Derivative Financial Instruments

9 Months Ended

Oct. 08, 2011

Derivative Financial Instruments [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 14 — DERIVATIVE FINANCIAL INSTRUMENTS

Dole is exposed to foreign currency exchange rate fluctuations, bunker fuel price fluctuations and interest rate changes in the normal course of its business. As part of its risk management strategy, Dole uses derivative instruments to hedge some of these exposures. Dole’s objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge them, thereby reducing volatility of earnings. Dole does not hold or issue derivative financial instruments for trading or speculative purposes.

Cash Flow Hedges

A majority of Dole’s foreign currency derivative instruments are designated as cash flow hedges. Specifically, Dole designated a majority of its foreign currency exchange forward contracts and participating forward contracts as cash flow hedges of its forecasted revenue and operating expense transactions. As a result, changes in fair value of the foreign currency derivative instruments since hedge designation, to the extent effective, are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”) in the condensed consolidated balance sheet and are reclassified into earnings in the same period the underlying transactions affect earnings. Any portion of a cash flow hedge deemed ineffective is recognized into current period earnings.

Interest Rate Swap, Cross Currency Swap and Long-term Japanese Yen Hedges

Dole entered into an interest rate swap in 2006 to hedge future changes in interest rates. This agreement effectively converted $320 million of borrowings under Term Loan C, which was variable-rate debt, to a fixed-rate basis that matured June 16, 2011.

In connection with the March 2010 refinancing transaction, some of the terms of Dole’s senior secured credit facilities were amended. Dole evaluated the impact of these amendments on its hedge designation for its interest rate swap and determined not to re-designate the interest rate swap as a cash flow hedge of its interest rate risk associated with Term Loan C. As a result, changes in the fair value of the interest rate swap after de-designation on March 2, 2010 were recorded in interest expense. The unrealized loss in AOCI was recognized into interest expense through the June 2011 maturity as the underlying Term Loan C interest payments were made.

During 2006 (subsequently amended in 2009), Dole executed a cross currency swap to synthetically convert $320 million of Term Loan C into Japanese yen denominated debt in order to effectively lower the U.S. dollar fixed interest rate. The cross currency swap was scheduled to mature in June 2011. Dole also entered into a collateral arrangement which required Dole to provide collateral to its counterparties when the fair market value of the cross currency and interest rate swaps exceeded a combined liability of $35 million.

During the first quarter of 2011, Dole entered into a transaction to effectively unwind the cross currency swap by refinancing its obligation under the cross currency swap and entering into a series of long-term Japanese yen hedges that mature through December 2014.

The long-term Japanese yen hedges require Dole to buy U.S. Dollars and sell Japanese yen at an exchange rate of ¥101.3. At inception, these contracts were in a liability position and the total notional amount outstanding of the long-term Japanese yen hedges was $596.3 million. The value of these contracts will fluctuate based on changes in the exchange rate over the life of the individual forward contracts.

In addition, Dole has designated the long-term Japanese yen forward contracts as cash flow hedges of its forecasted Japanese yen revenue stream. To the extent this hedge is deemed effective, changes in the fair value of these contracts will be recorded as a component of AOCI in the condensed consolidated balance sheet and reclassified into earnings in the same period that the underlying transactions affect earnings.

Due to the fact that there is a significant financing element present at the inception of the long-term Japanese yen hedges, the cash inflows or outflows associated with settlement of these contracts are included within the financing activities in Dole’s condensed consolidated statement of cash flows. A portion of the long-term Japanese yen hedges are deemed ineffective. With respect to this portion, changes in the fair value of the hedges are recorded in other income (expense) in the condensed consolidated statement of operations, because the ineffectiveness is considered to be caused by the financing element of this instrument.

At October 8, 2011, the gross notional amount and fair value of Dole’s derivative instruments were as follows:

	Average  Strike Price			Notional Amount
	(In thousands)
Derivatives designated as cash flow hedging instruments:
Foreign currency hedges (buy/sell):
U.S. dollar/Japanese yen		JPY 100.25		$	637,442
U.S. dollar/Euro		EUR 1.40			55,204
U.S. dollar/Canadian dollar		CAD 1.01			6,426
Thai Baht/U.S. dollar		THB 31.04			211,674
Philippine Peso/U.S. dollar		PHP 43.59			111,572
Chilean Peso/U.S. dollar		CLP 499.16			23,015
Derivatives not designated as hedging instruments:
Foreign currency hedges (buy/sell):
U.S. dollar/Euro		EUR 1.34			3,466
South African Rand/Euro		ZAR 10.59			4,525
South African Rand/USD		ZAR 7.63			5,700
South African Rand/GBP		ZAR 12.56			695
U.S. dollar/Swedish Krona		SEK 6.79			2,562
Bunker fuel hedges		$544			33,000
		(per metric ton	)		(metric tons	)

