6 million. In addition, Dole reclassified approximately 200 acres of Hawaii land to property, plant and equipment. During the third quarter of 2017, Dole sold approximately 500 acres of land in Hawaii with a total net book value of $11.9 million. At October 7, 2017, actively marketed Hawaii land consisted of approximately 14,300 acres, with a net book value of $105.5 million. 10

12 Gains (losses) before income taxes on assets held-for-sale and actively marketed property were as follows: Quarter Ended October 7, 2017 October 8, 2016 October 7, 2017 October 8, 2016 Fresh fruit... $ (485) $ 8,322 $ (685) $ 15,130 Fresh vegetables Other ,213 Total... $ 125 $ 8,322 $ 2,052 $ 15,130 Net proceeds from assets held-for-sale and actively marketed property were as follows: Quarter Ended October 7, 2017 October 8, 2016 October 7, 2017 October 8, 2016 Fresh fruit... $ 11,436 $ 11,214 $ 14,866 $ 32,458 Fresh vegetables... 1,380 Other... 10,504 Total... $ 11,436 $ 11,214 $ 26,750 $ 32,458 NOTE 9 GOODWILL AND INTANGIBLE ASSETS The balance of goodwill has been allocated to Dole s reporting segments as follows: Fresh Fruit Fresh Vegetables Other Total Balance as of December 31, $ 228,920 $ 110,920 $ 5,663 $ 345,503 Disposals... (5,663) (5,663) Balance as of October 7, $ 228,920 $ 110,920 $ $ 339,840 In January 2017, Dole sold the Swedish fresh fruit procurement and distribution operation. As a result of the sale, $5.1 million of goodwill allocated to the operation was included in the disposal. In May 2017, Dole sold its Swedish flowers business. As a result of the sale, $0.6 million of goodwill allocated to the flowers business was included in the disposal. Details of Dole s intangible assets were as follows: October 7, 2017 December 31, 2016 Amortizing intangible assets: Gross carrying amount... $ 4,144 $ 4,068 Accumulated amortization... (1,979) (1,592) Amortizing intangible assets, net... 2,165 2,476 Indefinite-lived intangible assets: Dole brand , ,000 Water rights... 4,200 4,202 Total intangible assets, net... $ 256,365 $ 256,678 11

13 Amortization expense of intangible assets totaled $0.2 million and $0.2 million for the quarters ended October 7, 2017 and October 8, 2016, respectively, and $0.4 million and $0.4 million for the three quarters ended October 7, 2017 and October 8, 2016, respectively. As of October 7, 2017, the estimated amortization expense associated with Dole s intangible assets for each of the next five fiscal years is as follows: Fiscal Year Amount 2017 (remainder of year)... $ Dole evaluates goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist. As market conditions change, Dole continues to monitor and perform updates of its impairment testing of recoverability of goodwill and long-lived assets. NOTE 10 NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt consisted of the following: October 7, 2017 December 31, 2016 Secured debt: Revolving credit facility... $ $ 63, % notes due , % notes due ,000 Term loan , ,500 Vessel financing loan facility... 97, ,063 Other financing arrangements... 41,920 42,751 Notes payable and note agreements, at a weighted average interest rate of 6.1% in 2017 (2.4% in 2016)... 2,708 15,437 Capital lease obligations, at a weighted average interest rate of 4.6% in 2017 (4.6% in 2016)... 1,741 2,486 1,387,557 1,309,337 Unamortized debt discounts and debt issuance costs... (23,833) (15,799) 1,363,724 1,293,538 Current maturities, net of unamortized debt discounts and debt issuance costs... (37,156) (74,005) Long-term debt, net... $ 1,326,568 $ 1,219,533 Term Loan, ABL Revolving Credit Facility and Senior Secured Notes On April 6, 2017, Dole entered into a new term loan credit agreement (the new term loan ) and a new assetbased revolving credit agreement (the new ABL revolver ) with certain lenders (the new term loan and the new ABL revolver, together, the new credit facilities ). The new credit facilities include syndicated borrowings under a new term loan of $950.0 million, that bears interest, at Dole s option, at either (i) LIBOR plus 2.75% to 3.00%, with a LIBOR floor of 1.00% or (ii) a base rate plus 1.75% to 2.00%, in each case, based on Dole s first lien net leverage ratio. Commencing on September 30, 2017, principal payments of approximately $5.9 million are due quarterly during the first four years and principal payments 12

