Dole1998 annual

Dole Food Company, Inc. Annual Report 1998 Dole Food Company Inc. Annual Report 1998 ,

DOLE WORLDWIDE OPERATIONS Q Sourcing Ripening/Distribution Markets Q Corporate FOOD OPERATING DIVISIONS AND LOCATIONS EUROPE AND AFRICA • Belgium • Cameroon • Canary Islands • France • Germany • Ghana • Greece • Italy Ivory Coast • Kenya • Namibia • Netherlands • South Africa • Spain • Tunisia • Turkey • United Kingdom • Zimbabwe LATIN AMERICA AND CARIBBEAN • Argentina • Brazil • Chile • Colombia • Costa Rica • Ecuador Guadeloupe • Guatemala • Honduras • Jamaica • Martinique • Mexico • Nicaragua • Peru • Venezuela • Windward Islands ASIA • Australia • China • Japan • New Zealand • Philippines • Thailand NORTH AMERICA • Canada • United States: Arizona, California, Florida, Hawaii, Ohio, Washington FOOD MARKETING DIVISIONS AND LOCATIONS EUROPE AND MIDDLE EAST • Albania • Algeria • Austria • Azerbaijan • Bahrain • Belarus • Belgium Bosnia • Bulgaria • Croatia • Czech Republic • Denmark • Estonia • Egypt • Finland • France • Georgia • Germany Greece • Hungary • Iceland • India • Ireland • Israel • Italy • Jordan • Kazakhstan • Kuwait • Latvia • Lebanon • Lithuania Luxembourg • Malta • Morocco • Netherlands • Norway • Oman • Poland • Portugal • Qatar • Romania • Russia Saudia Arabia • Senegal • Slovakia • Spain • Sweden • Switzerland • Syria • Tajikistan • Tunisia • Turkey • Ukraine United Arab Emirates • United Kingdom • Uzbekistan • LATIN AMERICA AND CARIBBEAN • Argentina • Bahamas • Barbados Bermuda • Bolivia • Brazil • Chile • Colombia • Costa Rica • Dominican Republic • Ecuador • Guadeloupe • Guatemala Honduras • Jamaica • Martinique • Mexico • Netherlands-Antilles • Peru • Puerto Rico • Trinidad & Tobago Uruguay • Venezuela • ASIA • Australia • China • Cambodia • Hong Kong • Indonesia • Japan • Malaysia New Zealand • Philippines • Singapore • South Korea • Taiwan • Thailand NORTH AMERICA • Canada • United States 2 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Financial Highlights Dole Financial Highlights 1998 1997 1996 1995 1994 (in millions, except per share data) Revenue $ 4,336 $ 3,840 $ 3,804 $ 3,499 $ 4,424 Income from continuing operations $ 160 $ 89 $ 120 $ 58 $ 12 Income (loss) from discontinued operations – – (97) 10 – Net income $ 160 $ 89 $ 23 $ 68 $ 12 Diluted net income (loss) per common share Continuing operations $ 2.65 $ 1.47 $ 2.00 $ 0.98 $ 0.20 Discontinued operations – – (1.61) 0.16 – Net income $ 2.65 $ 1.47 $ 0.39 $ 1.14 $ 0.20 Diluted average common shares outstanding 60 60 60 60 60 Total assets $ 2,464 $ 2,487 $ 2,442 $ 3,685 $ 2,915 Capitalization Short-term debt $ 14 $ 22 $ 24 $ 54 $ 36 Long-term debt 755 904 896 1,555 1,116 Minority interests 38 30 26 25 57 Common shareholders’ equity 666 550 508 1,081 622 Total $ 1,473 $ 1,506 $ 1,454 $ 2,715 $ 1,831 Book value per common share $ 11.10 $ 9.18 $ 8.49 $ 18.17 $ 10.49 45 3/4 Common stock price at year-end $ $ 34 $ 35 $ 23 $ 30 Market price range 49 5/8 431/2 351/2 57 1/8 High $ $ $ 38 $ $ 33 3/8 32 7/8 221/2 285/16 Low $ $ $ 24 $ $ Annual cash dividends per common share $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 0.40 Note: Income from continuing operations for 1998 and 1996 includes pre-tax charges of $120 million and $50 million, respectively. Income from continuing operations for 1995 includes a pre-tax gain of $62 million related to assets sold or held for sale. The real estate and resorts business distributed to shareholders in 1995 has been presented throughout this report as discontinued operations. GROWTH CASH FLOW CAPITALIZATION RETURN 26.3% 4,424 4,336 1,081 24.6% 372 3,840 3,804 338 328 3,499 308 17.5% 265 16.0% 666 622 550 508 6.4% 94 96 98 97 95 94 94 96 98 97 95 96 98 97 95 94 98 96 97 95 Revenue Shareholder Equity Return on Equity** EBITDA* (in millions) (in millions) (in millions) (in percent) Depreciation & Amortization EBIT * Before special charges in 1998 and 1996 and net gain on asset dispositions in 1995. 1 ** Before special charges in 1998 and 1996 and asset impairment in 1995. D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

To Our Shareholders 1998 was a difficult and challeng- bananas, 10,000 acres of sugar cane, 2,000 acres of ing year for Dole Food Company. African palm, as well as roads, bridges, employee hous- We entered the year coping with ing, packing plants, irrigation systems, river dikes, ware- the Asian economic crisis, which houses, trucks, trailers, and other equipment, all of slowed growth in one of our most which were virtually destroyed. Fortunately, due to ini- dynamic markets. The El Niño tial preparations and a rapid response to the crisis, no weather phenomenon adversely employee lives were lost. I would like to personally affected the agricultural produc- acknowledge and thank the thousands of employees, David H. Murdock tion in virtually every area in friends and associates from around the world that Chairman and Chief Executive Officer which Dole operates. Late in the responded immediately to the relief and rehabilitation year, the collapse of the Russian effort. The heroic efforts of so many are too great to list, economy in essence destroyed an important market for but their actions and deeds will always be gratefully Dole products. During the last week of October, Hurri- remembered by all of us at Dole and the entire populace cane Mitch, perhaps the worst hurricane of the century, we serve in these areas. made a direct hit on the country of Honduras and Dole operations in that country, leaving destruction in its OPERATIONS wake. Finally, in late December, the California citrus Dole’s worldwide operations were severely tested in industry suffered a devastating freeze, which essentially 1998 by the weather disruptions in all of its growing areas. destroyed most of the orange crop in the state. While it The El Niño weather pattern caused severe flooding is saddening to recall such a litany of difficulties, it is in Ecuador, extremely heavy rains in California, and gratifying to remember the response of the Dole team drought in Thailand and the Philippines. The year throughout the world to each adversity. ended with Hurricane Mitch in Honduras and the freeze in California. In turn, these weather anomalies caused production shortages and logistical disruptions through- FINANCIAL RESULTS In the 4th Quarter of 1998, Dole took two special out the year in our banana, pineapple, vegetable and cit- charges. The first charge of $100 million reflected the rus businesses. Despite these issues, most of our core $160 million in damages caused by Hurricane Mitch. The businesses performed well and are indeed well posi- second charge of $20 million was primarily due to the tioned for a more normal 1999. damage caused by a major freeze to the California citrus The financial crisis in Russia, which began in crop just prior to harvest. After these charges, Dole’s net September 1998, had a significant negative effect on income was $12.1 million in 1998 on revenues of $4.4 bil- demand for bananas in that country. In recent years, the lion. Before the special charges, operating earnings totaled Russian market had grown to consume approximately $206.2 million and EBITDA totaled $328.3 million. eight percent of the world banana supply, so the loss of this market will be an ongoing concern for the banana industry in general. HURRICANE MITCH Hurricane Mitch, one of the strongest hurricanes in recorded history, with sustained winds up to 180 MANAGEMENT CHANGES/ENVIRONMENTAL mph, had a devastating effect on the country of In May 1998, Sharon Hayes joined Dole as its new Honduras, as well as caused severe damage to Director of Environmental Affairs. Having spent over Nicaragua and Guatemala. Dole has a 100-year history thirteen years with the Environmental Protection of investments in Honduras, which were severely dam- Agency, including working for the Agency’s administra- aged or destroyed by winds and floods. Operations tor on pesticide and toxic chemical issues, Ms. Hayes’ affected included growing crops of over 20,000 acres of background and expertise are assets for Dole. 2 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Dole Food Company Board of Directors (Seated): David H. Murdock (Standing, left to right): David A. DeLorenzo, James F. Gary, Richard M. Ferry, Elaine L. Chao, Mike Curb, Zoltan Merszei Dole strives to lead in environmental protection and growing business. First year revenues from these over the last decade has reduced its reliance on tradi- acquisitions are expected to exceed $200 million. The tional crop protection products by integrating cultural flower business offers many parallels to existing and biological controls into its pest management strate- core businesses. For example, flowers are perishable, gies. Dole standards of environmental excellence in its imported, and industry growth comes through the worldwide operations intend to meet standards held in same supermarket channel of distribution as other Dole the United States and European Union. products. We are very pleased with the acquisitions of Sunburst Farms, Four Farmers, Finesse, CCI and their affiliated companies. The combination of these premier ACQUISITIONS Flowers In 1998, Dole made a strategic move into companies, their assets and employees into the Dole the fresh-cut flower industry with the acquisition of Flower Division, is an exciting first step in building a several of the largest companies in the floral and flower global flower network. 3 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