		Derivative Assets (Liabilities) Fair Value
	Balance Sheet Classification	October 8, 2011			January 1, 2011
		(In thousands)
Derivatives designated as cash flow hedging instruments:
Foreign currency exchange contracts	Receivables, net	$	4,281		$	16,961
	Accrued liabilities		(63,837	)		(31,061	)
	Other long-term liabilities		(137,587	)		—
Total derivatives designated as cash flow hedging instruments			(197,143	)		(14,100	)
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts	Receivables, net		39			908
	Accrued liabilities		(243	)		—
Cross currency swap	Receivables, net		—			1,584
	Accrued liabilities		—			(130,380	)
Interest rate swap	Accrued liabilities		—			(11,310	)
Bunker fuel hedges	Receivables, net		924			1,587
Total derivatives not designated as hedging instruments			720			(137,611	)
Total		$	(196,423	)	$	(151,711	)

Settlement of all foreign currency hedges and bunker fuel hedges will occur during the remainder of 2011 and 2012, except for the long-term Japanese yen hedges which settles through 2014.

The effects of the interest rate swap and foreign currency hedges designated as cash flow hedging instruments on accumulated other comprehensive income (loss) and the condensed consolidated statements of operations for the quarters and three quarters ended October 8, 2011 and October 9, 2010 were as follows:

	Gains (Losses) Recognized in AOCI During							Gains (Losses) Reclassified Into Income						Gains (Losses) Recognized  in Income Due to  Hedge Ineffectiveness or  Amounts Excluded from Effectiveness Testing
	Quarter Ended							Quarter Ended						Quarter Ended
	October 8, 2011			October 9, 2010			Income Statement Classification	October 8, 2011			October 9, 2010			October 8, 2011			October 9, 2010
	(In thousands)
Interest rate swap	$	—		$	—		Interest expense	$	—		$	(5,098	)	$	—		$	—
Foreign currency hedges(1)		(36,156	)		(22,240	)	Cost of products sold		(11,175	)		2,916			(239	)		1,931
							Other income (expense), net		—			—			2,413			—

	Gains (Losses) Recognized in AOCI During							Gains  (Losses) Reclassified Into Income						Gains (Losses) Recognized  in Income Due to  Hedge Ineffectiveness or  Amounts Excluded from Effectiveness Testing
	Three Quarters Ended							Three Quarters Ended						Three Quarters Ended
	October 8, 2011			October 9, 2010			Income Statement Classification	October 8, 2011			October 9, 2010			October 8, 2011			October 9, 2010
	(In thousands)
Interest rate swap	$	—		$	680		Interest expense	$	(6,644	)	$	(10,138	)	$	—		$	—
Foreign currency hedges(1)		(51,064	)		(15,380	)	Cost of products sold		(17,574	)		5,671			(1,029	)		1,663
							Other income (expense), net		—			—			6,556			—

(1) Amounts related to the long-term Japanese yen hedges have been included in this line item.

Unrealized gains and losses on the interest rate swap were recorded through AOCI through the de-designation date. Amounts included in AOCI as of the de-designation date were amortized into interest expense as the quarterly payments were made, through maturity of the interest rate swap in June 2011. Unrecognized losses of $23.6 million related to the foreign currency hedges are expected to be realized into earnings in the next twelve months.

Net gains (losses) on derivatives not designated or prior to being designated as hedging instruments for the quarters and three quarters ended October 8, 2011 and October 9, 2010 were as follows:

		Quarter Ended
	Income Statement Classification	October 8, 2011		October 9, 2010
		(In thousands)
Foreign currency exchange contracts	Cost of products sold	$	148	$	459
Bunker fuel contracts	Cost of products sold		260		1,223
Cross currency swap	Other income (expense), net		—		(43,447	)
Interest rate swap	Interest expense		—		(460	)
Total		$	408	$	(42,225	)

		Three Quarters Ended
	Income Statement Classification	October 8, 2011			October 9, 2010
		(In thousands)
Foreign currency exchange contracts	Cost of products sold	$	(710	)	$	372
Bunker fuel contracts	Cost of products sold		3,072			501
Cross currency swap	Other income (expense), net		(1,902	)		(53,201	)
Long-term Japanese yen hedges(1)	Other income (expense), net		(26,723	)		—
Interest rate swap	Interest expense		(18,942	)		99
Total		$	(45,205	)	$	(52,229	)

(1) Prior to being designated as cash flow hedges, Dole recorded a $26.7 million unrealized loss on the long-term Japanese yen hedges.