14 of approximately $11.9 million are due quarterly during the remainder of the term of the facility, plus a balloon payment due on the maturity date of April 6, At October 7, 2017, amounts outstanding under the term loan were $944.1 million. The new ABL revolver, under which the participating lenders committed to lend up to the lesser of the (i) the amount of the borrowing base available thereunder and (ii) $175.0 million, which includes a commitment to make up to $125.0 million of loans to Dole and up to $50.0 million which may be borrowed by Solvest, Ltd., a wholly-owned subsidiary of Dole. The annual interest rate on amounts drawn under the new ABL revolver is, at Dole s option, either (i) LIBOR plus 1.50% to 2.00%, with no LIBOR floor, or (ii) a base rate plus 0.50% to 1.00%, in each case, based upon Dole s average historical excess availability under the new ABL revolver. All amounts outstanding under the new ABL revolver are due on April 6, At October 7, 2017, there were no borrowings under the new ABL revolver. Dole s borrowings under the new credit facilities are secured by substantially all the U.S. assets of Dole and its material domestic subsidiaries. The borrowings of Solvest, Ltd. under the new ABL revolver are secured by substantially all the assets of Dole s material Bermudan subsidiaries. Additionally, on April 6, 2017, Dole completed the sale and issuance of $300.0 million aggregate principal amount of 7.25% Senior Secured Notes due June 15, 2025 ( 2025 Notes ). The 2025 Notes were sold to qualified institutional investors pursuant to Rule 144A under the Securities Act of 1933 ( Securities Act ), and to persons outside the U.S. in compliance with Regulation S under the Securities Act, who are exempt from the registration requirements of the Securities Act. Interest on the 2025 Notes will be paid semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, The 2025 Notes have a lien on substantially all of the assets of Dole and its material U.S. subsidiaries that is junior to the liens securing the obligations under the new credit facilities, and are senior obligations ranking equally with Dole s existing senior debt. The proceeds of the 2025 Notes and the new term loan were used to refinance Dole s then outstanding indebtedness under the existing term loan, the existing ABL revolver, and to redeem the $300.0 million aggregate principal amount of 7.25% Notes due On April 6, 2017, in connection with the early redemption of the Notes due 2019, Dole paid an early redemption premium of $5.4 million. Vessel Financing Loan Facility On December 11, 2015, Dole entered into secured loan facilities ( vessel facility ) of up to $111.0 million, in the aggregate, to finance a portion of the acquisition costs of its three new vessels. The vessel facility consists of three tranches, each tied to a specific vessel, allowing Dole to borrow up to 70% or $37.0 million of the contract cost of each vessel, collateralized by the completed vessel. Principal and interest payments are due quarterly in arrears for 48 consecutive installments commencing three months after the initial drawdown date of each tranche. The vessel facility bears interest, at a rate per annum equal to LIBOR plus 2.0% to 3.25% and will mature on December 11, At October 7, 2017, Dole s borrowings under the vessel facility were $97.1 million. Other Financing Arrangements On June 23, 2016, Dole acquired approximately 1,000 gross hectares of farms in Chile for $36.0 million. In connection with the purchase, Dole entered into a secured long-term asset financing arrangement for $28.8 million to finance 80% of the farm purchase. The terms of the financing arrangement include a 5-year loan of $5.7 million due in June 2021, and a 10-year loan of $23.1 million due in June The 5-year loan bears interest at a rate per annum equal to LIBOR plus 2.60%, and the 10-year loan bears interest at a rate per annum equal to LIBOR plus 3.15%. Principal and interest payments are due bi-annually in arrears. The long-term financing arrangement is collateralized by the farms and related assets. At October 7, 2017, Dole s borrowings under this arrangement were $25.9 million. On July 1, 2016, Dole acquired approximately 837 gross hectares of pineapple farms in Costa Rica. In connection with the purchase, Dole entered into a secured long-term asset financing arrangement for up to $16.0 million to finance the farm purchase. The term of the financing arrangement includes a 10-year loan of $16.0 million due in July The 10-year loan bears interest at a rate per annum equal to LIBOR plus 5%, adjustable quarterly, with a floor rate of 5.5% per annum. Interest only payments are due monthly in arrears for the first two years, after which principal and interest installments are due monthly in arrears. The long-term financing arrangement is collateralized by the farms and related assets. At October 7, 2017, Dole s borrowings under this arrangement were $16.0 million. 13