SABA Trading AB During 1998, Dole also purchased the Company is positioning the unit to be a leading sixty percent of SABA Trading AB, the leading importer deciduous fruit exporter as well. Dole South Africa ser- and distributor of fresh fruit, vegetables, and flowers in vices the winter fruit market needs of Dole’s global dis- Sweden. Dole purchased its position from Axel Johnson tribution system, complementing the leading export AB and the Swedish Cooperative Society, each of which position it already maintains in Chile. will remain as minority shareholders. Annual sales total These strategic moves, combined with the 1998 approximately $500 million, with 950 employees. SABA acquisitions and a return to normality of our base busi- adds another strong company to Dole’s distribution sys- nesses, gives us every reason to be optimistic for a year tem, which continues to grow throughout the world. of profitability in 1999. Dole’s new headquarters facility in Westlake Village, a suburb of Los Angeles, will be completed in the latter FINANCING ACTIVITIES Dole strengthened its financial infrastructure in 1998 part of 1999. We are looking forward to combining our with a highly successful $300 million public bond issue. current offices into one building. The efficiency of prox- Additionally, the five-year revolving $400 million credit imity for management and staff will materially enhance facility continues to provide strong operational flexibili- operations and eliminate duplication of efforts. ty. Agents in the facility are Chase Manhattan Bank, Throughout the 14 years that I have been chief exec- Bank of America and Citibank. utive officer of Dole, we have consistently built upon and, I believe, attained the strongest management team in Dole’s history. Throughout the world we have excellent OUTLOOK In a year filled with adversity, Dole continued to senior management as well as creative, well-trained and demonstrate the strength of its worldwide sourcing and dedicated day-to-day managers and employees. Through distribution network. The Dole® brand and quality con- the combined efforts of our workforce, Dole’s fresh fruit, tinued to flourish on supermarket and foodservice vegetable and flower products are grown with respect shelves around the globe. In addition to its acquisitions, for the environment and with a genuine interest in the Dole took a number of steps to ensure continued, accel- health and welfare of our people and the consumer. erated growth of the Dole® brand. We begin 1999 with renewed spirit and commitment In the United States, our value-added salads had to rebuild and rehabilitate, and to accelerate our growth another spectacular year of growth. In Springfield, Ohio, and profitability. We would like to express our apprecia- Dole opened its first processing plant to meet the tion and gratitude to our employees, shareholders and demands for these safe, convenient, ready to eat salads customers for their continued support and confidence. in the Midwestern and Eastern states. New salad prod- Once again, we offer our support and sympathy to the ucts, ready for introduction in early 1999, should con- many thousands of people in Honduras, Nicaragua, tinue to spur demand for Dole salads into the year 2000. Guatemala, and Ecuador where lives were lost and Dole also built and opened its first salad plant in economies affected by this year’s weather disruptions. Japan in 1998, and gained excellent distribution on its first product introduction. Fresh-cut salads are a natural Sincerely, extension to Dole’s powerful perishable distribution network in Japan, and are expected to be a significant growth vehicle in that market. Dole also established itself firmly in South Africa in 1998, following that country’s deregulation of its fresh fruit industry. In South Africa, Dole was the second David H. Murdock largest citrus exporter in its first year of operation, and Chairman and Chief Executive Officer 4 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Dole Food Products Worldwide Dole Fresh Fruit Dole Fresh Dole Pineapple Strawberry Dole Fruit Bowls – Diced Peaches Dole Pitted Prunes in Flowers Dole Apples Juice Drink Dole Fruit Bowls – Mixed Fruit Reclosable Bags Agapanthus Dole Apricots Dole Pineapple Tidbits for Pizza Dole Fruit Bowls – Pineapple Dole Seedless Raisins Canister Alstroemeria Dole Bananas Dole Pineapple Tidbits in Juice Tidbits Dole Seedless Raisins Carton Aster Butterfly Dole Blueberries or Syrup Dole Fruit Bowls – Tropical Fruit Dole Seedless Raisins in Aster Mini Rainbow Dole Cantaloupe Dole Pine Orange Banana Juice in Blended Juice Reclosable Bags Aster Montecasino Dole Cherries Dole Rambutan in Syrup Dole Fruit Festival Snack Cup Dole Seedless Raisins Mini Snacks Bells of Ireland Dole Clementines Dole Rambutan Snack Cup Dole Fruit Mix, Easy Open Dole Seedless Raisins Six Packs Bouvardia Dole Coconuts Dole Red Papaya Chunks in Dole Guava in Syrup Dole Sliced Natural Almonds Byplurem Dole Cranberries Light Syrup Dole Guava Halves in Reclosable Bags Calla Lillies Dole Grapefruit Dole Tropical Fruit Cocktail in Dole Ketchup (Regular and Dole Whole Natural Almonds Carnations Dole Grapes Juice and Syrup Hot Spice) in Reclosable Bags Chinese Carnations Dole Honeydew Melon Dole Tropical Fruit Cocktail in Dole Longans in Syrup Saman Delphinium Dole Kiddie Pack (bananas) Syrup with Passion Fruit Juice Dole Mandarin Orange Fruit Cups Dole Soelia Pistachios Eremurus Dole Kiwi Dole Tropical Fruit Juice Box Dole Mandarin Orange Segments Guyennoise Prunor Pitted Prunes Farm Bouquets Dole Lemons Dole Tropical Fruit Salad, Dole Mandarin Orange Segments, Guyennoise Prunor Whole Prunes Freesia Dole Lychees Easy Open Easy Open JA Whole Dates Gerbera Dole Mangos Dole Yellow Papaya Chunks Dole Mango Cubes Snack Cup JA Whole Prunes Gerspider Dole Morado Banana in Syrup Dole Mango Juice Drink Soelia Blanched Whole Almonds Gipsy Dole Native Banana Dole White Asparagus Dole Mango Slices in Blended Soelia Dried Apricots Godetia Dole Nectarines Seasons Pineapple Juice Juice or Syrup Soelia Dried Figs Gypsophilia Dole Oranges Seasons Tropical Fruit Mix Dole Mushroom Soelia Pitted Prunes Kangaroo Paws Dole Papayas Dole Nata de Coco in Syrup Dole Fresh-Cut Soelia Sliced Thin Almonds Leatherleaf Dole Peaches Dole Papaya in Syrup Vegetables Soelia Whole Peanuts Liatris Dole Pears Dole Peach Halves in Syrup Dole American Special Blend Salad Soelia Whole Prunes Lillies Dole Persimmons Dole Peach Snack Cup Dole Caesar Lunch For One™ Whole Deglet Nour Dates Limonium Dole Fresh-Cut Pineapple Dole Peaches in Juice and Syrup Dole Chopped Romaine Salad Lisianthus Dole Pineapple Dole Sliced Peaches, Easy Open Dole Fresh Vegetables Dole Classic Cole Slaw Mini Carnations Dole Plantains Dole Pear Snack Cup Dole Artichokes Dole Classic Iceberg Salad Monk’s Hood Dole Plums Dole Pears in Juice and Syrup Dole Asparagus Dole Classic Romaine Salad Mums Dole Pomegranates Dole Pineapple Chunks in Juice Dole Bell Peppers Dole Complete Caesar Salad Orchidiola Dole Raspberries or Syrup Dole Broccoli Dole Complete Caesar Salad Pompons Dole Satsumas Dole Pineapple Concentrate Dole Brussels Sprouts with Fat Free Dressing Queen Anne’s Lace Dole Strawberries Dole Pineapple Cubes in Syrup Dole Butter Lettuce Dole Complete Creamy Garlic Roses (Hybrid Tea) Dole Super Sweet Pine Dole Pineapple Fun Shapes – Dole Carrots Caesar Salad Rover Mums Dole Sweet Banana Cosmic Dole Cauliflower Dole Complete Oriental Salad Snapdragons Dole Tangelos Dole Pineapple Fun Shapes – Dole Celery Dole Complete Roasted Garlic Solidago Dole Tangerines Sea Creatures Dole Green Leaf Lettuce Caesar Salad with Fat Free Dressing Solidaster Dole Yucca Dole Pineapple Grapefruit Juice Dole Green Onions Dole Complete Romano Salad Spider Mums Dole Pineapple Grapefruit Dole Iceberg Lettuce Dole Complete Sunflower Dole Dried Fruit Spray Roses Juice Drink & Nuts Dole Idaho Potatoes Ranch Salad Star of Bethlehem Dole Pineapple Juice Dole Blanched Slivered Dole Radishes Dole Complete Zesty Italian Statice Dole Pineapple Juice Drink Almonds in Recloseable Bags Dole Red Leaf Lettuce Salad with Fat Free Dressing Stock Dole Pineapple Lychee Juice Drink Dole Blanched Whole Almonds Dole Romaine Lettuce Dole European Special Blend Salad Strawflower Dole Pineapple Orange Juice in Reclosable Bags Dole Sugar Peas Dole French Special Blend Salad Sunflowers Dole Pineapple Orange Juice Box Dole Chopped Dates in Dole Taro Dole Greener Selection™ Salad Sweetheart Roses Dole Pineapple Orange Juice Drink Reclosable Bags Dole Italian Special Blend Salad Treefern Dole Pineapple Orange Raspberry Dole Packaged Foods Dole Chopped Natural Dole Mediterranean Special Waxflower Juice Box Dole Aloe Vera (Solid) Almonds in Reclosable Bags Blend Salad Yarrow Dole Pineapple Pink Grapefruit Dole Apricot Halves Dole CinnaRaisins in Dole Peeled-Mini Carrots Drink Dole Apricot Snack Cup Reclosable Bags Dole Ranch Lunch For One™ Dole Pineapple Slices in Juice Dole Apricots in Juice or Syrup Dole Golden Seedless Raisins Dole Romaine Special Blend Salad or Syrup Dole Crushed Pineapple in Dole Pitted Dates in Dole Shredded Carrots Dole Pineapple Snack Cup Juice or Syrup Reclosable Bags Dole Shredded Lettuce Dole Pineapple Snack Wedges, Dole Deciduous Fruit Cocktail Dole Pitted Prunes Canister Dole Shredded Red Cabbage Easy Open in Juice and Syrup Dole Pitted Prunes Carton Dole Spring Mix Special Blend Salad Dole Fruit Bowls – Cherry Dole Tuscany Special Blend Salad Flavored Mixed Fruit Dole Verona Special Blend Salad 5 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Operational Review Dole Food Company is the largest This is true of all of our regions and thus creates an producer of fresh fruits, vegetables international web of Dole trade, tied together by Dole’s and flowers in the world. Dole shipping services and its experienced management employs over 53,500 people who group who work together as a cross-cultural global team. are dedicated to the production, Proprietary agricultural practices, customized sys- handling, and distribution of per- tems, worldwide refrigerated shipping capability, and ishable products throughout the specialized customer service and distribution allow globe. Its products are shipped on Dole to properly handle over five million perishable David A. DeLorenzo Dole vessels which continually cartons per week in over 90 countries of the world. President and Chief Operating Officer cross all of the world’s seaways. Despite the weather, 1998 was a very significant year Dole is organized on both a for the Dole environmental management program. In product and a regional basis. Regions are divided into July 1998, Dole’s banana operations in Costa Rica both sources and markets, and products are produced became the first agricultural producer in the world to both for local regional markets as well as for export to receive certification that its operations conform to the other regions of the world. For example, our Asian environmental management system requirements of region produces both for its own market demand within ISO 14001 (the International Standard Organization’s Asia as well as exports to Dole markets in North environmental management standard). Certification to America, Europe and Latin America. the standard means that Standard Fruit de Costa Rica, a wholly-owned Dole company, has the systems in place to manage its environmental obligations responsibly, The nutritional facts, presented in this report by some of minimizing risks to the environment while maximizing the Dole 5 A Day Fruit and Vegetable Friends, are taken from the quality and safety of its products. Later in 1998, Dole’s subsidiaries in Thailand and Ecuador became the Dole5aday.com. This website, developed along with next operations to be ISO 14001 certified. Other Dole other interactive materials, is part of Dole’s commitment operations around the world are soon to demonstrate to the nutritional education of children and their that they also deserve ISO 14001 certification. Certifica- tion to the ISO 14001 standard is just one more indicator families. Another educational project, scheduled for release that, for Dole, excellence in product quality and excel- in 1999, is THE ENCYCLOPEDIA OF FOODS: lence in environmental protection go hand in hand. THE HOW AND WHY OF HEALTHY NUTRITION, a comprehensive publication authored by nutrition experts at the Mayo Clinic, the University of California, Los Angeles, and Dole Food Company. The beautifully illustrated book will provide healthful dietary guidelines for nutrition and fitness as well as teach the connection between food and nutrients. The recently acquired fresh-cut flower businesses Flower Division Management will integrate well into Dole’s established distribution (Seated): Geno Valdes network and customer base. (Standing, left to right): Lorenzo de la Torre, Lourdes Espinoza, Evelyn Macia, Josefina de Zuluaga 6 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

To further diversify its wide range of products, Dole acquired several large fresh-cut flower companies in 1998. These acquisitions afford the opportunity of supplying flowers to the supermarket customers that already purchase the Company’s other perishable products.

Innovative field harvesting and packing ensures better quality produce and fast, fresh delivery from field to supermarket.

Dole North America The North American consumer demand for fresh, healthy products allowed Dole to once again reach record market shares in its leading products, such as bananas, packaged salads and canned pineapple. DOLE FRESH VEGETABLES levels, affecting the citrus, deciduous and Dole Fresh Vegetables achieved record sales and earn- almond operations. The Washington apple ings in 1998. The commodity business was the one seg- operations were impacted by hail-related ment that capitalized upon favorable market conditions problems in key orchards. associated with El Niño rains. Additionally, investment in Foremost among the year’s weather- Dole’s state-of-the-art manufacturing plants, customer related events was the freeze that hit service and new products drove fresh-cut salads to new California’s San Joaquin Valley during sales, earnings and market share records. The retail fresh- Christmas week. The extremely low tem- cut salad category continued to exhibit strong growth, peratures associated with this freeze severe- with an eighteen percent increase in sales for 1998. Dole’s ly damaged the Company’s citrus crops growth outpaced the category posting a thirty-five per- that are located throughout the Valley. As cent increase in retail sales for the same period. previously announced, Dole took a charge Based upon strong customer demand, Dole expand- (from top) Lawrence A. Kern, of $20 million, which consists primarily of ed its asparagus operations to provide year-round sup- President, plies. Sales to the food service trade grew significantly as Dole Fresh Vegetables Gregory L. Costley, food service operators turned to Dole for reliable sup- President, plies of consistently high quality and safe vegetable Dole North American Fruit Peter M. Nolan, products. Dole Fresh Vegetables leads the industry in President, food safety. Dole Packaged Foods After extensive research, Dole will introduce an exciting new line of gourmet salads called “Great Restaurant Salads” in early 1999. New products continue to energize the fresh-cut category and Dole is committed to introducing marketing programs and new products that will continue to attract consumers to the Dole franchise. FRUIT OPERATIONS Adverse weather conditions in 1998 affected Dole North American fruit operations. Due to El Niño, rainfall in California and Florida hit record 9 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Barney Broccoli says, “Eating cruciferous vegetables such as broccoli, Brussels sprouts, cabbage, cauliflower, and turnips may guard against cancer. Broccoli is an excellent source of vitamin C and a good source of vitamin A and fiber.” crop inventory losses and reductions in grower receiv- Apple operations in Washington State were signifi- able recovery estimates. In addition to that charge, three cantly enhanced by the acquisition of a third packing of five California citrus packing houses have been facility. This purchase, done in conjunction with an closed, and will remain closed for most of 1999. The acreage acquisition by Prudential Insurance Company, major thrust of the California citrus operation in 1999 has resulted in Dole packing facilities operating at near will be to rehabilitate properties in anticipation of the capacity. It has also positioned the Company to better next season. In addition to the charge taken in 1998, handle the increasing varieties of specialty apples, Dole currently estimates that the freeze will negatively including the Cameo apple. impact 1999 operating earnings by approximately $10 The Cameo apple has enjoyed great success and pro- million to $15 million. duction is rapidly increasing. Dole markets the vast Major changes have been made which will position majority of the available Cameo crop, and its market Dole for greater success in the future. The Florida citrus leadership has led to strong acceptance of this product operation entered into a joint venture with Metropolitan and has enhanced returns to Dole Cameo growers. Life Insurance Company. This venture brings together Dole’s farming, packing and selling expertise, with PACKAGED FOODS MetLife’s citrus production properties. The alliance has Dole’s market shares in canned pineapple and canned resulted in one of the strongest operations in the state pineapple juice reached new highs for the 1990 decade of Florida. In California, Dole will be reformatting its of forty-five percent and forty-two percent, respectively. fresh cherry business, which will involve relocating This growth was achieved in spite of significant El Niño- assets to match the growth of the early-season California related supply disruptions from Thailand and the cherry crop. Philippines in 1998. New products continue to play a large role in the growth of Dole Packaged Foods. Two new fruit items, Dole peaches and Dole mixed fruit, were successfully introduced in Atlanta and Jacksonville in early 1998. The expanded line will be introduced to additional markets in 1999. Dole’s cinnamon covered raisins, Cinnaraisins TM, the first new item in the dried fruit category in years, has been successfully introduced in selected markets. The food service division posted its second year of record earnings. Pineapple as a pizza topping has become extremely popular. Dominos Pizza ® named Dole as its “Pizza Topping Supplier of the Year.” In the new product area, mangoes have been added to the “salad bar” line-up to complement tropical fruit salad. Automation is the key to improving the commodity vegetable segment. Also, Dole has been a leader in developing and expanding the value-added pre-cut salad and vegetable segment, investing in production capacity to satisfy growing demand. 10 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

The fresh vegetable business achieved record sales and earnings in 1998 as the business transitions from commodity to value-added. The highly profitable fresh-cut salad business continues to benefit from strong demand, and the 1998 opening of the Springfield, Ohio plant has helped gain market share, particularly in East Coast markets.

Dole packs fruit in more than 1,000 packing houses throughout Latin America and controls over 135,000 acres of banana producing land.

Dole Latin America Hurricane Mitch wrought devastation to over 30,000 acres of Dole agricultural plantings and infrastructure in Honduras, Guatemala and Nicaragua. Thankfully, no employee lives were lost in the hurricane or its aftermath due to a tremendous out- pouring of assistance and relief aid from Dole’s worldwide family. houses throughout Latin America and controls over 135,000 acres of banana producing land. Dole supplements Company production and reduces risk by purchasing a significant portion of product needs from independent growers throughout Latin America. Dole assists over 350 growers to BANANA PRODUCTION AND HURRICANE MITCH successfully grow and pack Dole quality bananas. Dole’s team of highly skilled In October of 1998, Hurricane Mitch struck Honduras, (from top) Juergen Schumacher agronomists and technical staff train Guatemala and Nicaragua. This devastating event dam- President, growers about Dole’s environmental pro- aged eighty-two percent of Dole’s producing acres in Dole Latin America cedures and standards. Roberto Zacarias Honduras. The Dole team immediately mobilized to President, assist with relief efforts in the region. Dole employees Dole Honduran Beverage worked around-the-clock to provide emergency rescue BEVERAGES Dole’s majority-owned beverage operation is the domi- services, food, clothing, shelter and medical supplies to nant supplier of carbonated beverages in Honduras, the recovering populations. After extensive review, with commanding market shares of approximately Dole has started to rehabilitate selected parts of the lost seventy-five percent in soft drinks and ninety-nine per- production areas and a recovery program is under way. cent in beer. The operation exclusively represents Looking to the future, Dole expects to recover the Coca-Cola® and Canada Dry® products, and has its own production losses of 1998 and has implemented plans to brand of fruit-flavored soft drinks, Tropical ®, which replace the lost volume related to Hurricane Mitch with accounts for twenty percent of its soft drink sales vol- its Ecuadorian and Colombian sources. ume in Honduras. Soft drink consumption per capita in The past year has been one of the most challenging Honduras is one of the highest in Latin America. The production years in recent history for Dole’s banana division also produces and/or distributes four leading operations. Extreme flooding from the El Niño weather domestic brands of beer, along with the internationally phenomenon reduced overall banana industry produc- recognized brands of Holsten ® tion by eighteen percent in Ecuador, and drought condi- and Budweiser ®. Vertical tions caused by El Niño reduced industry production by seven percent in Colombia. Despite extremely adverse weather effects, total Dole production decreased only seven percent from the record year in 1997. Over 22,000 employees are part of the Dole Latin America team which strives to bring to market the quality, safest fresh produce possible. Dole highest quality, safest fresh produce possible. Dole p a c k fruit i n more h a n 1,000 a c k i n g packs s f r u i t in m o r e t than 1, 0 0 0 ppacking 13 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

“Just one-half of a grapefruit contains all of the vitamin C your body needs for the day,” proclaims Gretta Grapefruit. Vitamin C heals cuts and scrapes, helps teeth and gums stay healthy, bones stay strong, and may also reduce the risk of heart disease and some types of cancer. operations include a sugar mill, a plastic case and bottle JOINT VENTURES/NEW BUSINESS business, and bottle cap manufacturing. The division OPPORTUNITIES Proban Alliance At the close of 1998, Dole entered into a also operates an edible oil and soap operation with well- strategic alliance with Proban, a well-established promi- established local brands. nent grower group in Colombia. As a result of this During the year, a new soft drink bottling line was alliance, Dole will ship approximately twenty-eight per- installed. State-of-the-art technology is used for the pro- cent of total Colombian banana exports. This addition duction of the family-size returnable plastic bottle that will yield greater efficiencies and lower production and Coca-Cola® has strategically positioned in Latin Ameri- shipping costs. ca to expand sales. Additionally, eight new beer tanks for fermentation and maturation were added to Dole’s exist- Value-Added Dole Latin America continues to focus on ing facility. These and other plant upgrades are being its core products and markets and evaluate opportuni- made to fulfill projected growth in product demand. ties to build earnings and expand the Dole® brand name Dole’s efforts to expand its responsibility for product throughout Latin and South America. Dole expanded distribution in Honduras’ rural regions continue and its local Chilean distribution business by opening a new, Dole now handles approximately eighty percent of these state-of-the-art distribution center. Additionally, Dole sales. This strategic move has rendered outstanding constructed a new salad processing facility at this site results as new routes and distribution centers are added. that marks Dole Latin America’s entry into the fresh Damage by Hurricane Mitch, particularly in the rural vegetable value-added business. regions of Honduras, continues to affect Dole’s distribu- Dole also completed a state-of-the art fruit processing tion in this market but it is expected that this situation facility in Honduras and plans to launch fresh, processed will significantly improve in the forthcoming months. products into the North American market in 1999. CHILE Today, Dole Chile exports to over fifty countries worldwide. Dole Chile had another record year of export vol- umeswith the exportation of 18 million packagesof grapes, stonefruit, apples, pears and kiwis. Dole continues to be Chile's largest fruit exporter and the volumes in 1998 further established Dole’s position as the premier Chilean exporter. Throughout the world, the diversification of markets gives Dole great flexibility in maximizing sales and directing product volumes when facing challenges in certain markets. In 1998, this allowed Dole to successfully send fruit to different markets after the virtual economic collapse of several Asian nations as well as Russia. Great care goes into the packing of Dole bananas by thousands of dedicated employees throughout the world. 14 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Dole has the world’s largest dedicated refrigerated containerized shipping fleet, which will be strengthened in 1999 with the addition of two new state-of-the-art vessels.

Increased automated field harvesting and packing at Pascual Hermanos in Spain has assisted in expanding the division to be a year-round, rather than seasonal producer of fresh vegetables.

Dole Europe Dole Europe sales were $1.2 billion in 1998. Dole Europe continued to concentrate on building retail relationships through service. The essence of the Dole ® brand is William F. Feeney, consistency in both product quality and President, Dole Europe condition, on-time delivery, innovation, range of product line, and an assurance of agricultural and distribution practices that meet the highest criteria of food safety and environmental protection. FORWARD INTEGRATION SOUTH AFRICA Dole Europe completed the acquisition of sixty percent The new South African government deregulated fresh of SABA Trading AB during the fall of 1998. SABA is fruit exports at the end of 1997. Previously, growers Scandinavia’s largest fruit and vegetable importer and were required to export through export boards, which distributor with over $500 million in sales. Headquar- controlled distribution through European panelists. tered in Stockholm, Sweden, SABA has banana ripen- South Africa is a major supplier of citrus, apples, grapes, ing facilities, produce distribution centers and flower pears and stonefruits to Europe. Dole founded Dole distribution facilities throughout Sweden. Dole is the South Africa in March 1998, at the beginning of the cit- majority shareholder while two of Sweden’s largest rus export season, establishing it as the second largest retail groups each hold minority shares. SABA provides citrus exporter behind the South African Citrus Board. Dole with an opportunity, in joint venture with retailers, to develop retail service centers and add value to Dole’s produce imports. SABA owns one of Europe’s largest exotic fruit import and distribution companies, FTK Netherlands. Together with Dole’s exotic fruit importer VBH, Belgium, Dole has added leading lines of exotic fruits, such as mango, avocado, passion fruit and lychee to its expanding product range. 17 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Kevin Kiwi is proud of the fact that two kiwifruit provide 240% of your body’s daily requirement for vitamin C, and one serving provides 16%, 14% and 10% of your daily requirements for fiber, potassium and vitamin E, respectively. First season citrus exports exceeded $25 million. Dole ducer. Dole looks forward to a large contribution from South Africa began stonefruit and grape exports in Pascual Hermanos through expanded produce volume, November while the main export season of grapes, distribution range and profit growth. apples and pears is early 1999. Dole South Africa will have nearly $100 million in sales for 1999, supplying RUSSIA southern hemisphere fruits to Asia, North America, and The collapse of the Russian economy during the sum- Europe, fully complementing the Dole Chile export and mer of 1998, resulted in drastically reduced banana and marketing programs. other fresh fruit sales to that market. The Russian prob- lem also had short-term effects on adjacent markets such as the Ukraine, Poland and the Balkan states. SPAIN Dole’s Spanish citrus and vegetable business, Pascual Dole’s St. Petersburg office has reduced receivables and Hermanos, greatly improved performance during 1998. selected only sound and reliable distributors that can Management was changed and the citrus operation withstand the pressures of uncertain economic policy. downsized. Citrus programs focused on supermarket Dole continues to cautiously supply the Russian market requirements. The iceberg lettuce operation was which represents over 150 million consumers. The improved with increased drip irrigation and expanded reduction in Russian imports puts considerable pressure field packing. Production was increased in specialty sal- on other Eastern European markets which made pricing ads such as baby lettuce and leafy salads. Specialty in the second half of the year very challenging. tomato production, especially cherry tomatoes, was increased with expanded green housing. Pascual Her- NEW EUROPEAN UNION QUOTA manos is now a year-round, rather than a seasonal pro- The European Union has changed the E.U. banana regime, commencing January 1999, due to a ruling by the World Trade Organization (“WTO”) subsequent to complaints from the United States, Ecuador, Guatemala, Honduras, Panama and Mexico. There will continue to be a Latin American Quota and an ACP Quota (i.e., former European colonies in Africa, and the Caribbean) as well as licenses and tariffs on Latin American production. The new regime is still being challenged by the United States and Latin American banana producers and will be subject to new WTO panel findings early in 1999. SABA, the recently acquired Scandinavian fruit and vegetable distribution business, is a significant step in Dole’s strategy to be the dominant supplier of fresh produce in Europe. 18 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Dole’s acquisitions of SABA Trading AB of Sweden and Pascual Hermanos of Spain have increased the Company’s European growing and packing capacity and added strength to Dole’s transportation and distribution network.

In Asia, Dole has the broadest product mix of any region in the world. In Japan, Dole is developing partnerships with local retailers and distributors to jointly establish ripening facilities and distribution centers.

Dole Asia Despite the 1998 El Niño weather pattern, Dole Asia achieved sales of approximately $800 million by the maximum utilization of its production resources in Asia and its sourcing capability with affiliated Paul Cuyegkeng companies and strategic partners around the world. President, Dole Asia Dole Asia sales in Japan, its flagship market, operation in 1998. This year, Stanfilco shipped increased seventeen percent in local currency more than twenty-three million boxes of fruit to compared to 1997. This increase was achieved by Japan, Korea, China, New Zealand and the Mid- continued consumer confidence in Dole’s high dle East, while Dolefil, Dole’s pineapple produc- quality banana and pineapple products, and the tion division also located on Mindanao, produced successful new product introduction of locally 414,000 tons of fresh and processed pineapple. processed, fresh-cut vegetables and salads. In early 1998, Dole Asia’s key divisions in the Dole’s new product line of fruits packed in Philippines and Thailand embarked upon a cost clear plastic cups continues to enjoy brisk sales in reduction program designed to counter the Asia and Europe. Manufactured primarily by expected negative effects of El Niño. Tropifresh, Dole Philippines and Dole Thailand, these conve- Dole Asia’s diversified fruit, vegetable and cut nient fruit cup products provide Dole’s customers flower producer located in the Philippines, sig- with an excellent alternative to conventional, nificantly reduced its farm maintenance costs. canned fruit packaging. The addition of Dole’s high quality, value- DISTRIBUTION added pre-cut vegetables and fruit cups further Despite the economic recession in Asia, demand expanded consumer awareness of the Dole brand remains high for Dole ® products in Japan. in Asia where Dole enjoys a ninety-two percent Dole currently markets more than 100 consumer brand recognition. products in Japan, the broadest product LOW COST PRODUCER Devaluation of currencies in Asia contributed favorably to reducing the cost of Dole Asia key operations from production to marketing. As expected, Dole Asia experienced downturns in its pineapple, banana, asparagus and papaya operations due, in part, to the El Niño-related drought in Thailand and the Philippines. Stanfilco, Dole Asia’s producer of high quality bananas located on Mindanao in the Philippines, celebrated its 30th year of 21 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Bananas are a good source of fiber, vitamin C, and potassium. One Bobby Banana has 16% of the fiber, 15% of vitamin C, and 11% of the potassium we need every day for good health. mix of any region in the world. Following Dole Asia’s By early 1999, Dole Asia’s largest corrugated box strategy of forward integration, nine Dole distribution manufacturing plant, Carmen Corrugated Containers centers were fully operational in 1998, which allows (“CCC”), will be in full operation. CCC will service the Dole to service its customers more efficiently with the increased packaging requirements of Dole Asia’s divi- optimal product quality control. Dole Asia opened its sions in the Philippines as the new century begins. latest Dole Distribution Center in Manila, again affirm- ing Dole Asia’s commitment to deliver the freshest, PARTNERSHIP WITH GROWERS highest-quality products possible to all of its customers. Following its successful partnering with growers in the Philippines, Dole Asia expanded its contract-grower program to other parts of the region, creating revolution- MAJOR INVESTMENTS Dole Asia pursued an aggressive strategy of infra- ary changes in the Asian agribusiness structure. From an structure development during 1998. In September, initial base of 1,200 Japanese farmers in 1997, Dole’s net- Dole opened a Vapor Heat Treatment Plant in the work of contract growers has rapidly expanded, giving Philippines, the first plant of its kind in the Southern Dole a larger source of domestically grown products, Philippines. The Vapor Heat Treatment Plant is particu- such as broccoli, tomatoes, cherry tomatoes, cabbage, larly important to the efficient, high-quality production radishes, carrots, lettuce and melons for distribution to of mango and papaya and is enabling Dole Asia to forge Dole Distribution Centers throughout Japan. Dole Asia new partnerships with mango and papaya growers hopes to enlist 20,000 Japanese farmers by the year located on Mindanao. 2002. Dole Asia’s contract-grower program is being expanded to include local farmers in Thailand, for pineapple, papaya, guava and passion fruit. GROWTH OPPORTUNITIES As the effects of 1998’s long drought diminish, Dole looks forward to opportunities for growth in the Asia- Pacific region. In New Zealand, the newest and largest supermarket, Pak ’N Save, opened for business during 1998 carrying Dole products as its preferred fresh produce brand. In Japan, increased demand for value-added products will provide further opportunities for growth into the future. Economic resurgence in the Philippines, increased demand in Japan and New Zealand, and decreased trade restrictions in China, Taiwan and Korea offer growth opportunities for Dole Asia. Dole Asia’s Philippine banana division has begun phasing in a new cropping technology. This new process is designed to augment productivity by as much as thirty-five percent, and enable Dole to match high yield periods to seasons of high market demand. The system, One of the keys to delivering the freshest, highest quality produce throughout the world is developed by Dole scientists based in Mindanao, Dole’s substantial investment in refrigerated containerized shipping. assures lower chemical usage, consistent with Dole’s commitment to establishing ways to provide high-quality products while protecting the environment. 22 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Dole canneries processed and shipped over 648,000 tons of fresh and packaged pineapples in 1998.