15 Notes Payable and Note Agreements Dole borrows funds primarily on a short-term basis to finance current operations. There were $2.7 million of note agreements outstanding at October 7, Capital Lease Obligations At October 7, 2017, Dole s capital lease obligations of $1.7 million, primarily relate to machinery and equipment, which continue through Covenants Provisions under the new term loan and the new ABL revolver require Dole to comply with certain covenants. These covenants include limitations on, among other things, indebtedness, investments, liens, loans to subsidiaries, employees and third parties, the issuance of guarantees and the payment of dividends. If the availability under the new ABL revolver were to fall equal to or below the greater of (i) $25.0 million and (ii) 20% of the lesser of the Line Cap (as defined in the definitive documentation for the new ABL revolver, but which is $130.4 million as of October 7, 2017) at such time and the borrowing base at such time, then Dole would additionally be required to comply with a minimum fixed charge coverage ratio covenant. At October 7, 2017, Dole had sufficient availability, and the additional covenant under the new ABL revolver was not applicable. The new term loan requires Dole to maintain compliance with a maximum first lien net leverage ratio, which will initially be set at 6.00 to 1.00 beginning the third fiscal quarter 2017, with step-downs to (i) 5.75 to 1.00 for each fiscal quarter of the 2019 and 2020 fiscal years and (ii) 5.50 to 1.00 for each fiscal quarter thereafter. A breach of a covenant or other provision in any debt instrument governing Dole s 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 Dole s other debt instruments. Upon the occurrence of an event of default under the new credit facilities or other debt instruments, the lenders or holders of such debt 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 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. Debt Issuance Costs and Debt Discounts Debt issuance costs and debt discounts related to the line-of-credit arrangements are capitalized as an asset and amortized into interest expense over the term of the underlying arrangement using the effective interest rate method. All other debt issuance costs and debt discounts are reflected as a direct reduction to the debt liability to which they relate and are amortized into interest expense over the term of the underlying debt. In connection with the new credit facilities and refinancing, Dole recorded expense of $17.5 million during the three quarters ended October 7, 2017 related to the debt issuance costs, write-off of debt discount and prepayment penalty on early retirement of debt, which is included in other income (expense), net in the accompanying unaudited condensed consolidated statement of operations. The amortization expense related to Dole s deferred debt issuance costs and debt discounts were recorded in the unaudited condensed consolidated statements of operations as follows: Quarter Ended October 7, 2017 October 8, 2016 October 7, 2017 October 8, 2016 Interest expense... $ 1,215 $ 2,005 $ 3,704 $ 5,029 14

16 NOTE 11 EMPLOYEE BENEFIT PLANS The components of net periodic benefit cost for Dole s U.S. and international pension plans and other postretirement benefit ( OPRB ) plans were as follows: U.S. Pension Plans October 7, 2017 International Pension Plans OPRB Plans Quarter Ended Quarter Ended Quarter Ended October 8, October 7, October 8, October 7, October 8, 2016 Components of net periodic benefit cost: Service cost... $ 73 $ 51 $ 1,295 $ 1,329 $ 7 $ 6 Interest cost... 2,646 2,818 1,504 1, Expected return on plan assets... (3,769) (3,995) Amortization of: Net (gain) loss (142) (14) (4) Prior service benefit... (250) (250) Curtailments and settlements Net periodic benefit costs... $ (1,006) $ (1,126) $ 3,232 $ 3,289 $ 59 $ 93 U.S. Pension Plans International Pension Plans OPRB Plans October 7, October 8, October 7, October 8, October 7, October 8, Components of net periodic benefit cost: Service cost... $ 183 $ 127 $ 3,229 $ 3,332 $ 17 $ 16 Interest cost... 6,616 7,044 3,744 3, Expected return on plan assets... (9,423) (9,987) Amortization of: Net (gain) loss (356) (34) (10) Prior service benefit... (624) (624) Curtailments and settlements Net periodic