OTHER OPERATING SEGMENTS PROCESSED FOODS FRESH FRUIT FRESH VEGETABLES 4,424 Dole Product Category Highlights 4,336 3,840 REVENUE (in millions) 2,692 2,583 2,238 962 915 835 790 756 654 107 35 33 97 98 96 98 98 96 96 96 97 97 98 96 97 97 98 Fresh Fruit Fresh Vegetables Processed Foods Other Operating Total Segments 280.9 254.8 252.2 EBIT* (in millions) 172.2 150.0 110.5 89.8 89.5 52.2 49.4 40.2 30.3 2.8 0.9 0.1 98 96 97 98 96 98 96 97 97 97 98 98 96 97 96 Fresh Fruit Fresh Vegetables Processed Foods Other Operating Total Operating Segments Segments * excludes special charges 2,756 2,355 2,343 ASSETS (in millions) 1,516 1,459 1,383 659 591 533 362 336 303 287 15 10 98 96 97 98 97 98 96 96 98 96 97 96 97 98 97 Fresh Fruit Fresh Vegetables Processed Foods Other Operating Total Operating Segments Segments 24 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Consolidated Statements of Income 1998 1997 1996 (in thousands, except per share data) Revenue $ 4,336,120 $ 3,840,303 $ 4,424,160 Cost of products sold 3,692,277 3,256,345 3,785,745 Gross margin 643,843 583,958 638,415 Selling, marketing and administrative expenses 399,800 369,675 433,509 Hurricane Mitch charge – – 100,000 Citrus charge – – 20,000 Dried Fruit restructuring charge – 50,000 – Operating income 244,043 164,283 84,906 Interest income 7,776 8,412 9,312 Other income (expense) – net 8,034 4,535 (7,996) Earnings before interest and taxes 259,853 177,230 86,222 Interest expense 64,589 68,699 68,943 Income from operations before income taxes 195,264 108,531 17,279 Income taxes 35,100 19,500 5,200 Net income $ 160,164 $ 89,031 $ 12,079 Net income per common share Basic $ 2.67 $ 1.48 $ 0.20 Diluted 2.65 1.47 0.20 See Notes to Consolidated Financial Statements 25 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Consolidated Balance Sheets 1998 1997 (in thousands) Current assets Cash and short-term investments $ 31,202 $ 35,352 Receivables – net 534,844 616,579 Inventories 468,692 475,524 Prepaid expenses 48,438 43,200 Total current assets 1,083,176 1,170,655 Investments 69,248 71,923 Property, plant and equipment – net 1,024,247 1,102,285 Goodwill – net 65,942 277,962 Other assets 221,282 292,228 Total assets $ 2,463,895 $ 2,915,053 Current liabilities Notes payable $ 11,290 $ 29,637 Current portion of long-term debt 2,326 6,451 Accounts payable 230,143 264,732 Accrued liabilities 432,680 504,058 Total current liabilities 676,439 804,878 Long-term debt 754,849 1,116,422 Deferred income taxes and other long-term liabilities 328,293 314,527 Minority interests 37,842 57,394 Commitments and contingencies Common shareholders’ equity 666,472 621,832 Total liabilities and equity $ 2,463,895 $ 2,915,053 See Notes to Consolidated Financial Statements 26 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Consolidated Statements of Cash Flow 1998 1997 1996 (in thousands) Operating activities Income from operations $ 160,164 $ 89,031 $ 12,079 Adjustments to operations Depreciation and amortization 112,081 111,073 122,058 Equity earnings, net of distributions 373 (2,875) (4,421) Provision for deferred income taxes 11,575 (1,741) (33,288) Hurricane Mitch charge, net — — 86,312 Citrus charge — — 20,000 Dried Fruit restructuring charge – 50,000 — Other (23,005) (8,203) (1,342) Change in operating assets and liabilities, net of effects from acquisitions Receivables – net (10,438) (89,176) 39,027 Inventories 72,066 27,222 2,463 Prepaid expenses and other assets (1,167) (8,846) (9,716) Accounts payable and accrued liabilities (7,487) (34,270) (41,537) Internal Revenue Service payment related to prior years’ audits — — (17,145) Other (23,126) (37,262) (17,392) Cash flow provided by operating activities 291,036 94,953 157,098 Investing activities Proceeds from sales of assets 38,700 58,855 19,291 Capital additions (129,171) (109,686) (150,207) Purchases of investments and acquisitions, net of cash acquired (40,010) (58,775) (332,100) Hurricane Mitch insurance proceeds — — 22,500 Cash flow used in investing activities (130,481) (109,606) (440,516) Financing activities Short-term borrowings 28,414 19,694 39,508 Repayments of short-term debt (40,887) (20,449) (38,693) Long-term borrowings 35,232 168,060 366,785 Repayments of long-term debt (169,110) (163,799) (25,692) Cash dividends paid (23,988) (24,020) (24,027) Issuance of common stock 6,644 11,232 11,773 Repurchase of common stock – (13,874) (42,086) Cash flow provided by (used in) financing activities (163,695) (23,156) 287,568 Increase (decrease) in cash and short-term investments (3,140) (37,809) 4,150 Cash and short term investments at beginning of year 34,342 72,151 31,202 Cash and short term investments at end of year $ 31,202 $ 34,342 $ 35,352 See Notes to Consolidated Financial Statements 27 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Notes to Consolidated Financial Statements Goodwill and Other Intangible Assets: Goodwill and other intan- Note 1 — Nature Of Operations gible assets, generally representing the excess of the cost over Dole Food Company, Inc. and its consolidated subsidiaries the net asset value of acquired businesses, are stated at cost and (“the Company”) are engaged in the worldwide sourcing, pro- are amortized principally on a straight-line basis over the esti- cessing, distributing and marketing of high quality, branded mated future periods to be benefited (not exceeding 40 years). food products including fresh fruits and vegetables, as well as Foreign Exchange: For subsidiaries in which the functional cur- processed foods including packaged fruits, fruit juices and bev- rency is the United States dollar, net foreign exchange transac- erage operations in Honduras. Additionally, the Company tion gains or losses are included in determining net income. sources and markets a full line of premium fresh-cut flowers. These resulted in net losses of $4.8 million, $5.0 million and Operations are conducted throughout North America, $2.1 million for 1998, 1997 and 1996, respectively. Net foreign Latin America, Europe (including eastern European countries) exchange gains or losses resulting from the translation of assets and Asia (primarily in Japan and the Philippines). and liabilities of foreign subsidiaries whose local currency is The Company’s principal products are produced on both the functional currency are accumulated as a separate compo- Company-owned and leased land and are also acquired nent of common shareholders’ equity. through associated producer and independent grower arrange- Income Taxes: Deferred income taxes are recognized for ments. The Company’s products are primarily packed and the tax consequences of temporary differences by applying processed by the Company and sold to retail and institutional enacted statutory tax rates to the differences between financial customers and other food product and flower companies. statement carrying amounts and the tax bases of assets and liabilities. Income taxes which would be due upon the Note 2 — Summary Of Accounting Policies distribution of foreign subsidiary earnings have not been Principles of Consolidation: The Consolidated Financial State- provided where the undistributed earnings are considered ments include the accounts of all significant majority-owned permanently invested. subsidiaries. All significant intercompany accounts and trans- Earnings Per Common Share: In accordance with Statement of actions have been eliminated in consolidation. Financial Accounting Standards No. 128, “Earnings per Annual Closing Date: The Company’s fiscal year ends on the Share”, basic earnings per common share are calculated using Saturday closest to December 31. Fiscal year 1998 ended the weighted-average number of common shares outstanding January 2, 1999 and included 52 weeks, while fiscal years 1997 during the period without consideration of the dilutive effect and 1996 included 53 weeks and 52 weeks, respectively. of stock options. The basic weighted-average number of com- Cash and Short-Term Investments: Cash and short-term invest- mon shares outstanding was 60.0 million for 1998, 1997 and ments include cash on hand and time deposits with original 1996. Diluted earnings per common share are calculated using maturities of three months or less. the weighted-average number of common shares outstanding Inventories: Inventories are valued at the lower of cost or mar- during the period after consideration of the dilutive effect of ket. Cost is determined principally on a first-in, first-out basis. stock options. The diluted weighted-average number of com- Specific identification and average cost methods are also used mon shares and equivalents outstanding was 60.4 million for for certain packing materials and operating supplies. 1998, 1997 and 1996. Recurring Agricultural Costs: The costs of growing bananas and Financial Instruments: The Company’s financial instruments pineapples are charged to operations as incurred. Growing are primarily composed of short-term trade and grower costs related to other crops are recognized when the crops are receivables, notes receivable and notes payable, as well as harvested and sold. long-term grower receivables, notes receivable, notes payable Investments: Investments in affiliates and joint ventures with and debentures. For short-term instruments, the historical ownership of 20% to 50% are generally recorded on the equity carrying amount is a reasonable estimate of fair value. Fair method. Other investments are accounted for using the cost values for long-term financial instruments not readily method. marketable were estimated based upon discounted future cash Property, Plant and Equipment: Property, plant and equipment flows at prevailing market interest rates. Based on these are stated at cost, less accumulated depreciation. Depreciation assumptions, management believes the fair market values of is computed principally by the straight-line method over the the Company’s financial instruments, other than certain debt estimated useful lives of the assets. As necessary, the Company instruments (see Note 7), are not materially different from reviews the recoverability of these assets, as well as certain their recorded amounts as of January 2, 1999. intangible assets including goodwill, based on analyses of undiscounted expected future cash flows without interest charges (see Note 4). 28 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

The Company has historically not attempted to hedge fluc- Note 3 — Acquisitions tuations resulting from foreign currency denominated transac- During the second half of 1998, the Company acquired and tions in both sourcing and selling locations. However, the invested in operations in Latin America, North America and Company occasionally enters into forward contracts related to Europe with an aggregate cash purchase price, net of cash specific foreign currency denominated purchase commitments acquired, of approximately $332 million. The acquisitions and sales. Such contracts are designated as hedges and meet were comprised primarily of the purchases of Sunburst Farms, the criteria for correlation and risk mitigation. Accordingly, Inc., Four Farmers, Inc., Finesse Farms, Colombian Carna- unrealized gains or losses on the fair value of hedge instru- tions, Inc. and their affiliated companies and 60% of the SABA ments are deferred. Gains or losses on these contracts are rec- Trading AB Scandinavian distribution business. Each acquisi- ognized when the underlying transactions settle and are tion was accounted for as a purchase, and accordingly, the pur- recorded in the income statement or as a component of the chase price was allocated to the net assets acquired based upon underlying asset or liability, as appropriate. As of January 2, their estimated fair values as of the date of acquisition. Prelimi- 1999, the Company had contracted to purchase German nary allocations of purchase price resulted in approximately marks to facilitate payment for two German-made refrigerated $217 million of goodwill, which is being amortized over 30 container vessels (see Note 11) at a weighted-average exchange years. The fair values of assets acquired and liabilities assumed rate of DM 1.78 to $1.00 for a total notional value of $98.3 mil- were approximately $493 million and $161 million, respec- lion. These fixed-rate contracts will be settled during the tively. Net income from acquired operations included in the fourth quarter of 1999, and as of January 2, 1999, their fair Company’s results for 1998 was $1.7 million. value was approximately $105.8 million. The following unaudited pro forma information presents Stock-Based Compensation: Statement of Financial Accounting the results of operations of the Company as if the acquisitions Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based had taken place on December 29, 1996: Compensation”, defines a fair value method of accounting for (in thousands, except per share data) 1998 1997 employee stock-based compensation cost but allows for the Revenues $ 5,050,709 $ 4,954,428 continuation of the intrinsic value method prescribed by Net income 163,044 20,638 Accounting Principles Board Opinion No. 25 (“APB 25”). In Net income per common share: accordance with SFAS 123, the Company has elected to Basic $ 2.72 $ 0.34 continue to utilize the accounting method prescribed by APB Diluted 2.70 0.34 25 and has adopted the disclosure requirements of SFAS 123 (see Note 9). These pro forma results of operations have been prepared for Comprehensive Income: Effective January 4, 1998, the Company comparative purposes only and may not be indicative of the adopted Statement of Financial Accounting Standards No. 130 results of operations had the acquisitions occurred on the date (“SFAS 130”), “Reporting Comprehensive Income”. SFAS indicated or of future results of operations of the Company. 130 established standards for the reporting of comprehensive The Company acquired and invested in production and income and its components, which consist of net income and distribution operations in Europe, Latin America and Asia other comprehensive income. Other comprehensive income with an aggregate purchase price, net of cash acquired, of is comprised of changes to shareholders’ equity, other than approximately $40 million in 1997 and $59 million in 1996. contributions from or distributions to shareholders, excluded Each acquisition was accounted for as a purchase, and accord- from the determination of net income under generally accept- ingly, the purchase price was allocated to the net assets ed accounting principles. The Company’s other comprehen- acquired based upon their estimated fair values as of the date sive income is comprised of unrealized foreign currency trans- of acquisition. The allocations of purchase price resulted in lation gains and losses and is presented in the Company’s approximately $11 million and $4 million of goodwill in 1997 changes in shareholders’ equity (see Note 10). Adoption of and 1996, respectively. The goodwill is being amortized over a SFAS 130 did not impact the Company’s net income or share- period of up to 40 years. The fair values of assets acquired and holders’ equity for the years presented. liabilities assumed were approximately $79 million and $39 Use of Estimates: The preparation of financial statements million, respectively, in 1997 and approximately $107 million requires management to make estimates and assumptions that and $48 million, respectively, in 1996. Results of acquired affect the reported amounts of assets and liabilities and disclo- operations were not significant in 1997 or 1996. sures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Reclassifications: Certain prior year amounts have been reclassi- fied to conform to the 1998 presentation. 29 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