benefit costs... $ (2,514) $ (2,816) $ 7,511 $ 7,188 $ 147 $ 235 NOTE 12 DERIVATIVE FINANCIAL INSTRUMENTS Dole is exposed to foreign currency exchange rate fluctuations, bunker fuel price fluctuations and interest rate changes in the normal course of its business. As part of the risk management strategy, Dole uses derivative instruments to hedge some of these 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 does not hold or issue derivative financial instruments for trading or speculative purposes. To reduce cash flow volatility from foreign currency fluctuations, Dole may enter into foreign currency exchange forward contracts and option contracts to hedge a portion of its forecasted revenue, cost of products sold, operating expense, and certain intercompany borrowing transactions. Additionally, to mitigate the price uncertainty of future purchases of bunker fuel, Dole enters into bunker fuel swap contracts. Dole s foreign currency exchange forward contracts, option contracts, and bunker fuel swap contracts are not designated as hedging instruments. 15

17 Net gains (losses) on derivatives were as follows: Classification in Statement of Operations Quarter Ended October 7, 2017 October 8, 2016 Foreign currency exchange contracts... Cost of products sold $ (7,405) $ 481 Foreign currency exchange contracts... Other income (expense), net 2, Bunker fuel hedges... Cost of products sold $ (4,159) $ 905 Classification in Statement of Operations October 7, 2017 October 8, 2016 Foreign currency exchange contracts... Cost of products sold $ (19,013) $ (4,550) Foreign currency exchange contracts... Other income (expense), net 5, Bunker fuel hedges... Cost of products sold (264) 1,176 $ (13,633) $ (3,281) Settlement of Dole s foreign currency exchange contracts and bunker fuel hedges will occur through December NOTE 13 FAIR VALUE MEASUREMENTS At October 7, 2017, Dole s financial instruments primarily consisted of cash and cash equivalents, restricted cash and investments, short-term trade and grower receivables, trade payables, notes receivable and notes payable, as well as long-term grower receivables, derivatives, capital lease obligations, asset-based loans, term loan, credit facilities and notes. Cash and cash equivalents include investments in money market funds that are valued based on the net asset value of the funds. For short-term instruments, excluding Dole s restricted investments and derivatives which are recorded at fair value, the carrying amount approximates fair value because of the short maturity of these instruments. For long-term financial instruments, excluding Dole s secured notes, term loan and long-term restricted investments, the carrying amount approximates fair value since they bear interest at variable rates or fixed rates that approximate market. The inputs used to measure fair value are based on a hierarchy that prioritizes observable and unobservable inputs used in valuation techniques. These levels, in order of highest to lowest priority, are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. 16

18 The following tables provide a summary of the assets and liabilities measured at fair value on a recurring basis: Balance Sheet Classification Fair Value Measurements at October 7, 2017 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Money market funds: Cash equivalents $ 72,000 $ $ $ 72,000 Foreign currency exchange contracts: Receivables, net 1,118 1,118 Accrued liabilities (4,868) (4,868) Other long-term liabilities (559) (559) 72,000 (4,309) 67,691 Bunker fuel hedges: Receivables, net Rabbi trust investments (various mutual funds) 4,125 8,266 17,917 30,308 Total... $ 76,125 $ 4,393 $ 17,917 $ 98,435 Total Balance Sheet Classification Fair Value Measurements at December 31, 2016 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Foreign currency exchange contracts: Receivables, net $ $ 16,756 $ $ 16,756 Accrued liabilities (1,399) (1,399) 15,357 15,357 Bunker fuel hedges: Receivables, net 1,781 1,781 Rabbi trust investments (various mutual funds) 4,316 8,483 17,240 30,039 Total... $ 4,316 $ 25,621 $ 17,240 $ 47,177 Total The table below sets forth a summary of changes in the fair value of the Level 3 Rabbi trust investments for the three quarters ended October 7, 2017: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Balance as of December 31, $ 17,240 Net realized and unrealized gains recognized in earnings (1)... 1,641 Net purchases and sales... (964) Balance as of October 7, $ 17,917 (1) Net amount comprised realized gains of $0.1 million and unrealized gains of $1.5 million were recorded in other income (expense), net in the unaudited condensed consolidated statements of operations. For Dole, the assets and liabilities that are required to be recorded at fair value on a recurring basis are the money market funds, derivative instruments and Rabbi trust investments. The fair values of Dole s derivative instruments are determined using Level 2 inputs, which are defined as significant other observable inputs. The fair values of the 17