From December 21 to December 24, 1998 freezing tempera- Note 4 — Special Charges tures destroyed or severely damaged citrus crops in California. During the fourth quarter of 1998, the Company recorded a The Company has ownership interests in approximately $100 million charge, net of insurance proceeds received, for 6,500 acres of citrus in the areas affected by the freeze. As a losses sustained from Hurricane Mitch. The charge has been result of the freeze and changes in industry economics, the classified as a separate caption in the Consolidated Statements Company recorded a $20 million charge. Of the $20 million of Income. The hurricane impacted over 30,000 acres of agri- charge, $13.3 million related to write-downs of deferred crop cultural plantings and severely damaged the Company’s gen- costs and property, plant and equipment as well as reductions eral agricultural infrastructure at both its Honduran banana in grower receivable recovery estimates due to damages sus- and beverage operations. A majority of the charge is for write- tained during the freeze. The remaining $6.7 million of the downs of fixed assets, grower and trade receivables, inventories charge related to reductions in grower receivable recovery and certain deferred crop growing costs that were completely estimates in other areas of the Company’s North American or partially destroyed or impaired by the hurricane. The citrus operations due to the recognition of changes in industry Company has started to rehabilitate selected parts of the economics that impacted certain independent growers. The affected areas. In this regard, the Company spent $13.7 million charge has been classified as a separate caption in the Consoli- on rehabilitation and relief efforts during 1998. Future rehabil- dated Statements of Income. This loss was largely not covered itation costs, net of insurance recoveries, will continue to be by insurance. reported on a separate line in the Consolidated Statements of Included in the charge is $3.1 million of property, plant Income in future years. and equipment impaired by the freeze. The Company Included in the charge is $61.8 million related to property, reviewed these assets to determine whether expected future plant and equipment which consists of $23.7 million of asset cash flows from them (undiscounted and without interest write-offs for property destroyed by the hurricane and $38.1 charges) would result in the recovery of the carrying amount million of assets impaired by the hurricane. The Company of such assets. As a result of this review, the Company deter- reviewed the impaired assets to determine whether expected mined that these assets were impaired in accordance with gen- future cash flows from them (undiscounted and without inter- erally accepted accounting principles, and accordingly, an est charges) would result in the recovery of the carrying amount impairment loss was recognized. Included in accrued liabili- of such property. As a result of this review, the Company ties is $0.2 million related to the severance of 29 employees, as determined that these assets were impaired in accordance with well as $0.6 million of incremental freeze protection costs generally accepted accounting principles, and accordingly, an incurred in 1998. During 1999, crop costs to finish the crop impairment loss was recognized. The Company also recorded year and unutilized overhead in idled packing facilities will be $3.1 million of accrued liabilities for lease settlements and charged to cost of products sold as incurred. The amounts committed relief efforts as of January 2, 1999. The amounts recorded, utilized and to be utilized in each asset and liability recorded, utilized and to be utilized in each asset, liability and category are as follows: expense category are as follows: 1998 Utilized To be 1998 Utilized To be (in thousands) Charge 1998 Utilized (in thousands) Charge 1998 Utilized Grower receivables – Receivables $ 19,283 $ – $ 19,283 freeze areas $ 6,177 $ – $ 6,177 Inventory 13,266 – 13,266 Grower receivables – Investment 2,000 – 2,000 other areas 6,737 – 6,737 Property, plant and Crop costs inventory 3,171 – 3,171 equipment 61,750 – 61,750 Property, plant and Deferred costs 9,442 – 9,442 equipment 3,148 – 3,148 Accrued liabilities – 3,071 3,071 Accrued liabilities – 767 767 Rehabilitation expenses 13,688 – 13,688 Insurance recoveries (22,500) – Total citrus charge $ 19,233 $ 767 (22,500) $ 20,000 Total Hurricane Mitch charge $ 96,929 $ 3,071 $ 100,000 In 1996, the Company implemented a formal plan to close its dried fruit facility located in Fresno, California, which had suffered continued losses. During the fourth quarter of 1996, a restructuring charge of $50.0 million was recorded related to the closure of this facility. The principal component of the charge was a provision for asset write-downs of $38.5 million. The closure of this facility was essentially completed in the second quarter of 1997. During 1997, $30.0 million for asset write- downs, $2.2 million for contract terminations and $2.6 million for severance payments were charged against this provision. 30 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

During 1998, $1.3 million for asset write-downs, $0.3 million Note 7 — Debt for contract terminations and $0.3 million for severance Notes payable consisted primarily of short-term borrowings payments were charged against this provision. In total, required to fund certain foreign operations and totaled $29.6 466 employees were terminated as a result of the closure of million with a weighted-average interest rate of 13.0% as of this facility. January 2, 1999 and $11.3 million with a weighted-average interest rate of 19.3% as of January 3, 1998. Note 5 — Current Assets And Liabilities Long-term debt consisted of: Short-term investments of $0.6 million and $1.8 million as (in thousands) 1998 1997 of January 2, 1999 and January 3, 1998, respectively, consisted Unsecured debt principally of time deposits. Outstanding checks, which are Notes payable to banks at an funded as presented for payment, totaled $33.5 million and average interest rate of 5.5 % $22.1 million as of January 2, 1999 and January 3, 1998, respec- (6.2% – 1997) $ 14,600 $ 63,500 tively, and were included in accounts payable. 6.75% notes due 2000 225,000 225,000 Details of certain current assets were as follows: 7% notes due 2003 300,000 300,000 6.375% notes due 2005 — 300,000 (in thousands) 1998 1997 7.875% debentures due 2013 175,000 175,000 Receivables Various other notes due Trade $ 434,781 $ 494,587 1999 – 2004 at an average Notes and other 142,820 190,331 interest rate of 5.8% (7.8% – 1997) 36,102 38,064 Affiliated operations 17,342 24,426 Secured debt 594,943 709,344 Mortgages, contracts and notes Allowance for doubtful accounts (60,099) (92,765) due 1999 – 2012 at an average interest rate of 6.4% (9.2% – 1997) 8,525 23,824 $534,844 $ 616,579 Unamortized debt discount and Inventories issue costs (2,052) (2,515) Finished products $ 149,933 $ 168,423 757,175 1,122,873 Raw materials and work in progress 167,426 156,623 Current maturities (2,326) (6,451) Crop growing costs 46,207 47,676 Operating supplies and other 105,126 102,802 $ 754,849 $ 1,116,422 $468,692 $ 475,524 The Company estimates the fair value of its fixed interest rate unsecured debt based on current quoted market prices. Included in notes receivable is a $10 million note from Castle The estimated fair value of unsecured notes (face value & Cooke, Inc. which bears interest at the rate of 7% per annum $1,000 million in 1998 and $700 million in 1997) was approx- and is due December 8, 2000. Accrued liabilities as of January imately $1,017 million at January 2, 1999 and $716 million at 2, 1999 and January 3, 1998 included $92.9 million and $86.4 January 3, 1998. million, respectively, of amounts due to growers. In July 1998, the Company extended its 5-year $400 million revolving credit facility (the “Facility”) to 2003. At the Note 6 — Property, Plant And Equipment Company’s option, borrowings under the Facility bear interest Major classes of property, plant and equipment were as follows: at a certain percentage over the agent’s prime rate or the Lon- don Interbank Offered Rate (“LIBOR”). Provisions under the (in thousands) 1998 1997 Facility require the Company to comply with certain financial Land and land improvements $ 444,686 $ 448,151 covenants which include a maximum permitted ratio of consol- Buildings and improvements 264,494 314,460 idated debt to net worth and a minimum required fixed charge Machinery and equipment 864,431 957,478 coverage ratio. At January 2, 1999 and January 3, 1998, there Construction in progress 84,954 101,130 were no borrowings outstanding under the Facility. The Com- 1,658,565 1,821,219 pany may also borrow under uncommitted lines of credit at Accumulated depreciation (634,318) (718,934) rates offered from time to time by various banks that may not $ 1,024,247 $ 1,102,285 Depreciation expense for 1998, 1997 and 1996 totaled $103.4 million, $101.9 million and $102.5 million, respectively. 31 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

be lenders under the Facility. Net borrowings outstanding under Note 8 — Employee Benefit Plans the uncommitted lines of credit totaled $63.5 million and $14.6 The Company has qualified and non-qualified defined benefit million at January 2, 1999 and January 3, 1998, respectively. pension plans covering certain full-time employees. Benefits On October 6, 1998 the Company issued $300 million of under these plans are generally based on each employee’s eligi- unsecured notes in a public offering for which it received cash ble compensation and years of service except for certain hourly proceeds of $297.2 million. The notes bear interest at 6.375% plans which are based on negotiated benefits. In addition to and mature in 2005. Net proceeds from the sale of the notes providing pension benefits, the Company has other plans that were used to repay amounts outstanding under the Facility provide certain health care and life insurance benefits for eligi- and to fund acquisitions during the fourth quarter of 1998. ble retired employees. Covered employees may become eligi- Sinking fund requirements and maturities with respect to ble for such benefits if they fulfill established requirements long-term debt as of January 2, 1999 were as follows (in mil- upon reaching retirement age. lions): 1999 – $6.5; 2000 – $240.6; 2001 – $13.4; 2002 – $5.1; For U.S.plans, the Company’s policy is to fund the net peri- 2003 – $368.4; and thereafter – $488.9. odic pension cost plus a 15-year amortization of the unfunded lia- Interest payments totaled $67.1 million, $66.2 million and bility. Most of the Company’s international pension plans and $68.4 million, during 1998, 1997 and 1996, respectively. all of the Company’s plans other than pensions are unfunded. The status of the defined benefit pension plans and other plans was as follows: U.S. Pension Plans International Pension Plans Other Plans (in thousands) 1998 1997 1998 1997 1998 1997 Change in projected benefit obligation Benefit obligation at beginning of year $ 248,676 $ 30,776 $ 73,176 $ 276,767 $ 30,535 $ 71,507 Service cost 4,083 1,828 212 4,238 1,826 186 Interest cost 18,405 3,650 5,423 19,492 4,079 5,031 Participant contributions — 41 — — 28 — Plan amendments — — — 2,686 195 — Exchange rate changes — (9,497) — — 605 — Actuarial loss (gain) 26,825 5,559 (1,182) 20,621 (1,635) (3,063) Curtailments and settlements — (404) — — — — Benefits paid (21,222) (1,418) (6,122) (21,716) (1,693) (5,737) Benefit obligation at end of year $ 276,767 $ 30,535 $ 71,507 $ 302,088 $ 33,940 $ 67,924 Change in plan assets Fair value of plan assets at beginning of year $ 250,154 $ 2,473 — $ 281,944 $ 1,737 — Actual return on plan assets 46,222 60 — 39,704 150 — Company contributions 6,790 2,162 6,122 7,443 1,679 5,737 Participant contributions — 41 — — 28 — Exchange rate changes — (831) — — 128 — Settlements — (750) — — — — Benefits paid (21,222) (1,418) (6,122) (21,716) (1,693) (5,737) Fair value of plan assets at end of year $ 281,944 $ 1,737 — $ 307,375 $ 2,029 — Funded status $ 5,177 $ (28,798) $ (71,507) $ 5,287 $ (31,911) $ (67,924) Unrecognized net loss (gain) (2,967) 2,588 (15,968) (419) 1,172 (18,232) Unrecognized prior service cost (benefit) 2,099 3,815 (1,740) 4,539 3,589 (1,407) Unrecognized net transition obligation (asset) (650) 1,677 — (467) 1,655 — Net amount recognized $ 3,659 $ (20,718) $ (89,215) $ 8,940 $ (25,495) $ (87,563) Amounts recognized in the Consolidated Balance Sheets Prepaid benefit cost $ 9,410 — — $ 16,234 — — Accrued benefit liability (7,455) (20,858) (89,215) (11,045) (25,897) (87,563) Additional minimum liability 1,704 140 — — 3,751 402 Net amount recognized $ 3,659 $ (20,718) $ (89,215) $ 8,940 $ (25,495) $ (87,563) 32 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

For U.S. plans, the projected benefit obligation was deter- increased the Company’s APBO as of January 2, 1999 by mined using assumed discount rates of 7.0% in 1998 and 7.25% approximately $5.6 million and would have increased the ser- in 1997 and assumed rates of increase in future compensation vice and interest cost components of postretirement benefit levels of 4.5% in 1998 and 1997. The expected long-term rate expense for 1998 by $0.5 million, in aggregate. A decrease in of return on assets was 9.25% in 1998 and 1997. For interna- the assumed health care cost trend rate by one percentage tional plans, the projected benefit obligation was determined point in each year would have decreased the Company’s using assumed discount rates of 7.0% to 20.0% in 1998 and APBO as of January 2, 1999 by approximately $5.5 million 7.25% to 20.0% in 1997 and assumed rates of increase in future and would have decreased the service and interest cost com- compensation levels of 4.5% to 17.5% in 1998 and 1997. The ponents of postretirement benefit expense for 1998 by $0.4 expected long-term rate of return on assets for international million, in aggregate. The weighted-average discount rate plans was 9.25% to 20.0% in 1998 and 1997. used in determining the APBO was 7.0% for the U.S. and The accumulated plan benefit obligation (“APBO”) for international plans in 1998 and 7.25% for the U.S. and inter- the Company’s other plans in 1998 was determined using an national plans in 1997. annual rate of increase in the per capita cost of covered health The Company’s U.S. ERISA Excess Plan had an APBO care benefits of 8.5% in 1999 decreasing to 5.0% in 2006 and of $11.0 million in 1998 and $7.5 million in 1997. Due to the thereafter. The annual rate of increase assumed in the 1997 nature of the plan, it remains unfunded. The remainder APBO was 9.0% in 1998 decreasing to 5.0% in 2006 and of the Company’s domestic pension plans were fully funded. thereafter. An increase in the assumed health care cost trend The APBO for the Company’s unfunded international rate of one percentage point in each year would have pension plans, in aggregate, was $15.9 million in 1998 and $13.2 million in 1997. The components of net periodic benefit cost for the U.S. and international plans were as follows: Pension Plans Other Plans (in thousands) 1998 1997 1996 1998 1997 1996 Components of net periodic benefit cost Service cost 6,064 $ 5,911 $ 9,143 $ $ 212 $ 237 $ 186 Interest cost 22,055 21,968 5,423 5,482 23,571 5,031 Expected return on plan assets (21,312) (20,156) — — (22,712) — Amortization of: Unrecognized net loss (gain) 200 486 — (156) 500 (799) Unrecognized prior service cost (benefit) 688 673 (333) (325) 681 (333) Unrecognized net obligation (asset) (41) 59 — — (29) — Curtailment (gain) — — (600) (577) — — $ 7,501 $ 12,173 $ 4,702 $ 4,661 $ 8,075 $ 4,085 The Company recognized net curtailment losses of $1.3 mil- The Company is also a party to various industry-wide col- lion in 1996 for the domestic plans and $2.4 million in 1997 for lective bargaining agreements which provide pension benefits. the international plans. These losses were due to additional Total contributions to these plans plus direct payments to pen- benefit payments resulting from reductions in workforce. sioners in 1998, 1997 and 1996 were $0.6 million, $0.8 million The Company offers two 401(k) plans to salaried U.S. and $1.2 million, respectively. employees. Eligible employees may defer a percentage of their In 1998, the Company adopted Statements of Financial annual compensation up to a maximum allowable amount Accounting Standards No. 132, “Employers’ Disclosures about under federal income tax law to supplement their retirement Pensions and Other Postretirement Benefits”. Such adoption income. These plans provide for Company contributions based did not impact the Company’s financial position or results on a certain percentage of each participant’s contribution, sub- of operations. ject to a maximum contribution by the Company. Total Com- pany contributions to these plans in 1998, 1997 and 1996 were $3.4 million, $3.2 million and $3.8 million, respectively. 33 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

The fair value of each option grant was estimated on the date Note 9 — Stock Options And Awards of grant using the Black-Scholes option pricing model with the Under the 1982 and 1991 Stock Option and Award Plans (“the following weighted-average assumptions for grants in 1998, Option Plans”), the Company can grant incentive stock 1997 and 1996: options, non-qualified stock options, stock appreciation rights, 1998 1997 1996 restricted stock awards and performance share awards to officers and key employees of the Company. Stock options vest Dividend yields 1.0% 1.0% 0.8% Expected volatility 29.0% 30.0% 28.0% over time or based on stock price appreciation and may be Risk free interest rate 6.5% 5.8% 5.7% exercised for up to 10 years from the date of grant, as deter- Expected lives 9 years 9 years 10 years mined by the committee of the Company’s Board of Directors Weighted-average administering the Option Plans. No stock appreciation rights, fair value $ 17.29 $ 15.08 $ 24.69 restricted stock awards or performance share awards were outstanding at January 2, 1999. The Company accounts for stock-based compensation under Under the 1995 Non-Employee Directors Stock Option APB 25, and accordingly, no compensation costs have been Plan (the “Directors Plan”), each active non-employee director recognized in the accompanying Consolidated Statements of will receive a grant of 1,500 non-qualified stock options (the Income for 1998, 1997 or 1996. Had compensation costs been “Options”) on February 15th (or the first trading day there- determined under SFAS 123, pro forma net income and net after) of each year. The Options vest over three years and income per share would have been as follows: expire 10 years after the date of the grant or upon early termi- nation as defined by the plan agreement. (in thousands, except per share data) 1998 1997 1996 Changes in outstanding stock options were as follows: Net income $156,779 $ 86,022 $ 7,547 Weighted- Net income per share – basic $ 0.13 $ 2.61 $ 1.43 Shares Average Price Net income per share – diluted 2.59 1.42 0.12 Outstanding, December 30, 1995 1,960,420 $ 29.23 Granted 711,000 38.52 Since SFAS 123 was only applied to options granted subse- Exercised (373,952) 30.04 quent to December 31, 1994, the resulting pro forma compen- Canceled (103,661) 33.39 sation cost may not be representative of that to be expected in Outstanding, December 28, 1996 2,193,807 31.91 future years. Granted 449,630 38.65 Exercised (249,365) 28.36 Note 10 — Shareholders’ Equity Canceled (25,288) 36.78 Authorized capital at January 2, 1999 consisted of 80 million Outstanding, January 3, 1998 2,368,784 33.51 Granted 595,682 52.31 shares of no par value common stock and 30 million shares of Exercised (413,016) 29.56 no par value preferred stock issuable in series. At January 2, Canceled (158,587) 39.09 1999, approximately 4.7 million shares and 0.1 million shares Outstanding, January 2, 1999 2,392,863 $ 38.50 of common stock were reserved for issuance under the Option Plans and the Directors Plan, respectively. There was no pre- Exercisable, January 2, 1999 1,286,370 $ 32.34 ferred stock outstanding. The Company’s current policy is to pay quarterly dividends The following table summarizes information about stock on common shares at an annual rate of 40 cents per share. options outstanding at January 2, 1999: During 1996, the Company announced a program to (shares in thousands) Options Outstanding Options Exercisable repurchase up to 5% of its outstanding common stock. During Number Weighted- Weighted- Number Weighted- 1998, the Company increased the number of shares autho- Outstanding Average Average Exercisable Average rized for repurchase to 4.5 million, which approximated 7.6% Range of at January 2, Remaining Exercise at January 2, Exercise Exercise Prices 1999 Years Price 1999 Price of its common shares outstanding. As of January 2, 1999, the Company had repurchased 1,560,600 shares at a cost of $25.32 - $30.92 629 4.6 $ 27.30 629 $ 27.30 33.72 - 44.25 1,193 5.8 37.79 657 37.13 approximately $56.0 million. 50.19 - 54.81 571 9.1 52.32 — — $25.32 - $54.81 2,393 6.3 $ 38.50 1,286 $ 32.34 34 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Comprehensive income and changes in shareholders’ equity were as follows: Common Additional Accumulated Other Total Common Shares Common Paid-in Retained Comprehensive Shareholders’ Comprehensive (in thousands, except share data) Outstanding Stock Capital Earnings Loss Equity Income Balance, December 30, 1995 59,854,739 $ 320,497 $ 170,266 $ 58,269 $ (40,597) $ 508,435 Net income – – – 89,031 – 89,031 $ 89,031 Cash dividends declared ($.40 per share) – – – (24,020) – (24,020) — Translation adjustments – – – – (21,244) (21,244) (21,244) Issuance of common stock 373,952 374 10,858 – – 11,232 — Repurchase of common stock (395,400) (395) (13,479) – – (13,874) — Comprehensive income — 1996 — — — — — — 67,787 Balance, December 28, 1996 59,833,291 320,476 167,645 123,280 (61,841) 549,560 Net income – – – 160,164 – 160,164 160,164 Cash dividends declared ($.40 per share) – – – (23,988) – (23,988) — Translation adjustments – – – – (25,908) (25,908) (25,908) Issuance of common stock 231,156 231 6,413 – – 6,644 — Comprehensive income — 1997 — — — — — — 134,256 Balance, January 3, 1998 60,064,447 320,707 174,058 259,456 (87,749) 666,472 Net income – – – 12,079 – 12,079 12,079 Cash dividends declared ($.40 per share) – – – (24,027) – (24,027) — Translation adjustments – – – – (2,379) (2,379) (2,379) Issuance of common stock 394,652 395 11,378 – – 11,773 — Repurchase of common stock (1,165,200) (1,165) (40,921) – – (42,086) — Comprehensive income — 1998 — — — — — — $ 9,700 Balance, January 2, 1999 59,293,899 $ 319,937 $ 144,515 $ 247,508 $ (90,128) $ 621,832 At January 2, 1999, the Company’s aggregate minimum Note 11 — Contingencies rental commitments, before sublease income, were as follows At January 2, 1999, the Company was guarantor of approxi- (in millions): 1999 – $131.1; 2000 – $103.1; 2001 – $114.7; mately $76 million of indebtedness of certain key fruit suppli- 2002 – $158.3; 2003 – $28.4; and thereafter – $197.1. Total ers and other entities integral to the Company’s operations. future sublease income is $25.1 million. The Company has ordered two refrigerated container vessels from HDW in Kiel, Germany, which are scheduled Note 13 — Income Taxes for delivery in late 1999. The cost per ship is approximately DM 100 million. Income tax expense (benefit) was as follows: The Company is involved from time to time in various (in thousands) 1998 1997 1996 claims and legal actions incident to its operations, both as Current plaintiff and defendant. In the opinion of management, after Federal, state and local $ 19,427 $ 2,810 $ 1,882 consultation with legal counsel, none of such claims is expect- Foreign 20,715 19,359 19,061 ed to have a material adverse effect on the Company’s financial position or results of operations. 23,525 21,241 38,488 Deferred Note 12 — Lease Commitments Federal, state and local 12,285 (444) (29,407) Foreign (710) (1,297) (3,881) The Company has obligations under non-cancelable operating leases, primarily for ship charters and containers, and certain 11,575 (1,741) (33,288) equipment and office facilities. Lease terms are for less than the $ 35,100 $ 19,500 $ 5,200 economic life of the property. Certain agricultural land leases provide for increases in minimum rentals based on production. Pretax earnings attributable to foreign operations were $44 Lease payments under a significant portion of the Company’s million, $170 million and $173 million for 1998, 1997 and operating leases are based on variable interest rates. Total 1996, respectively. Undistributed earnings of foreign sub- rental expense was $150.7 million, $182.2 million and $158.7 sidiaries, which have been or are intended to be permanently million (net of sublease income of $8.7 million, $10.6 million invested, aggregated $1.3 billion at January 2, 1999. and $12.4 million) for 1998, 1997 and 1996, respectively. 35 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

The Company’s reported income tax expense varied from In connection with the fourth quarter losses related to the expense calculated using the U.S. federal statutory tax rate Hurricane Mitch, a valuation allowance in the amount of for the following reasons: $18.7 million has been recognized to offset the deferred tax assets related to these losses. (in thousands) 1998 1997 1996 The Company has recorded deferred tax assets of $100.2 Expense computed at million reflecting the benefit of approximately $269 million in U.S. federal statutory federal and state net operating loss carryovers which will, if income tax rate $ 68,341 $ 37,986 $ 6,048 unused, begin to expire in 2009. Foreign income taxed The tax credit carryforward amount of $1.3 million is at different rates (36,437) (21,656) (28,097) comprised of general business credits which begin to expire Dividends from in 2008. subsidiaries 456 618 486 Total deferred tax assets and deferred tax liabilities were as State and local income follows: tax, net of federal income tax benefit 602 1,100 762 (in thousands) 1998 1997 1996 Interest on prior Deferred tax assets $226,028 $ 253,831 $ 238,212 years taxes – – (3,752) Deferred tax liabilities (146,020) (165,632) (125,097) Hurricane losses taxed at different rates – – 9,886 $ 80,008 $ 88,199 $ 113,115 Valuation allowance on foreign hurricane losses 18,742 – – The Company remains contingently liable with respect to Other 2,138 1,452 1,125 certain tax credits sold to Norfolk and Southern Railway Reported income (“Norfolk”) with recourse by Flexi-Van Corporation (“Flexi- tax expense $ 35,100 $ 19,500 $ 5,200 Van”), the Company’s former transportation equipment leas- ing business. Litigation with the Internal Revenue Service involving these credits concluded during the year. Litigation Total income tax payments (net of refunds) for 1998, 1997 and and settlement negotiations involving Flexi-Van and Norfolk 1996 were $36.7 million, $17.3 million and ($1.6) million, (and the Company due to its contingent liability) are ongoing. respectively. Flexi-Van, which separated from the Company in 1987 and Deferred tax assets (liabilities) were comprised of the was subsequently acquired by David H. Murdock, has indem- following: nified the Company against obligations that might result from (in thousands) 1998 1997 1996 the resolution of the matter. Operating reserves $ 24,892 $ 45,246 $ 44,591 Accelerated depreciation (25,290) (21,717) (16,538) Note 14 — Business Segments Inventory valuation In accordance with Statement of Financial Accounting Stan- methods 3,024 3,670 4,699 dards No. 131 (“SFAS 131”), “Disclosures about Segments of Effect of differences between book values an Enterprise and Related Information”, the Company has assigned in prior three reportable segments: Fresh Fruit, Fresh Vegetables, and acquisitions and Processed Foods. The Fresh Fruit segment contains several historical tax values (33,100) (36,941) (34,032) operating segments that produce and market fresh fruit to Postretirement benefits 34,278 33,946 34,098 wholesale, retail and institutional customers worldwide. The Current year acquisitions – (6,560) (114) Fresh Vegetables segment contains three operating segments Tax credit carryforward 1,263 4,987 1,263 that produce and market commodity and fresh packaged veg- Net operating loss etables to wholesale, retail and institutional customers primari- carryforward 86,670 77,685 100,221 ly in North America, Europe and Asia. Both the Fresh Fruit Reserves for and Fresh Vegetable segments sell produce grown by a combi- hurricane losses – – 22,847 nation of Company-owned and independent farms. The Valuation allowance on Processed Foods segment contains several operating segments foreign hurricane losses – – (18,742) that produce and market packaged foods including fruits, bev- Other, net (11,729) (12,117) (25,178) erages and snack foods. The reportable segments are managed $ 80,008 $ 88,199 $ 113,115 separately due to varying products, production processes, distribution channels and customer bases. The Company has other operating segments which include fresh-cut flower businesses acquired during 1998 and certain diversified operations. 36 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