19 foreign currency exchange contracts and bunker fuel hedges were estimated using internal discounted cash flow calculations based upon forward foreign currency exchange rates, bunker fuel futures, interest rate yield curves or quotes obtained from brokers for contracts with similar terms, less any credit valuation adjustments. Dole sponsors a non-qualified deferred compensation plan (Excess Savings Plan or ESP ) and a non-qualified pension plan (Supplemental Executive Retirement Plan or SERP ) for executives. Trading securities are recorded at fair value with realized and unrealized holding gains or losses included in earnings. At October 7, 2017, trading securities totaled $30.3 million, of which $5.9 million was classified as short-term and included in restricted cash and investments; $24.4 million was classified as long-term and included in other assets, net, in the unaudited condensed consolidated balance sheets. Dole classified a portion of the investments held in the Rabbi trusts as long-term because such portion approximated the liability held to satisfy the long-term SERP obligation. Dole estimates the fair values of its Rabbi trust investments using prices provided by its custodian. In obtaining such data from its custodian, Dole has evaluated the methodologies used to develop the estimate of fair value in order to assess whether such valuations are representative of fair value, including net asset value. Fair values for Level 1 investments are determined based on observable market prices. For Level 2 investments, the fair values are determined using observable inputs such as the trading prices for similar securities traded in active markets. For Level 3 investments, fair values are determined using a combination of discounted cash flow projections and other unobservable inputs. In addition to assets and liabilities that are recorded at fair value on a recurring basis, Dole is required to record assets and liabilities at fair value on a nonrecurring basis. Nonfinancial assets such as goodwill, indefinite-lived intangible assets, equity method investments, and long-lived assets are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. The indefinite-lived intangible asset impairment analysis was performed by Dole during the fourth quarter of 2016 using a relief-from-royalty model. The discounted cash flow model used estimates and assumptions including pricing and volume data, anticipated growth rates, profitability levels, tax rates and discount rates. The fair value of the indefinite-lived intangible assets is highly sensitive to differences between estimates and actual cash flows and changes in the related discount rate used to evaluate the fair value of these assets. Credit Risk The counterparties to the foreign currency exchange 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. Fair Value of Debt Dole estimates the fair value of its secured notes based on current quoted market prices. The term loan is traded between institutional investors on the secondary loan market, and the fair value of the term loan is based on the last available trading price. The carrying values, net of debt discounts and debt issuance costs, and estimated fair values of Dole s debt based on Level 2 inputs in the fair value hierarchy are summarized below: Carrying Values October 7, 2017 December 31, 2016 Estimated Fair Values Carrying Values Estimated Fair Values Secured notes... $ 294,624 $ 324,000 $ 295,774 $ 303,000 Term loan... $ 930,608 $ 946,423 $ 775,268 $ 786,058 NOTE 14 COMMITMENTS AND CONTINGENCIES Dole issues letters of credit and bank guarantees through its ABL revolver and, in addition, separately through major banking institutions. Dole also provides bonds issued by insurance companies. These letters of credit, bank guarantees and insurance company bonds are required by certain regulatory authorities, suppliers and other operating agreements. As of October 7, 2017, total letters of credit, bank guarantees and bonds outstanding under these arrangements were $70.0 million. 18