The Company’s revenue from external customers and net prop- Accounting policies for the three reportable segments erty, plant and equipment by geographic area were as follows: and other operating segments are the same as those described in the summary of significant accounting policies. Company (in thousands) 1998 1997 1996 management evaluates and monitors segment performance Revenue primarily through earnings before interest and taxes (EBIT). United States $ 1,943,057 $ 1,741,741 $ 1,886,237 The results of operations and financial position of the three Japan 595,131 551,073 585,658 reportable segments, other operating segments, and Corporate Germany 306,418 238,575 318,787 and other were as follows: Honduras 240,390 216,375 275,050 France 197,580 150,607 232,429 (in thousands) 1998 1997 1996 Other international 1,053,544 941,932 1,125,999 Revenue $ 4,336,120 $ 3,840,303 $ 4,424,160 Fresh Fruit $ 2,583,277 $ 2,238,257 $ 2,692,147 Fresh Vegetables 756,176 653,730 790,149 Property, plant and Processed Foods 962,127 915,335 834,966 equipment — net Other operating United States $ 396,254 $ 397,141 $ 408,385 segments 34,540 32,981 106,898 Honduras 145,404 125,320 109,650 Costa Rica 78,592 58,178 96,293 $ 4,336,120 $ 3,840,303 $ 4,424,160 Colombia 29,531 28,037 89,279 EBIT Oceangoing assets 94,947 104,756 82,213 Fresh Fruit $ 149,997 $ 172,205 $ 110,505 Philippines 66,071 61,561 67,061 Fresh Vegetables 40,196 30,300 49,418 Other international 213,448 249,142 249,404 Processed Foods 89,805 52,226 89,462 $ 1,024,247 $ 1,024,135 $ 1,102,285 Other operating segments 912 136 2,788 Total operating Note 15 — Subsequent Event segments 280,910 254,867 252,173 In February 1999, the Company increased the number of Corporate and other (21,057) (27,637) (45,951) common shares authorized under its repurchase program to Special charges – (50,000) (120,000) 8.3 million, which approximated 14% of its common shares $ 259,853 $ 177,230 $ 86,222 outstanding. In January and February 1999, the Company Assets repurchased 2,271,000 common shares, in aggregate, at a Fresh Fruit $ 1,459,204 $ 1,383,064 $ 1,516,551 weighted-average price of $29.72 per share. Fresh Vegetables 335,827 302,698 361,544 Processed Foods 532,629 658,977 591,188 Other operating segments 15,470 10,652 286,578 Total operating segments 2,343,130 2,355,391 2,755,861 Corporate and other 120,765 131,416 159,192 $ 2,463,895 $ 2,486,807 $ 2,915,053 Depreciation and amortization Fresh Fruit $ 77,634 $ 76,944 $ 75,993 Fresh Vegetables 9,145 10,061 12,788 Processed Foods 20,727 22,164 21,864 Other operating segments 164 188 7,969 Corporate and other 4,411 1,716 3,444 $ 112,081 $ 111,073 $ 122,058 Capital additions Fresh Fruit $ 63,052 $ 52,211 $ 79,746 Fresh Vegetables 35,647 8,118 20,724 Processed Foods 25,672 36,651 47,078 Other operating segments – 100 2,222 Corporate and other 4,800 12,606 437 $ 129,171 $ 109,686 $ 150,207 Note: Corporate and other EBIT in 1997 and 1996 includes certain gains on the disposition of investments and assets. 37 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Note 16 — Quarterly Financial Information (Unaudited) The following table presents summarized quarterly results: First Second Third Fourth (in thousands, except per share data) Quarter Quarter Quarter Quarter Year 1998 Revenue $ 1,011,984 $ 1,163,986 $ 1,209,794 $ 1,038,396 $ 4,424,160 Gross margin 139,021 208,198 174,482 116,714 638,415 Net income (loss) 22,761 82,095 15,562 (108,339) 12,079 Net income (loss) per common share — diluted $ 0.37 $ 1.35 $ 0.26 $ (1.82) $ 0.20 1997 Revenue $ 964,992 $ 1,107,804 $ 1,178,301 $ 1,085,023 $ 4,336,120 Gross margin 151,738 191,006 156,157 144,942 643,843 Net income 42,043 70,429 24,443 23,249 160,164 Net income per common share – diluted $ 0.70 $ 1.17 $ 0.40 $ 0.38 $ 2.65 The net loss for the fourth quarter of 1998 includes pre-tax charges of $100 million, net of insurance proceeds, and $20 million related to Hurricane Mitch and the Company’s North American citrus operations, respectively. The cumulative total of net income (loss) per common share reported in each quarter of 1998 differs from the full-year amount. The difference is due to the timing and significance of the special charges recorded in the fourth quarter combined with the repurchase of approximately 1.2 million common shares at the end of the third quarter. All quarters have twelve weeks, except the fourth quarter of 1997 which has thirteen weeks and the third quarters of both years which have sixteen weeks. Note 17 — Common Stock Data (Unaudited) The following table shows the market price range of the Company’s common stock for each quarter in 1998 and 1997: High Low 1998 $ 57 1/8 $ 4 3 1/2 First Quarter 49 1/8 43 15/16 Second Quarter 52 7/16 32 3/8 Third Quarter 28 5/16 Fourth Quarter 35 $ 57 1/8 $ 28 5/16 Year 1997 $ 40 1/4 $ 33 3/8 First Quarter 43 3/8 37 3/4 Second Quarter 46 15/16 39 1/16 Third Quarter 49 5/8 43 9/ Fourth Quarter 16 $ 49 5/8 $ 33 3/8 Year 38 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Report of Independent Public Accountants To the Shareholders and Board of Directors of Dole Food Company, Inc.: We have audited the accompanying consolidated balance sheets of Dole Food Company, Inc., (a Hawaii corporation) and subsidiaries as of January 2, 1999 and January 3, 1998, and the related consolidated statements of income and cash flow for the years ended January 2, 1999, January 3, 1998, and December 28, 1996. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dole Food Company, Inc. and subsidiaries as of January 2, 1999 and January 3, 1998 and the results of its operations and its cash flow for the years ended January 2, 1999, January 3, 1998, and December 28, 1996, in conformity with generally accepted accounting principles. Los Angeles, California February 5, 1999 39 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Management’s Discussion and Analysis of Results of Operations and Financial Position anticipates they will add an additional $550 million to 1999 rev- Overview enue when included for the full year. These businesses added In 1998, the Company’s results were negatively impacted by approximately $2 million to net income in 1998. In 1999, cate- the effects of the El Niño weather pattern, Hurricane Mitch and gory growth, efficiencies in production and distribution the California citrus freeze. Additionally, economic turmoil in methodologies, and improved marketing leverage are expected Asia, Eastern Europe and Latin America undermined the to further strengthen the performance of these businesses. financial condition of emerging markets and impacted the fruit European Union Quota: The European Union (“E.U.”) banana business worldwide. Also in 1998, the Company expanded its regulations, which impose quotas and tariffs on bananas, product offering to include fresh-cut flowers, increased its pro- remained in full effect in 1998 and continue in effect with ductive capacity in the growing pre-cut salad category and some modifications as of the date of these financial statements. extended its European distribution network into Scandinavia. The World Trade Organization (“WTO”) issued a ruling dur- During 1998, the Company’s fruit operations were impacted ing 1997, on the complaint made by the United States, by the following weather-related events: Ecuador, Guatemala, Honduras, Panama and Mexico, that the • The El Niño weather pattern reduced industry banana vol- European banana trade regime violated basic General Agree- umes from Ecuador by 18%, impacted production opera- ment on Tariffs and Trade (“GATT”) principles. The WTO tions in California and reduced banana volumes from the found certain aspects of the regime discriminatory and asked Philippines and pineapple volumes from the Philippines the E.U. to modify the regime to eliminate these discriminato- and Thailand. Production volumes from these areas are ry aspects. In June 1998, E.U. farm ministers responded with anticipated to begin returning to normal during 1999. certain modifications to the regime. The United States does • Hurricane Mitch impacted over 30,000 acres of agricultur- not consider the changes sufficient to regulate banana sales al plantings and caused severe damage to the Company’s consistent with the WTO ruling and has imposed tariffs on a general agricultural infrastructure at both its Honduran variety of E.U. goods. Trade negotiations and discussions con- banana and beverage operations. During the fourth quarter tinue between the E.U., the United States and the individual of 1998, the Company recorded a $100 million charge, net banana exporting countries. These trade negotiations could of insurance proceeds received, for losses sustained from lead to further changes in the regulations governing banana Hurricane Mitch. Production in the impacted areas is not exports to the E.U. The net impact of these changing regula- expected to fully recover in 1999. However, due to price tions on the Company’s future results of operations is not sensitivity in worldwide banana markets, the impact on determinable at this time. future operating results is not currently determinable. The Foreign Currencies: The Company distributes its products in Company has started to rehabilitate selected parts of the more than 90 countries throughout the world. Its internation- affected areas and will incur additional rehabilitation al sales are usually transacted in U.S. dollars and major Euro- expenses in the future. The Company also continues to pean and Asian currencies. Certain costs are incurred in cur- pursue recovery under various insurance policies for losses rencies different from those that are received from the sale of sustained. Future rehabilitation costs and insurance recov- products. While results of operations may be affected by fluc- eries will be reported on a separate line in the Consolidat- tuations in currency exchange rates in both the sourcing and ed Statements of Income. selling locations, the Company has historically followed a pol- • Following severe freezing temperatures in California’s San icy, with certain exceptions, of not attempting to hedge these Joaquin Valley from December 21 to December 24, 1998, the exposures. Additionally, the 1999 adoption of the Euro Company recorded a $20 million charge in its citrus opera- currency by the E.U. is not expected to materially impact the tions. The charge primarily related to write-downs of deferred Company’s results of operations or financial position. crop costs, property, plant and equipment and grower receiv- New Accounting Pronouncements: In June 1998, the Financial ables in the freeze areas. The charge also included write- Accounting Standards Board issued Statement of Financial downs of grower receivables in other locations due to the Accounting Standards No. 133 (“SFAS 133”), “Accounting for recognition of changes in industry economics. In addition to Derivative Instruments and Hedging Activities”. The Compa- the charge taken in 1998, the Company currently estimates ny is assessing the impact of accounting for derivative instru- that the freeze damage will negatively impact its 1999 operat- ments in accordance with SFAS 133. The Company’s deriva- ing results by approximately $10 million to $15 million. tive transactions are currently limited to hedging certain for- The Company has substantial sales outside of the United eign currency denominated purchase commitments. The States which had been expanding rapidly as personal incomes Company will adopt the statement during the first quarter of in developing countries rose. The economic crises in Asia, the 2000. Such adoption is not expected to have a material impact collapse of the Russian economy and economic slowdowns in on the Company’s financial condition or results of operations. Latin America have affected the international fruit business Year 2000: The Company has assessed the effect of Year 2000 and slowed its growth. issues on its information technology, including computer hard- During 1998, the Company entered the fresh-cut flower ware, software and embedded chip technology. Remediation business in North America, which is relatively fragmented, and has been completed at the majority of the Company’s operat- continued expanding its European fresh produce distribution ing units with most of the remaining operating units currently network. Acquisitions during the second half of 1998 added undergoing tests of remediated systems and software. The approximately $150 million to 1998 revenue, and the Company Company has now identified certain specific upgrade projects 40 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

and personal computer replacements that will be completed inability to pass on higher El Niño related costs in the form of during the first half of 1999. Remediation efforts related to higher prices. This was partially offset by improved European companies acquired during 1998 and Honduran operating distribution earnings. The Company’s North American citrus units impacted by Hurricane Mitch are scheduled to be com- and deciduous operations also had significant declines due to pleted by June 1999. All other remediation work has been El Niño related cost issues compared to very strong results in completed as of the December 1998 target date. The Compa- 1997. Operating results improved in the Honduran beverage, ny is also in the process of confirming Year 2000 compliance processed pineapple, fresh-cut salad and European distribu- with key vendors and service providers, including suppliers of tion categories, as well as through the addition of the acquired embedded chip technology. Once completed, the Company flower businesses and SABA Trading AB. Interest Expense, Net: Interest expense, net of interest income, will develop a contingency plan related to its key vendors and increased to $59.6 million in 1998 from $56.8 million in 1997 service providers. Based on work performed to date, the Com- due to increased debt levels in the second half of the year to pany believes that the total cost to remediate will not be mater- fund acquisitions. ial to its results of operations, liquidity or capital resources. Other Income (Expense), Net: Other income (expense) - net con- The preceding discussion contains forward-looking state- sists primarily of minority interest expense and gains and loss- ments regarding the Company’s timetable for solving its Year es on sales of property. In 1997, other income included larger 2000 issues, costs to remediate and the ultimate impact on its gains from sales of investments and fixed assets. finances, which involve a number of risks and uncertainties. Income Taxes: The Company’s effective tax rate increased in The potential risks and uncertainties that could cause actual 1998 from 18% to 30% primarily due to the Hurricane Mitch results to differ materially include: the continuing availability charge, which was not fully tax benefitted. of key information technology personnel and consultants, the ability of third parties to complete their own Year 2000 remediation on time, unforeseen responses by the public to the per- 1997 Compared with 1996 ceived situation and, if necessary, the ability of the Company Revenue: Revenue increased 13% to $4,336.1 million in 1997 to identify and implement contingency plans. from $3,840.3 million in 1996. The increase in revenue is primarily attributable to higher worldwide banana volumes; 1998 Compared with 1997 increased volumes in fresh-cut salads and favorable pricing for Revenue: Revenue increased 2% to $4,424.2 million in 1998 the fresh vegetable business; continued growth at the Hon- from $4,336.1 million in 1997. The inclusion of the newly duran beverage operation; newly acquired businesses; and an acquired flower businesses and SABA Trading AB toward the additional week in fiscal year 1997. The Company was able to end of the year increased revenue by 4% in 1998. Revenue grow revenue in spite of adverse currency movements in 1997. from existing businesses was up slightly after considering a 2% Selling, Marketing and Administrative Expenses: Selling, market- reduction due to the closure of the Company’s California ing and administrative expenses were $399.8 million or dried fruit facility in the second quarter of 1997 and the inclu- 9.2% of revenue in 1997 compared to $369.7 million or sion of an additional week in fiscal year 1997. While the fresh- 9.6% of revenue in 1996. The increased expense is due to cut salad and Honduran beverage businesses had strong higher sales activity in existing product lines and the acquisi- growth rates, processed pineapple suffered from El Niño tion of new businesses, partially offset by the closure of the induced product shortages, and the North American citrus and Company’s California dried fruit facility. deciduous fruit businesses had reduced volumes and product Restructuring Charge: In 1996, the Company implemented a for- quality due to El Niño. Revenues from bananas increased as mal plan to close its dried fruit facility located in Fresno, Cali- higher sales in the Company’s European distribution business- fornia which had suffered continued losses. During the fourth es, including sales from businesses acquired late in 1997, quarter of 1996, a restructuring charge of $50.0 million was served to offset decreased import volumes due largely to the recorded related to the closure of this facility. Principal com- closure of the Russian market. ponents of the charge were provisions for asset write-downs, Selling, Marketing and Administrative Expenses: Selling, mar- contract terminations and severance payments. The closure of keting and administrative expenses were $433.5 million or this facility was completed in the second quarter of 1997. Operating Income: Operating income improved to $244.0 mil- 9.8% of revenue in 1998 compared to $399.8 million or 9.2% of revenue in 1997. The increase resulted from growth in busi- lion in 1997 from $214.3 million before the restructuring nesses with higher operating cost percentages such as the Hon- charge in 1996. Higher earnings in 1997 were the result of duran beverage, fresh-cut salad and European distribution increased volumes of fresh-cut salads, favorable pricing in the businesses. At the same time, the banana import business fresh vegetables business and growth in the banana business. experienced higher receivable write-offs related to the col- In addition, the processed pineapple and Honduran beverage lapse of the Russian market, higher promotional costs as a businesses posted higher results in 1997, and the closure of the result of market supply conditions and lower total revenues. dried fruit facility in the second quarter reduced losses. Operating Income: Operating income decreased from $244.0 Interest Expense, Net: Interest expense, net of interest income, million in 1997 to $204.9 million before special charges in decreased to $56.8 million in 1997 from $60.3 million in 1996, 1998. The decrease was largely driven by lower earnings in due to lower average debt levels. the banana import business as a result of the Company’s 41 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Other Income (Expense): Other income for 1997 increased $3.5 million. These fixed rate contracts will be settled in the fourth million from 1996 primarily due to the gain on sales of certain quarter of 1999, and their fair value was approximately $105.8 investments and fixed assets. million as of January 2, 1999. Income Taxes: The Company’s effective income tax rate was In January 1998, the Company announced plans to move 18% in 1997 and 1996. to a new headquarters facility in Westlake Village, California. Construction of the complex is anticipated to be completed in late 1999, at which time the Company plans to occupy these Liquidity and Capital Resources leased facilities. The Company’s operations and capital expenditures were The Company has in place a $400 million 5-year revolving financed primarily by funds generated internally during 1998. credit facility (the “Facility”) which matures in 2003. Provi- The Company pursued an aggressive growth strategy of acqui- sions under the Facility require the Company to comply with sitions in the fresh-cut flower industry and in its European certain financial covenants which include a maximum permit- product distribution network. In addition, the Company ted ratio of consolidated debt to net worth and a minimum repurchased 1,165,200 of its common shares for $42.1 million. required fixed charge coverage ratio. At January 2, 1999, no The acquisitions and stock repurchases were substantially borrowings were outstanding under the Facility. The Compa- funded by debt. The Hurricane Mitch and citrus fourth quar- ny may also borrow under uncommitted lines of credit at rates ter special charges decreased equity. This resulted in a year-to- offered from time to time by various banks that may not be year increase in the net debt to net debt and equity percentage lenders under the Facility. Net borrowings outstanding under from 53% to 64%. During 1997, the Company used its cash the uncommitted lines of credit totaled $63.5 million at flow from operations to reduce this ratio from 62% in 1996 to January 2, 1999. 53% in 1997. Cash and short-term investments increased On October 6, 1998, the Company issued $300 million from $31.2 million at January 3, 1998 to $35.4 million at of 7-year 6.375% unsecured notes in a public offering for January 2, 1999. which it received cash proceeds of $297.2 million. The Com- Operating activities generated cash flow of $157.1 million pany used a portion of the cash proceeds for acquisitions dur- in 1998 compared to $291.0 million in 1997. The decrease is ing the fourth quarter and the remainder to repay amounts out- primarily due to lower net earnings, a payment to the Internal standing under the Facility. Such credit facility borrowings Revenue Service related to prior years’ audits and the 1997 were primarily incurred to fund business acquisitions made closure of the Company’s California dried fruit facility. The earlier in the year. Company is currently pursuing a refund of the payment to the In December 1998, the Board of Directors authorized Internal Revenue Service. During 1997, the Company experi- an increase in the Company’s stock repurchase program to enced a decrease in its working capital requirements as a result 4.5 million shares. In February 1999, the Board of Directors of the closure of its California dried fruit facility. The liquida- increased this authorization to 8.3 million shares. During tion of inventory and other operating and fixed assets related 1998, the Company repurchased 1,165,200 of its common to this closed facility provided approximately $70 million of shares at a cost of $42.1 million. During January and February cash flow in 1997. 1999, the Company repurchased an additional 2,271,000 Capital expenditures for the acquisition and improvement of its common shares for $67.6 million. Approximately 4.5 mil- of productive assets increased to $150.2 million in 1998 from lion shares remain authorized for repurchase under the $129.2 million in 1997 and were funded largely by operating Company’s stock repurchase program after these transactions. cash flow. The Company expects the capital expenditure level The Company paid four quarterly dividends of 10 cents to continue growing next year due to the Hurricane Mitch per share on its common stock totaling $24.0 million in 1998. rehabilitation effort and acquisitions during 1998. The Company believes that cash from operations and its The Company acquired a series of businesses in the fresh-cut cash position and revolving credit facility will enable it to meet flower industry during 1998 to form a new flower division. In its capital expenditure, debt maturity, common stock repur- addition, the Company acquired 60% of Saba Trading AB, a chase, dividend payment and other funding requirements. Scandinavian distributor of fresh fruits, vegetables and flowers, This Annual Report contains forward-looking statements to complement its growing distribution network in Europe. The based on current expectations that involve a number of risks aggregate cash purchase price of these businesses and smaller and uncertainties. The potential risks and uncertainties that acquisitions in 1998 was approximately $332 million. could cause the Company’s actual results to differ materially The Company is scheduled to take delivery of two new from those expressed or implied herein include weather relat- refrigerated container vessels in late 1999. The vessels are ed phenomena; market responses to industry volume pres- being manufactured by HDW in Kiel, Germany, and the cost sures; economic crises in developing countries; quotas, tariffs per ship is approximately DM 100 million. In order to facili- and other governmental actions; changes in currency tate payment for these ships, the Company has contracted exchange rates; product supply and pricing; and computer to purchase German marks at a weighted-average exchange conversion and Year 2000 issues. rate of DM 1.78 to $1.00 for a total notional value of $98.3 42 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Results of Operations and Selected Financial Data 1998 1997 1996 1995 1994 (in millions, except per share data) Revenue $ 4,336 $ 3,840 $ 3,804 $ 3,499 $ 4,424 Cost of products sold 3,692 3,256 3,218 2,966 3,786 Gross margin 644 584 586 533 638 Selling, marketing, and administrative expenses 400 370 393 395 433 Hurricane Mitch charge — — — — 100 Citrus charge — — — — 20 Dried Fruit restructuring charge – 50 – – — Operating income 244 164 193 138 85 Interest expense – net (57) (60) (74) (67) (60) Net gain on assets sold or held for disposal – – 62 – — Other income (expense) – net 8 5 (5) (3) (8) Income from continuing operations before income taxes 195 109 176 68 17 Income taxes (35) (20) (56) (10) (5) Net income from continuing operations 160 89 120 58 12 Net income (loss) from discontinued operations – – (97) 10 — Net income $ 160 $ 89 $ 23 $ 68 $ 12 Diluted net income (loss) per common share Continuing operations $ 2.65 $ 1.47 $ 2.00 $ 0.98 $ 0.20 Discontinued operations – – (1.61) 0.16 — Net income $ 2.65 $ 1.47 $ 0.39 $ 1.14 $ 0.20 Other statistics Working capital $ 407 $ 464 $ 480 $ 495 $ 366 Total assets 2,464 2,487 2,442 3,685 2,915 Long-term debt 755 904 896 1,555 1,116 Total debt 768 926 920 1,609 1,153 Common shareholders’ equity 666 550 508 1,081 622 Annual cash dividends per common share 0.40 0.40 0.40 0.40 0.40 Capital additions for continuing operations 129 110 90 212 150 Depreciation and amortization from continuing operations 112 111 113 120 122 43 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Directors and Officers DOLE FOOD COMPANY, INC. DOLE FOOD COMPANY, INC. DOLE FOOD COMPANY Directors Officers Operating Division Officers Elaine L. Chao 2 David H. Murdock Paul Cuyegkeng Distinguished Fellow Chairman of the Board and President – Dole Asia The Heritage Foundation Chief Executive Officer William F. Feeney Mike Curb 1, 3 David A. DeLorenzo President – Dole Europe Chairman President and Chief Operating Officer Juergen Schumacher Curb Records, Inc. John W. Tate President – Dole Latin America David A. DeLorenzo Vice President and Peter M. Nolan President and Chief Operating Officer Chief Financial Officer President – Dole Packaged Foods Dole Food Company, Inc. J. Brett Tibbitts Lawrence A. Kern Richard M. Ferry 1, 2 Vice President - Corporate General President – Dole Fresh Vegetables Chairman Counsel and Corporate Secretary Korn/Ferry International Gregory L. Costley Patrick A. Nielson (international executive search firm) President – Dole North American Fruit Vice President - International Legal James F. Gary 2, 3 and Regulatory Affairs Roberto Zacarias Chairman Emeritus President – Dole Honduran Beverage George R. Horne Pacific Resources, Inc. Vice President - Human Resources Zoltan Merszei 3 Roberta Wieman Former Chief Executive Officer, Vice President President and Chairman The Dow Chemical Company David W. Perrigo Vice President - Taxes David H. Murdock 1 Chairman of the Board and James A. Dykstra Chief Executive Officer Controller and Chief Accounting Officer Dole Food Company, Inc. Beth Potillo Treasurer 1 Executive, Finance and Nominating Committee 2 Audit Committee 3 Compensation and Employee Benefits Committee Dole 5 A Day nutrition education materials (CD-ROM, Play, Cookbook, and Chart) have been distributed free of charge to more than 35,000 schools. The nutrition education program is designed to encourage children between the ages of five to ten years, and their parents, to eat 5–9 servings of fruits and vegetables a day. Visit www.dole5aday.com for more information. 44 D O L E F O O D C O M PA N Y, I N C . A N N U A L R E P O R T 1 9 9 8

Company and Shareholder Information THE COMPANY Founded in Hawaii in 1851, Dole Food Company, Inc. is the world’s largest producer and marketer of fresh fruit, vegetables and flowers, and markets a growing line of packaged foods. The Company does business in more than 90 countries and employs approximately 53,500 full-time people. Corporate Headquarters 31365 Oak Crest Drive, Westlake Village, CA 91361 (818) 879-6600 Auditors Additional Information Requests Arthur Andersen LLP For a copy of the Annual Report and Form 10-K, please contact: 633 West Fifth Street, Los Angeles, CA 90071 Office of the Corporate Secretary Dole Food Company, Inc. Securities Transfer and 31365 Oak Crest Drive, Westlake Village, CA 91361 Dividend Disbursement Agent Telephone: (818) 879-6814 EquiServe Facsimile: (818) 879-6615 P.O. Box 8040, Boston, MA 02266-8040 (800) 733-5001 Dole’s Annual Report is available on the internet at Internet Address: www.equiserve.com http://www.dole.com Dividend Information E-mail Address: shareholder_relations@na.dole.com A cash dividend of $0.10 per common share was declared in each quarter of 1998 for a total annual dividend of $0.40 per Stock Exchange share. Dole Food Company, Inc. does not have a dividend rein- Dole Food Company, Inc.’s common stock (DOL) is traded on vestment plan. The New York and Pacific Stock Exchanges Investment Industry Inquiries Internet Addresses Members of the investment industry should direct inquiries to: http://www.dole.com Office of the Treasurer http://www.dole5aday.com Dole Food Company, Inc. 31365 Oak Crest Drive, Westlake Village, CA 91361 (818) 879-6600 Operating Officers: Corporate Officers: (Seated – Left to Right): David A. DeLorenzo, David H. Murdock (Seated – Left to Right): David H. Murdock, David A. DeLorenzo (Standing – Left to Right): Juergen Schumacher, Paul Cuyegkeng, William F. Feeney, (Standing – Left to Right): George R. Horne, Roberta Wieman, J. Brett Tibbitts, Peter M. Nolan, Roberto Zacarias, Gregory L. Costley, Lawrence A. Kern James A. Dykstra, Beth Potillo, Patrick A. Nielson, David W. Perrigo (Not Shown): John W. Tate DOLE ® IS A REGISTERED TRADEMARK OF DOLE FOOD COMPANY, INC. ©1998 DOLE FOOD COMPANY, INC. ALL RIGHTS RESERVED.

Dole Food Company Inc. , www.Dole.com

Dole1998 annual

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